Chapter 24 Question ○19

Why rent a $20,000 new car for forty dollars a day, but rent a $500 evening dress for ninety dollars a day? (John Gault) National car rental chains buy new cars in bulk, so you can bargain with the manufacturer for a deep discount.The cars under their banner are generally only used for two years, and then sold at 75% of the purchase price.Therefore, their opportunity cost of owning a car is much lower than that of private users. Conversely, most dress rental shops are small local shops.A medium-sized store generally has only about a thousand sets of dresses available for rent, and the annual purchase volume is not enough to obtain highly discounted wholesale prices.And because the market for second-hand gowns is small, most worn-out gowns can only be donated or sold for a negligible price to the school's performance department and school band.In this way, the rent collected by the car rental company only needs to be higher than 25% of the purchase price within two years; the rent charged by the dress rental shop must be higher than the full price of each dress.

What's more, car rental companies tend to have a much higher utilization rate of inventory cars than dress rental stores.Most dresses are only available for rent on Saturday nights for big occasions.On any given Saturday, a rental shop with thousands of dresses can rent out about a hundred; on any other day of the week, it can only rent out five at most.Conversely, the occupancy rate of a car rental shop is about the same on any given day. Another factor is that car rental companies generally charge much more than the list price for add-ons.For example, the insurance surcharge is much higher than the cost of own insurance, and the customer forgets to fill up the gas tank when returning the car, and the company will charge a much higher gas fee than the market price.

Finally, most gown rental shops have to alter their clothes to fit their customers, which incurs a tailoring cost that is almost as high as the rent itself.Each gown also had to be dry-cleaned before it could be rented, which added an additional ten dollars.On the contrary, after the car rental company collects the car, it can be rented to others as long as it is filled with gas. So, it's no surprise that even though a car retails for almost forty times as much as a dress, it rents for only fifty percent of a dress.