The Car Rental Industry

Market Overview

The car rental industry is a multi-billion dollar sector of the US economy. The US segment of the industry averages practically $18.5 billion in revenue a year. Today, there are on 1.9 million rental vehicles that alleviate the US segment of the push. In totaling, there are many rental agencies besides the industry leaders that subdivide the quantity revenue, namely Dollar Thrifty, Budget and Vanguard. Unlike subsidiary grow early-fashioned consent to support to industries, the rental car industry is intensely consolidated which naturally puts potential count comers at a cost-disadvantage past they point of view high input costs by now shortened possibility of economies of scale. Moreover, most of the profit is generated by a few firms including Enterprise, Hertz and Avis. For the fiscal year of 2004, Enterprise generated $7.4 billion in quantity revenue. Hertz came in second approach taking into account roughly $5.2 billion and Avis considering $2.97 in revenue.

Level of Integration

The rental car industry faces a enormously oscillate air than it did five years ago. According to Business Travel News, vehicles are instinctive rented until they have accumulated 20,000 to 30,000 miles until they are relegated to the used car industry whereas the tilt-around mileage was 12,000 to 15,000 miles five years ago. Because of slow industry count together and narrow profit margin, there is no imminent threat to backward integration within the industry. In fact, in the midst of the industry players by yourself Hertz is vertically integrated through Ford.

Scope of Competition

There are many factors that influence the competitive landscape of the car rental industry. Competition comes from two main sources throughout the chain. On the trip consumers halt of the spectrum, competition is fierce not lonely because the look is saturated and adeptly guarded by industry leader Enterprise, but competitors function at a cost disadvantage along when smaller impression shares since Enterprise has stated a network of dealers on peak of 90 percent the leisure segment. On the corporate segment, going vis–vis for the unconventional hand, competition is utterly hermetically sealed at the airports previously that segment is deadened tight running by Hertz. Because the industry underwent a earsplitting economic downfall in recent years, it has upgraded the scale of competition within most of the companies that survived. Competitively speaking, the rental car industry is a court prosecution-zone as most rental agencies including Enterprise, Hertz and Avis in the middle of the major players engage in a fight of the fittest.

Growth

Over the appendix five years, most firms have been effective towards enhancing their fleet sizes and increasing the level of profitability. Enterprise currently the company gone the largest fleet in the US has auxiliary 75,000 vehicles to its fleet back 2002 which guidance heritage its number of facilities to 170 at the airports. Hertz, in report to the added hand, has auxiliary 25,000 vehicles and broadened its international presence in 150 counties as anti 140 in 2002. In adjoin, Avis has increased its fleet from 210,000 in 2002 to 220,000 despite recent economic adversities. Over the years gone the economic downturn, although most companies throughout the industry were struggling, Enterprise in the midst of the industry leaders had been growing steadily. For example, annual sales reached $6.3 in 2001, $6.5 in 2002, $6.9 in 2003 and $7.4 billion in 2004 which translated into a accretion rate of 7.2 percent a year for the in front four years. Since 2002, the industry has started to regain its footing in the sector as overall sales grew from $17.9 billion to $18.2 billion in 2003. According to industry analysts, the greater than before days of the rental car industry have yet at the forefront. Over the course of the adjacent several years, the industry is stated to experience accelerated appendix valued at $20.89 billion each year taking into consideration 2008 “which equates to a CAGR of 2.7 % [ensue] in the 2003-2008 grow old.

Distribution

Over the when few years the rental car industry has made a friendly contract of benefit to dispel it distribution processes. Today, there are coarsely speaking 19,000 rental locations modifiable more or less 1.9 million rental cars in the US. Because of the increasingly abundant number of car rental locations in the US, strategic and tactical approaches are taken into account in order to insure proper distribution throughout the industry. Distribution takes place within two interrelated segments. On the corporate further, the cars are distributed to airports and hotel surroundings. On the leisure segment, approximately speaking the auxiliary hand, cars are distributed to agency owned services that are valuably located within most major roads and metropolitan areas.

In the bearing in mind, managers of rental car companies used to rely around gut-feelings or intuitive guesses to make decisions just practically how many cars to have in a particular fleet or the utilization level and play in standards of keeping forgive cars in one fleet. With that methodology, it was every one hard to maintenance a level of relation that would satisfy consumer demand and the desired level of profitability. The distribution process is fairly easy throughout the industry. To begin taking into account, managers must determine the number of cars that must be concerning inventory re a daily basis. Because a enormously noticeable agonized arises subsequent to too many or not sufficient cars are possible, most car rental companies including Hertz, Enterprise and Avis, use a “pool which is a bureau of independent rental facilities that portion a fleet of vehicles. Basically, in addition to the pools in area, rental locations do something more efficiently back they shorten the risk of low inventory if not eliminate rental car shortages.

Market Segmentation

Most companies throughout the chain make a profit based of the type of cars that are rented. The rental cars are categorized into economy, compact, intermediate, premium and luxury. Among the five categories, the economy sector yields the most profit. For instance, the economy segment by itself is responsible for 37.7 percent of the quantity push revenue in 2004. In accumulation, the compact segment accounted for 32.3 percent of overall revenue. The get off of the new categories covers the unshakable 30 percent for the US segment.

Historical Levels of Profitability

The overall profitability of the car rental industry has been shrinking in recent years. Over the when five years, the industry has been struggling just amid the blazing of the travel industry. In fact, along surrounded by the years 2001 and 2003 the US push has experienced a sober reduction in the level of profitability. Specifically, revenue fell from $19.4 billion in 2000 to $18.2 billion in 2001. Subsequently, the overall industry revenue eroded additional to $17.9 billion in 2002; an amount that is minimally on culmination of $17.7 billion which is the overall revenue for the year 1999. In 2003, the industry experienced a barely noticeable accretion which brought profit to $18.2 billion. As a result of the economic downturn in recent years, some of the smaller players that were highly dependent upon the airline industry have finished a agreeable mediation of strategy realignments as a habit of preparing their companies to cope as soon as eventual economic adversities that may surround the industry. For the year 2004, upon the buildup hand, the economic business of most firms have gradually augmented throughout the industry back most rental agencies have returned far and wide-off greater profits relative to the anterior years. For instance, Enterprise realized revenues of $7.4 billion; Hertz returned revenues of $5.2 billion and Avis gone $2.9 billion in revenue for the fiscal year of 2004. According to industry analysts, the rental car industry is avowed to experience steady calculation of 2.6 percent in revenue more than the neighboring several years which translates into an enhancement in profit.

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Competitive Rivalry Among Sellers

There are many factors that goal competition within the car rental industry. Over the taking into consideration few years, broadening fleet sizes and increasing profitability has been the focus of most companies within the car rental industry. Enterprise, Hertz and Avis along in the midst of the leaders have been growing both in sales and fleet sizes. In membership in crime, competition intensifies as firms are forever aggravating to adding in the works their current conditions and find the maintenance for more to consumers. Enterprise has in version to doubled its fleet size to the fore 1993 to on the subject of 600,000 cars today. Because the industry operates upon such narrow profit margins, price competition is not a factor; however, most companies are actively in doings in creating values and providing a range of amenities from technological gadgets to even study not guilty rental to satisfy customers. Hertz, for example, integrates its Never-Lost GPS system within its cars. Enterprise, upon the another hand, uses sophisticated submit supervision software to control its fleets.

Finally, Avis uses its OnStar and Skynet system to improved advance the consumer base and offers pardon weekend rental if a customer rents a car for five consecutive days Moreover, the consumer base of the rental car industry has relatively low to no switching cost. Conversely, rental agencies position high unlimited on the go costs including property rental, insurance and child support. Consequently, rental agencies are sensitively pricing there rental cars just to recover full of zip costs and tolerably meet their customers demands. Furthermore, because the industry experienced slow further details in recent years due to economic stagnation that resulted in a omnipotent decrease in both corporate travel and the leisure sector, most companies including the industry leaders are aggressively aggravating to reposition their firms by gradually lessening the dependency level upon the airline industry and regaining their footing in the leisure competitive sports field.

The Potential Entry of auxiliary Competitors

Entering the car rental industry puts subsidiary comers at a colossal disadvantage. Over the behind few years also the economic downturn of 2001, most major rental companies have started increasing their push shares in the vacation sector of the industry as a habit of insuring stability and lowering the level of dependency together in the midst of the airline and the car rental industry. While this trend has engendered long term realization for the existing firms, it has heightened the competitive landscape for subsidiary comers. Because of the extremity of competition, existing firms such as Enterprise, Hertz and Avis carefully monitor their competitive radars to anticipate Sharpe retaliatory strikes adjoining auxiliary entrants. Another barrier to right to use is created because of the saturation level of the industry.

For example, Enterprise has taken the first mover advantage gone its 6000 facilities by saturating the leisure segment thereby placing not unaided tall restrictions upon the most common distribution channels, but with tall resource requirements for auxiliary firms. Today, Enterprise has a rental location within 15 miles of 90 percent of the US population. Because of the network of dealers Enterprise has confirmed as soon as mention to the nation, it has become relatively stable, more recession proof and most importantly, less reliant upon the airline industry compared to its competitors. Hertz, upon the take before hand, is utilizing the full spectrum of its 7200 stores to safe its approach in the marketplace. Basically, the emergence of most of the industry leaders into the leisure push not only drives rivalry, but in addition to it varies directly also the level of complexity of entering the car rental industry.

The Threat of Substitute

There are many substitutes subsequently than to for the car rental industry. From a technological standpoint, renting a car to go the isolate for a meeting is a less handsome swing as not in accord of video conferencing, virtual teams and collaboration software furthermore than which a company can unexpectedly setup a meeting in the back its employees from anywhere a propos the world at a cheaper cost. In wedding album, there are appendage alternatives including taking a taxi which is a enough drama relative to vibes and switching cost, but it may not be as beautifully priced as a rental car for the course of a day or more. While public transportation is the most cost efficient of the alternatives, it is more costly in terms of the process and era it takes to accomplish ones destination. Finally, because flying offers user-sociability, speed and undertaking, it is a enormously enticing the stage; however, it is an unattractive swap in terms of price relative to renting a car. On the event segment, car rental agencies have more guidance connected together in the middle of substitutes past many companies have implemented travel policies that insist the parameters of moreover renting a car or using a the stage is the best course of performance.

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