Kohler Uncovers: Collaborate Corporation

I think the Kohler interview and sentiments shared in his weekend email are helping push CL8 this morning.

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Also, this week I interviewed a bloke named Chris Noone who runs a small ($5.7 million cap) ASX listed company called Collaborate Corporation, the main business of which is a peer to peer car rental business called DriveMyCar. You can check out the interview here. The proposition is that people with a car they’re not using can rent it through Collaborate Corp’s platform, but the reason I like this business is that Chris is now talking to large fleet owners to get stock, including car dealers. At the moment they’ve got 500 cars, mainly from private owners, but that could increase several times over from corporate fleets. First deal is with MacMillan Shakespeare, for 40 cars, but they could end up thousands of cars from dealers and large fleets. If and when that happens DriveMyCar will seriously disrupt the car rental industry, which has to own and garage all their cars. Chris says they are up to 62 per cent cheaper than traditional car rental firms, and an average of about 20 per cent cheaper. Noone has added to that, a caravan rental business plus rental of all sorts of stuff that people have hanging around in storage sheds – called Rentoid ( rentoid.com.au) – plus a peer to peer lender that focuses on lending against invoices (it used to be called factoring).
All of these things work off the same platform and anyone who signs up for one sort of rental, say a car, can also rent a caravan or a fridge. The key to the platform is that it monetises underutilised assets in a very scalable way. I like the look of this business."

Full interview transcript

Published: 5th November 2015, 11:00am
30 mins
From cars and caravans to yachts and prams, Alan Kohler talks peer to peer rentals with Collaborate CEO Chris Noone.
THIS IS AN UNEDITED TRANSCRIPT
AK: Hallo again and welcome to Eureka Interactive and today we’ve got Chris Noone who is the CEO of Collaborate Corporation. G’day, Chris.
CN: Morning, Alan.
AK: Thanks for coming in. Before we get in to exactly what Collaborate does, just a bit of background on the business and its history and also I was a bit confused. The stock price is, what, 1.7 cents?
CN: It’s just gone up this morning.
AK: 1.8 or 1.9 cents?
CN: Yeah. Well, we had a large shareholder who recently did an in specie distribution to their individual shareholders, so that’s brought a number of shareholders in to the market and a lot of those people through that fund had money tied up for about five years or so, so this is the first time they’ve actually had access to their funds. So it looks like a few of those shareholders are selling, but the vast majority of shareholders are holding and it’s really good to see that our larger shareholders are actually buying up some of that overhang on the market.
AK: Well, in fact your largest shareholder is HYECORP?
CN: HYECORP. That’s right.
AK: Which is a property developer in Sydney.
CN: That’s right.
AK: Which owns how much?
CN: They’re around 10 per cent, so they’ve recently come on in the last six to nine months.
AK: Right. And they’re mopping up the sellers, are they?
CN: A lot of them are and a lot of our other larger shareholders are mopping those up as well.
AK: And your second biggest shareholder is Domenic Carosa.
CN: That’s right.
AK: Whom I used to know way back.
CN: Yes, Domenic has been around for a long time, a very successful technology entrepreneur and he was one of the early investors in one of our key assets.
AK: Now, there was a 10 for one or one for 10 consolidation at the end of last year, right?
CN: That’s right.
AK: And then you got a speeding ticket off the ASX for the shares going from 1.3 cents to 1.9 cents.
CN: That’s right. That’s the speeding ticket you want to get.
AK: It was incredible.
CN: It was incredible. People really started to pick up on the potential of the sharing economy. We changed our name from Qanda Technology to Collaborate Corporation.
AK: Yeah, but if it was a 10 for one consolidation, what were the shares, a tenth of one per cent?
CN: They were.
AK: A tenth of one cent before that, were they?
CN: That’s right.
AK: Oh, so it was virtually non-existent.
CN: That’s right. So the company was previously called Qanda Technology. It had a few technology assets. We’ve since divested the older assets and we’ve totally turned the strategy around to focus on peer-to-peer opportunities or collaborative consumption which is all in the sharing economy.
AK: Right. Okay.
CN: So the market really picked up on it earlier this year. They saw what we were talking about. They saw what was happening with valuations of Uber, Airbnb, Lending Club, companies like that, looked at what we were doing and saw that we were the only ASX listed company operating in those spaces.
AK: Right. Is that so? You still are?
CN: Yeah, so we’re operating in the car rental business, the caravan rental, we’ve now made a seed investment in FundEX which is operating in the fintech area as well, but there’s no other ASX company that’s pursuing multiple peer-to-peer opportunities.
AK: Yeah, right. Okay. Well, we’ll go through each of those in a minute. Well, in fact the main one is Drive My Car which is the car rental thing where people rent their own cars.
CN: That’s right.
AK: And what’s the background of that? How long ago was it started?
CN: So that’s been going for about five years now. It started as Drive My Car Rentals. It was privately funded by original investors and Domenic was one of those early investors. And the business has been growing fairly well over the last few years, but since it’s been acquired by Collaborate, we’ve raised some more capital, we’ve totally repositioned the product, rebuilt the website, commenced a marketing campaign and in the latest quarter, we grew 31 per cent in terms of revenue. So we’re really on a good growth trajectory now.
AK: And how many cars have you got in your kind of fleet, if I could put it that way?
CN: Sure. At the moment we’ve got about 500 cars.
AK: And these are cars that are registered with you to be rented out that are owned by somebody who’s not driving it all the time.
CN: That’s right. Interestingly, where we see the biggest opportunity for this business is with private owners of vehicles who may have a spare vehicle or may have moved overseas for a while and want to generate income from their vehicle, just like they would generate income from a rental property, but the biggest opportunity for us is corporate fleets. We’ve now got deals…
AK: And you’ve picked up a fleet, haven’t you, or two?
CN: That’s right. So we’ve got a deal with McMillan Shakespeare with their inter-leasing division, so we take their ex-lease vehicles and rent those out, so currently our fleet of inter-leasing vehicles are 100 per cent utilised. We also have deals with two other leasing companies.
AK: How many cars did you get off McMillan Shakespeare?
CN: So we’ve got about 40 on the road at the moment with many more coming through.
AK: So what sort of cars are they?
CN: So we can get… in our market place we have anywhere from a Toyota Yaris to a Porsche 911.
AK: Oh, fair dinkum? You’ve got Porsche 911s?
CN: That’s right. So if you look at a snapshot of the cars that are on the Australian roads, that’s pretty much what we’ve got in our fleet. We have limitations: must be under 10 years old, must be under 150,000 kilometres and under $75,000. Provided they fall in to those parameters, they’re roadworthy…
AK: Oh, so cheap Porsche 911s?
CN: Cheaper. That’s right.
AK: Right.
CN: But, you know, people who own an expensive Porsche 911 are probably less likely to rent it out or need to rent it out.
AK: Yeah, fair enough. So what do you charge? What’s the deal?
CN: So the minimum cost for one of our cars is $21 per day and that’s an all-inclusive cost, so that includes the rate we pay to the owner, the insurance, our admin fee, roadside assistance; everything is included within that price. And then we go up to around $100, $120 a day, depending on the car. In some cases, we’re 62 per cent cheaper than traditional car rental, so that’s the real value proposition for the renter. We’re a lot cheaper than traditional rental cars.
AK: Well, in some cases. What’s your average discount versus traditional car rental?
CN: So it’s around 20 per cent to 30 per cent on average.
AK: Right.
CN: So we have cars that… a wider range of cars. So if you go to a car rental company, they’ll say you can have the white Corolla, the white Camry or the white RAV 4, whereas we say you can have the BMW X5, you can have the Mazda 3, you could have a Fiat 500 like the Prime Minister drives, so there are lots of different cars that you can choose from.
AK: Does he?
CN: He does. He does. He has a sporty Fiat 500.
AK: There you go. I thought he caught the tram all the time or the train.
CN: Well, maybe he does in some cities, but we hear that he’s got a Fiat 500.
AK: So take us through your costs and start with your margin. On the $21 or whatever the price is, what’s your margin?
CN: So it depends on the rate per day. The way our model works is we have an owner rate that’s paid to the owner of the vehicle, whether that be a private or a corporate owner.
AK: How do you determine that?
CN: So that’s based on the wholesale value of the car. So we look at Red Book. We apply a formula to that and that determines the rate per day that the owner receives.
AK: What’s the formula? How do you work it out?
CN: If a car is rented out for 12 months, the owner would receive 42 per cent of the value of the vehicle.
AK: Over 12 months?
CN: That’s right. So if it’s rented for six months, it would be half that.
AK: I see.
CN: So a $10,000 car, you could receive $4,200 if it was rented for 12 months. Our average rental period is 40 days.
AK: How did you settle on 42 per cent?
CN: Over years of managing supply and demand within the market. We need to price the vehicles at a price that encourages owners to put them in to the market place and rent them out, but also at a price that the renters are willing to rent those vehicles as well.
AK: I guess the good news is that it gives you a formula. You just go to the Red Book, here’s the value, 42 per cent, divide by the time you’re renting, there’s your number.
CN: That’s right. And it provides consistency, so when people are viewing the cars on our website, they’ll see one car that’s worth slightly more than another that will rent for slightly more than the other car as well. So we don’t just throw them in to bands of pricing; we have very granular pricing, so people can actually see the value of each vehicle.
AK: Yeah, right. And then what other costs are there? Obviously there’s that that goes to the owner. What else?
CN: So we take an admin fee on top of the owner rate which is around 20 per cent and there is an insurance cost as well.
AK: Tell us about insurance.
CN: So we have a motor fleet policy with an insurer, so we…
AK: Which one?
CN: The company is called InsureIt which is a joint venture with Hollard. So we’ve been with them for over five years now since the inception of the business. So the motor fleet policy covers the vehicles while they’re being rented because an individual owner’s car insurance policy will not cover a car while it’s being rented. So if an owner puts their car on Gumtree and tries to rent it, great, good luck, you’ll probably get a very risky person who’ll come and rent your car, but you can’t insure the car either.
AK: No.
CN: So we make all of this. We provide the trust and the safety in this whole process.
AK: But what’s the excess?
CN: So the excess for the renter is mostly $2000. For the more expensive vehicles, there is a higher excess. But that $2000 excess is pretty competitive with most of the other major rental firms.
AK: Can you buy lower excess?
CN: Yes, you can. So we can get that down to $500. So we like people to still have skin in the game in terms of an excess. Some rental companies offer a zero excess. It’s pretty risky. That means people go out there and say if I crash it, it costs me nothing. So we still like there to be an excess because it makes people look after the vehicle.
AK: Right. Okay. So there are the three costs: what you pay the owner, admin fee and insurance.
CN: That’s right.
AK: And is there a margin then left on top of your admin fee?
CN: So our admin fee is our margin.
AK: Is the margin.
CN: Plus we take a margin on the insurance as well.
AK: Oh, okay.
CN: So what we tell the owner we’ll receive, they receive that. Any other costs go on top of that to get to the daily rental rate.
AK: Right, I see. Okay. And yeah, right. Okay. And your fleet of 400, what proportion is rented…
CN: Five hundred.
AK: Sorry? 500?
CN: Five hundred vehicles.
AK: Five hundred. And how much of that is rented at any one time?
CN: At any one time it’s around about a 50 per cent utilisation. Now, some of those vehicles are available for a minimum rental period of maybe 14 days or 30 days or may not be available at the time that we have rental demand for it, so a 50 per cent utilisation is quite good for that type of fleet. But the interesting thing is now that we’ve got a lot more corporate deals coming through, we’re getting access to a lot more vehicles. So we have… the companies we’re in discussion with now who have hundreds of vehicles that are available for us to monetise, so there’s a much bigger opportunity for us to grow very quickly now.
AK: Don’t they need them?
CN: Well, there are a lot of cars in the market that are not being utilised and our whole model is designed to monetise underutilised assets. So if you look at the leasing companies, quite often they have a number of vehicles all coming off lease at the same time. They may all be the same model of vehicle. They might have 300 of the same car. If they put them through the auction houses, they’ll push the prices down for those vehicles right across the country and across the board. That’s not a good result for them. The other opportunity is for them to let them sit in a paddock and slowly drip feed them in to the auction market. There’s a cost involved in that as well. We come in with the option where we provide a second life for those vehicles, so when they come out of lease, we turn them in to a rental fleet and the leasing company doesn’t need to do anything. We do all the marketing, we do all the rental agreements, we take all the payments, we provide all of the necessary processes [and] all they need to do is have an agent to hand over the vehicle to the renter and we send them the money at the end of the month. So it’s a very easy proposition for those leasing companies to get in to and previously they didn’t have an opportunity to generate revenue after the initial life of the vehicle.
AK: Well, and the other good news is you don’t have to store the cars, the 50 per cent of the fleet that you’re not renting.
CN: That’s right. So we’ve got a fleet worth $11.4 million that we don’t own. We don’t have any depreciation costs. We don’t have any storage costs. So it’s a very scalable model. We’ve got the technology in our market place which we own 100 per cent. We’ve developed that in-house. So whether it’s 500 cars or 5000 cars, it’s the same piece of technology that’s managing that market place.
AK: But it’s becoming a bit crowded. Yes, you’re the only ones listed, but there are tonnes of businesses that are trying to do that kind of… or there seems to be anyway. Maybe I’m getting it wrong.
CN: There are a lot of companies in the sharing economy, true. In terms of the car…
AK: Trying to do car rentals as well?
CN: In terms of the car rental space, there’s no one doing what we’re doing. So our minimum rental period is seven days and we go up to 12 months. There’s one other company that’s doing very short term rentals in peer-to-peer space, so one hour or two hours, one day type rentals. We don’t really think that model works very well in the peer-to-peer space. If you were the owner of a vehicle and you want to make money out of it, you want to make a decent amount of money over a suitable rental period. Someone renting it here and there, it’s just a little bit of pocket money. It’s not a real revenue generating opportunity. So in terms of the space that we operate in and the corporate opportunities that we’ve got, there’s really no one else playing in this area.
AK: Right. Of course there are other things like Go Get and there’s the car sharing – or they call it car sharing.
CN: That’s right.
AK: But the business owns the car in that case.
CN: That’s right. So the two differences between us and Go Get, Go Get own their vehicles, so I believe they’ve got 2500 vehicles that they own and have to maintain and depreciate; also, they’re not peer-to-peer. Because they own the vehicles, there’s no other individual owner or corporate owner of those vehicles involved.
AK: No, that’s right.
CN: And that model suits the short term market, but in the longer term we think that the peer-to-peer model suits the seven day to 12 month market, especially now that we’re working with corporate fleets and utilising their vehicles as well.
AK: So are you using the same model for caravans?
CN: Yes, the same model.
AK: Exactly the same?
CN: Slightly different pricing structure, a little bit of difference in terms of seasonality. The caravan business obviously picks up during the peak periods and the caravan business for us is newer as well, so we’re still ramping that up. We’ve just started a marketing partnership with Discovery Holiday Parks which is the biggest owner of caravan parks in Australia, so we’re marketing our propositions to all of their members around the country and we’re also providing free memberships to Discovery, you know, within our product as well. So there are some… where we’ve really come from is marketing to individual owners, individual renters. We’ve now recognised the power of corporate relationships and also the power of marketing partnerships with other companies as well, so we’ve just signed up with Lifestyle Rewards who are presenting…
AK: What’s involved in a marketing partnership?
CN: So a marketing partnership, an example of that is Discovery Holiday Parks where we’re marketing to their members and they’re marketing to our members as well. Lifestyle Rewards, we’re providing discount offers to all of their members.
AK: No, is that for the people that let you have their caravan or for the people who rent other people’s caravans?
CN: So, it’s both. So it works both ways. So in terms of Discovery, we’re marketing to the people who own caravans, offering them the opportunity to earn money from their caravans. And then we’re also encouraging people to rent those caravans and they can then go back and book sites at Discovery Holiday Parks. So there’s a good balance.
AK: So just back on cars, I mean it seems to me that the key to your profitability is to firstly to get your 50 per cent up to 75 per cent over time, but also if you’re getting lots of fleet cars in there, the last thing you want is for that to result in your utilisation to fall down to 20 per cent because you’ve got all these bigger fleets, but nobody to…
CN: That’s right.
AK: So what’s the key to the marketing, to marketing it?
CN: The key to that side of it is we’ve ramped up our marketing this year since we relaunched the website in April this year, so we’re doing a lot of online advertising. We’ve ramped up our Google search marketing as well. But once again on… because we’re a two-sided market place, we’ve got to manage supply and demand. Now that we’ve identified a lot of corporate supply coming in, we’ve also identified corporate demand as well. So we’ve now launched our Drive My Car business proposition where we’re providing a more specialised service for companies who want to rent multiple vehicles. So we’ve got the bulk supply coming in, so we’re now getting bulk customers taking vehicles as well. And one of the big opportunities we’ve identified there is in the charity and not-for-profit space. They work on 12 month funding cycles, so it can be quite difficult for those organisations to take out a lease on a vehicle. If two months in to a funding cycle, they say oh, let’s lease a vehicle or 10 vehicles and there are only 10 months left and they have to do a minimum 12 month lease, it’s very difficult for them to do that type of transaction.
AK: Oh, so you’ll do it?
CN: We’ll do a 10 month rental.
AK: Sure.
CN: And we’re very cost effective when compared to any other rental options.
AK: Right. Most people I think rent a car when they arrive at the airport.
CN: That’s right. That’s right.
AK: So are you in that game at all?
CN: We are in that game. So we are developing propositions around getting our vehicles closer to the airport, about having airport delivery and we’re about to partner with a company in Brisbane to launch our Brisbane airport rentals as well. The airport market works quite well for the short term market. There is some longer term business there. Because our minimum rental period is seven days, we’re not really interested in the two day to three day rentals which a lot of those do happen at the airport. So the success of our business is not totally dependent upon being at the airport, but we see it as a very valuable area for us to dominate.
AK: Do you think you’ll be able to get a booth at the airport?
CN: In time, probably, but because we’re a virtual business, we try to avoid fixed costs like that. You know, we want to be in 20 airports rather than one airport. So the beauty of our model is that we can work with existing partners and essentially turn them in to a rental business using our technology and processes. So there could be another player that’s already at an airport – say, it could be a parking provider. We can use our technology and services to turn them immediately in to a car rental depot.
AK: I know what you should use. Newlink, the newsagent.
CN: We could do.
AK: There you go.
CN: If they’ve got plenty of parking, we could use it.
AK: No, no, they haven’t got parking. They’ll just… Anyway. We’re getting lots of good questions from the audience, Chris. Oh, before we get on to the audience questions, you’ve got a third business called Rentoid.
CN: That’s right.
AK: You’re renting fridges and everything, all sorts of stuff.
CN: That’s right. So Rentoid is the proposition…
AK: Someone rented a Rubik’s Cube.
CN: Or someone put his wife up there as well.
AK: Well, I don’t want to know that. That’s way too much information.
CN: So that’s our proposition for things that are not caravans or cars. It’s a catch-all proposition. So it’s a fairly minor part of our business, but we see it as a massive opportunity to develop in the future. We also operate the PeerPass platform, so this is where we verify renters before they get access to any of the assets in our market places, so we do ID checks, credit checks, we run anti-fraud technology on the credit card payments, there are ratings and feedback, so we get a very good view of customers, both before and after a transaction. And at the moment that PeerPass platform is not integrated with our Rentoid business, but we’re looking to do that in the future. And therefore it will become a much more attractive proposition for both individuals and also rental companies to advertise their products through Rentoid.
AK: And you mentioned FundEX. That’s a peer-to-peer lender.
CN: That’s right.
AK: What’s the angle of that particular peer-to-peer lender?
CN: So we’ve looked at the sharing economy in total or the peer-to-peer market and think that our understanding of that is quite good in the Australian environment and that there are a lot of industries that are still waiting to be disrupted. As Uber has disrupted the taxi industry, we think there are many other industries that can be disrupted in a similar way. We’re already quite successful in the physical asset rental market and we’ve got a few different propositions there. We then turned our attention to the financial services market where you see the banks making enormous profits, but customer satisfaction being very low with those banks as well, especially in the small to medium business area. So we look at that and said there are some opportunities within the fintech space. What really excites me about fintech is you’re not moving physical assets around and you don’t need to do inspection reports. You know, physical assets can’t really be damaged or involved in accidents or like that. All you’re moving around are dollars and pixels, so it’s a business that can scale very, very quickly and we think that the peer-to-peer model in the finance sense is often a better way to manage the needs of investors and the needs of lenders as well. If you look at Lending Club in the US which has recently IPOed, it’s worth $7.4 billion. Now, and it was listed as one of the top five start-ups last year by Forbes in the US. So we know that there’s a lot of interest in the fintech space coming from a peer-to-peer angle. Within Australia SocietyOne has been very successful in the consumer side. We chose to move in to the small to medium business area through a seed investment in FundEX.
AK: Right. So that’s what I’m asking is FundEX is a smaller business lender, is it?
CN: That’s right. So we do invoice discounting, so we look at…
AK: Oh, factoring.
CN: That’s right. So we look at individual invoices and we will fund those invoices. So we’ll link up with a company’s Xero or MYOB account, have a look at that. We will then go back to our group of investors and this happens very quickly, within a space of minutes or hours, and we will fund those individual invoices and those invoices are then paid off.
AK: Right. Okay. So you’ve got four things.
CN: That’s right.
AK: Have you got a fifth? Isn’t there a fifth you’re working on?
CN: There are other investments and acquisitions that we’re working on, but we can’t discuss those today.
AK: Okay. Well, so explain to us the economies of scale you get by putting together because clearly what you’re doing is either rolling up or launching a range of peer-to-peer opportunities.
CN: That’s right. So what we’ve done to tie our businesses together and create bigger economies of scale is develop the PeerPass platform. So this started off as a way for us to verify renters before they got access to assets because we’ve got a great duty of care to make sure that we’re putting good people in to our owners’ vehicles or cars or caravans or other items. So we do the ID checks, we do the credit checks. We do the ID checks through GreenID. We do the credit checks through Veda. We’re able to check drivers’ licences, passports, Medicare cards directly with the Attorney General’s department through the DVS service and we can do that in real time. So we think we probably do the best checking of customers in the world in terms of the peer-to-peer space. We do it much better than any car rental company does.
AK: And you can apply that across a number of platforms, right, or a number of propositions?
CN: That’s right. So the reason we do this is we want to build trust in the market place. The more trust we build, the more owners will be comfortable to put their assets in to that market place.
AK: Shouldn’t you then have a common brand across them? I mean Drive My Car…
CN: My Caravan.
AK: My Caravan, Rentoid, FundEx… They’re all different.
CN: That’s right. So yes, yes. That’s right. So we have looked at that and we did have a project to look at that earlier this year and we couldn’t find an umbrella brand that we thought did justice to all the individual platforms. You can create a new word totally out of nowhere, but it’s going to cost you millions of dollars to then get that position in consumers’ minds as to what it is and what it does and what it means. We thought that Drive My Car was very strong in the car rental space, My Caravan was very well positioned for the caravan space, Rentoid, maybe less so in the other space and we’re looking at that, but what we did at that time was develop the brand for PeerPass and PeerPass is the verification layer that ties those businesses together. So if someone does a PeerPass verification to rent a car, that verification then carries across to My Caravan, then carries across to FundEX as well. So what we’re doing is developing a platform a little bit similar to what PayPal is in the ecommerce area. You sign up once with PayPal [and] you’re then able to do multiple transactions and multiple payments. With PeerPass, you sign up once with PeerPass [and] you’re able to do multiple peer-to-peer transactions, plus your reputation builds as you go. You get ratings and feedback on the way you’ve performed in previous transactions. So we’re building up a very value-added customer base that we can then monetise and there’s the potential to license that platform out to other companies as well.
AK: Barry, you’ve asked about eye-popping returns, total shareholder returns over the past one, three and five years, but look, I think there’s no point asking because the business is only one year old and it doesn’t kind of… it’s not really relevant, I would have thought. So, but Sam says, how important is mobile and tablet functionality for rentals? Are you looking to mimic similar app based companies like Uber?
CN: So it’s a question I get asked quite a lot. Our website is mobile responsive, so it works across mobile phones, tablets and also desktops as well. Apps are very good for a product that you use many times for small type transactions and I come from the mobile industry, so I’ve worked with apps quite a bit. With our business it’s quite a considered purchase. Someone renting a car for seven days or 12 months, it’s not something you do while you’re walking down the street or just waiting for the bus. It’s something you’ll research and you’ll spend a bit of time on. So for us to actually say you have to do an extra step and download an app before you even start to interact with us really puts a barrier in the way and for us a mobile website or a desktop website is a much more efficient way to get to the customers. However, what we are working on is a handover and inspection app, so that when the car is handed over, the owner and a renter do an inspection together of the vehicle. That app will guide them through that inspection, allow them to take photos through the app and those details will be immediately uploaded to our servers. So we see that’s the best way for us to implement app technology in to our business. It’s not really on the acquisition side; it’s more on the operational side.
AK: Okay. An interesting question here, are there any individuals who rent out multiple cars, in effect using your platform to run their own rental business?
CN: There have been people who have had multiple vehicles. There are some people who just have multiple spare cars. We’ve had customers who have had multiple Porsches and multiple BMWs that they’re not currently using at the time and they’ve said yeah, we love the cars, we don’t want to sell them, let’s rent some out to get them to justify their existence while we’ve got them. So yes, there are people who do have multiple vehicles. And the best example of that, you know, is the leasing companies we’re now working with.
AK: So would it make sense… I don’t know whether you’ve thought this through, but would it make sense to go and spend $20,000 on a car and then rent it just to rent through you for $9200 bucks a year? Would that make sense?
CN: Absolutely, it would. So, you know, as long as you’re buying the right sort of car. We’ve got our sweet spot of vehicles. You know, there are certain vehicles that rent very quickly, other vehicles are a little bit harder to rent, as you would imagine.
AK: What’s the sweet spot?
CN: Sweet spot is anywhere between $21 and $40 per day in terms of rental price. So a vehicle around $20,000, $15,000, $20,000, $25,000, you know, falls within our sweet spot. Sydney, Melbourne, Brisbane are our largest markets and we’re developing in Adelaide and Perth. But there are also opportunities in more regional areas as well because it’s a little bit chicken and egg. You say, oh, there are no cars in a certain town, but as soon as a car is listed in that town, you’re probably the only rental proposition in that town. So we’ve got a very good regional type proposition as well, whereas Thrifty or Hertz will need to go and buy a depot and buy cars and employ staff and set something up. All we need is someone to list a car and we’re operational in that town.
AK: Right. Hah. Interesting. So there you go, folks. There’s a business you can get in to. You buy some cars, particularly if you’re got some garage and you could buy some cars and rent them through Drive My Car and make a little pocket money, if not more than that.
CN: Yeah, I think it’s a bit more than pocket money, so it’s a pretty good return. If you look at about 42 per cent return, it’s, you know, one of the best ones out there.
AK: Yeah. That’s right. It’s 42 per cent return, isn’t it, on your money, 42 per cent ROE?
CN: That’s right.
AK: That’s pretty good business. A comment from Jay, is your caravan business large enough to disrupt the caravan sellers, such as Fleetwood or Jayco now or in the future?
CN: We only acquired this business in October last year. We’re still growing the business, so probably not large enough to disrupt them, but we see us really working more hand-in-hand with the caravan manufacturers because what we can do is provide an opportunity. Someone might be on the cusp of saying, you know, should I buy a caravan, should I not, but if we can give them the proposition that they could earn a few thousand dollars a year that could help pay off the loan that they’ve taken to buy the caravan, it makes it a better proposition to buying that caravan. Also what we’re doing is helping people to be introduced to the caravanning holidays as well, so they might rent a caravan from us three or four times and then after that, they might say well, we loved this so much, we’ll go and buy a caravan, and then they could put that back in to our market place. So we see ourselves working more with the caravan manufacturers. We’re disrupting the traditional caravan rental companies. If you look at caravan rental, they typically operate from one or two depots, so if you want to rent a caravan from them, you have to drive to their depot, pick up the caravan, maybe drive it a thousand kilometres to your destination and then tow it back again. What we’ve got is the no-tow proposition, so we can allow people to rent a caravan near their destination, so if you want a caravan in Byron Bay, don’t pick it up in Sydney and drive it to Byron Bay; rent it in Byron Bay and we’ll get the owner to deliver it to the site for you.
AK: Magnificent.
CN: That works for the renter really well because they don’t have to tow the caravan and the owner loves it as well because they’re going oh, not really sure about someone towing my caravan, but if I can deliver it, that’s great. Everyone wins. So we can really scale our business quite quickly nationwide.
AK: Right. Is that 42 per cent as well?
CN: The caravans are a little bit different. There’s no equivalent of Red Book for caravans, so we’ve got a rental calculator on our website where people can determine what we recommend as the pricing. There’s also larger variability in the pricing or the value of caravans as well. Some have got all the bells and whistles, satellite TVs, spa baths, things like that and then you’re down to the very basic. So it’s similar. The wholesale value or the retail value of the caravan does relate to the rental price, but it’s not as formulaic as it is in our car business because it’s not as developed.
AK: Right. But is it seven days minimum still?
CN: No. The owner can determine the minimum rental period and some owners are renting them out for two days or three days.
AK: Right. Oh, so that’s a good way to go and have a holiday in Byron Bay.
CN: That’s right.
AK: I was just thinking about the 42 per cent thing. It isn’t quite ROE of 42 per cent because it depends on what the period is you’ve rented it for.
CN: That’s right.
AK: On average, it’s 50 per cent, so that means on average it’s 21 per cent.
CN: Well, our average rental period is 40 days. A number of our rentals do go for 12 months long and quite often a lot of our renters do extend their rental, so they might come on and rent for three months and then they’ll keep extending month to month as well. So there are many of our cars that have been in our market place that have been on rental pretty much for three years straight. There are other cars that come back and have their fallow periods and then get rented again.
AK: That’s a magnificent return.
CN: That’s right. So it really depends on having…
AK: For the owner of the car, a magnificent return.
CN: That’s right. So it depends on having the right car, the right price, the right time and the right customer coming in, but that’s our job as a platform to match that demand and match that supply and maximise the utilisation of those vehicles.
AK: Right.
CN: Now, also remember that when the vehicle is not being rented, you’ve got use of it as well, so it’s not as if, you know, it’s an asset sitting there you can’t touch; you can use it for your own purposes if you need to.
AK: Yeah, right. Well, we’ve run out of time, but interesting.
CN: Thanks, Alan.
AK: Really interesting. Thank you for coming in.
CN: Thank you.
AK: And thank you.
END