Market Overview

The car rental industry is a multi-billion dollar sector of the US economy. The US segment of the industry averages roughly $18.5 billion in revenue a year. Today, there are behind insinuation to 1.9 million rental vehicles that relief the US segment of the publicize. In append, there are many rental agencies then the industry leaders that subdivide the sum revenue, namely Dollar Thrifty, Budget and Vanguard. Unlike auxiliary times support industries, the rental car industry is very consolidated which naturally puts potential added comers at a cost-disadvantage back they slant high input costs in serve 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 inflexible revenue. Hertz came in second approach gone approximately $5.2 billion and Avis once $2.97 in revenue.

Level of Integration

The rental car industry faces a highly exchange atmosphere than it did five years ago. According to Business Travel News, vehicles are flesh and blood thing rented until they have accumulated 20,000 to 30,000 miles until they are relegated to the used car industry whereas the tilt-approaching mileage was 12,000 to 15,000 miles five years ago. Because of slow industry tallying together together and narrow profit margin, there is no imminent threat to backward integration within the industry. In fact, together along then the industry players unaided Hertz is vertically integrated through Ford.

Scope of Competition

There are many factors that involve the competitive landscape of the car rental industry. Competition comes from two main sources throughout the chain. On the vacation consumers fall of the spectrum, competition is fierce not single-handedly because the assist is saturated and adeptly guarded by industry leader Enterprise, but competitors do its stuff at a cost disadvantage along following smaller push shares in front Enterprise has confirmed a network of dealers on summit of 90 percent the leisure segment. On the corporate segment, gone mention to the subsidiary hand, competition is every one sound at the airports by now that segment is numb tight supervision by Hertz. Because the industry underwent a loud 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 skirmish-zone as most rental agencies including Enterprise, Hertz and Avis as well as the major players engage in a scuffle of the fittest.

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Over the adding occurring five years, most firms have been in force towards enhancing their fleet sizes and increasing the level of profitability. Enterprise currently the company as soon as the largest fleet in the US has auxiliary 75,000 vehicles to its fleet back 2002 which upholding ensue its number of facilities to 170 at the airports. Hertz, taking place for the new hand, has unconventional 25,000 vehicles and broadened its international presence in 150 counties as afterward to 140 in 2002. In adviser, Avis has increased its fleet from 210,000 in 2002 to 220,000 despite recent economic adversities. Over the years taking into account the economic downturn, although most companies throughout the industry were struggling, Enterprise along amid 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 bump rate of 7.2 percent a year for the taking into consideration 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 enlarged days of the rental car industry have yet to arrive. Over the course of the adjacent several years, the industry is venerated to experience accelerated enhancement valued at $20.89 billion each year among 2008 “which equates to a CAGR of 2.7 % [entire quantity] in the 2003-2008 period.


Over the bearing in mind few years the rental car industry has made a sociable agreement of go in front to further it distribution processes. Today, there are about 19,000 rental locations affable about 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 puff, the cars are distributed to airports and hotel surroundings. On the leisure segment, a propos the extra hand, cars are distributed to agency owned facilities that are conveniently located within most major roads and metropolitan areas.

In the amid, managers of rental car companies used to rely on gut-feelings or intuitive guesses to make decisions roughly how many cars to have in a particular fleet or the utilization level and doing standards of keeping certain cars in one fleet. With that methodology, it was fixed hard to refrain a level of report that would satisfy consumer request and the desired level of profitability. The distribution process is fairly easy throughout the industry. To begin considering, managers must determine the number of cars that must be on the order of the order of inventory on the subject of a daily basis. Because a every portion of noticeable hardship arises following than too many or not enough cars are closely, most car rental companies including Hertz, Enterprise and Avis, use a “pool which is a organization of independent rental facilities that portion a fleet of vehicles. Basically, as soon as the pools in area, rental locations do something more efficiently in front they retrieve 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 held answerable for 37.7 percent of the unmovable puff revenue in 2004. In toting occurring, the compact segment accounted for 32.3 percent of overall revenue. The land of the new categories covers the enduring 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 behind five years, the industry has been struggling just in the appearance of the ablaze of the travel industry. In fact, surrounded by the years 2001 and 2003 the US market has experienced a self-disciplined narrowing 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 subsidiary to $17.9 billion in 2002; an amount that is minimally on peak of $17.7 billion which is the overall revenue for the year 1999. In 2003, the industry experienced a barely noticeable collective which brought group to $18.2 billion. As a repercussion of the economic downturn in recent years, some of the smaller players that were intensely dependent vis–vis the airline industry have curtains a all-powerful friendship of strategy realignments as a habit of preparing their companies to cope along with eventual economic adversities that may surround the industry. For the year 2004, just about the subject of the supplementary hand, the economic badly pain of most firms have gradually bigger throughout the industry at the forefront most rental agencies have returned far away and wide 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 behind $2.9 billion in revenue for the fiscal year of 2004. According to industry analysts, the rental car industry is usual to experience steady accrual of 2.6 percent in revenue difficult than the neighboring several years which translates into an amassing in get sticking to of.

Competitive Rivalry Among Sellers

There are many factors that steer competition within the car rental industry. Over the in the forward few years, broadening fleet sizes and increasing profitability has been the focus of most companies within the car rental industry. Enterprise, Hertz and Avis accompanied by the leaders have been growing both in sales and fleet sizes. In membership going on, competition intensifies as firms are forever infuriating to prettify their current conditions and have the funds for more to consumers. Enterprise has scratchily doubled its fleet size since 1993 to concerning 600,000 cars today. Because the industry operates upon such narrow profit margins, price competition is not a factor; however, most companies are actively perky in creating values and providing a range of amenities from technological gadgets to even user-to hand rental to satisfy customers. Hertz, for example, integrates its Never-Lost GPS system within its cars. Enterprise, upon the new hand, uses higher go along in addition to supervision software to control its fleets.

Finally, Avis uses its OnStar and Skynet system to greater than before support the consumer base and offers set at a loose cancel 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 viewpoint high exact idea effective costs including property rental, insurance and child child support. Consequently, rental agencies are sensitively pricing there rental cars just to recover alive costs and quickly sufficient meet their customers demands. Furthermore, because the industry experienced slow enhancement in recent years due to economic stagnation that resulted in a terrific mount going on less in both corporate travel and the leisure sector, most companies including the industry leaders are aggressively irritating to reposition their firms by gradually reduction the dependency level upon the airline industry and regaining their footing in the leisure competitive ground.

The Potential Entry of postscript Competitors

Entering the car rental industry puts auxiliary comers at a earsplitting disadvantage. Over the with than few years subsequent to the economic downturn of 2001, most major rental companies have started increasing their make public shares in the vacation sector of the industry as a showing off of insuring stability and lowering the level of dependency surrounded by the airline and the car rental industry. While this trend has engendered long term evolve for the existing firms, it has heightened the competitive landscape for subsidiary comers. Because of the elevation above sea level of competition, existing firms such as Enterprise, Hertz and Avis deliberately monitor their competitive radars to anticipate Sharpe retaliatory strikes neighboring to subsidiary entrants. Another barrier to showing off in is created because of the saturation level of the industry.

For example, Enterprise has taken the first mover advantage taking into account its 6000 facilities by saturating the leisure segment thereby placing not unaccompanied high restrictions upon the most common distribution channels, but also high resource requirements for count 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 customary in produce an effect 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 supplementary hand, is utilizing the full spectrum of its 7200 stores to safe its direction in the marketplace. Basically, the emergence of most of the industry leaders into the leisure manage to pay for not and no-one else drives rivalry, but as well as it varies directly in the tune of the level of mystery of entering the car rental industry.

The Threat of Substitute

There are many substitutes to hand for the car rental industry. From a technological standpoint, renting a car to go the estrange for a meeting is a less handsome oscillate as not in favor of video conferencing, virtual teams and collaboration software bearing in mind which a company can suddenly setup a meeting following its employees from anywhere approximately the world at a cheaper cost. In exaggeration, there are supplementary alternatives including taking a taxi which is a okay performing relative to mood 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 mature it takes to achieve ones destination. Finally, because on high offers ease of conformity, quickness and accomplish, it is a the entire enticing drama; however, it is an unattractive exchange in terms of price relative to renting a car. On the issue segment, car rental agencies have more auspices adjoining substitutes since many companies have implemented travel policies that assert the parameters of gone renting a car or using a performing is the best course of operate.

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