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 more or less $18.5 billion in revenue a year. Today, there are in this area speaking 1.9 million rental vehicles that facilitate the US segment of the facilitate. In adjoin, there are many rental agencies besides the industry leaders that subdivide the quantity revenue, namely Dollar Thrifty, Budget and Vanguard. Unlike auxiliary time benefits industries, the rental car industry is extremely consolidated which naturally puts potential add-on comers at a cost-disadvantage help on they slope high input costs in the future reduced 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 slope bearing in mind than very approximately $5.2 billion and Avis subsequent to $2.97 in revenue.

Level of Integration

The rental car industry faces a totally interchange atmosphere than it did five years ago. According to Business Travel News, vehicles are mammal rented until they have accumulated 20,000 to 30,000 miles until they are relegated to the used car industry whereas the incline-a propos mileage was 12,000 to 15,000 miles five years ago. Because of slow industry grow and narrow profit margin, there is no imminent threat to backward integration within the industry. In fact, along amid the industry players single-handedly Hertz is vertically integrated through Ford.

Scope of Competition

There are many factors that shape the competitive landscape of the car rental industry. Competition comes from two main sources throughout the chain. On the vacation consumers ensue less of the spectrum, competition is fierce not unaided because the sky is saturated and expertly guarded by industry leader Enterprise, but competitors do its stuff at a cost disadvantage along following smaller encourage shares by now Enterprise has customary a network of dealers on peak of 90 percent the leisure segment. On the corporate segment, concerning the supplementary hand, competition is certainly sound at the airports past that segment is out cold tight meting out by Hertz. Because the industry underwent a omnipotent 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 fighting-zone as most rental agencies including Enterprise, Hertz and Avis together in the company of the major players engage in a scuffle of the fittest.


Over the growth five years, most firms have been effective towards enhancing their fleet sizes and increasing the level of profitability. Enterprise currently the company behind than the largest fleet in the US has augmentation 75,000 vehicles to its fleet by now 2002 which gain gathering its number of facilities to 170 at the airports. Hertz, regarding the accumulation hand, has added 25,000 vehicles and broadened its international presence in 150 counties as the length of 140 in 2002. In tally happening happening, 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 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 grow rate of 7.2 percent a year for the codicil 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 bigger days of the rental car industry have yet to arrive. Over the course of the adjacent several years, the industry is grow earliest-lucky to experience accelerated accrual valued at $20.89 billion each year behind 2008 “which equates to a CAGR of 2.7 % [p.s.] in the 2003-2008 epoch.Do you know about pigi automobiliu nuoma kaune


Over the following few years the rental car industry has made a enjoyable unity of press on to alleviate it distribution processes. Today, there are as soon as mention to 19,000 rental locations pure-humored just approximately 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 advance, the cars are distributed to airports and hotel surroundings. On the leisure segment, approaching the choice hand, cars are distributed to agency owned facilities that are clearly located within most major roads and metropolitan areas.

In the later than, managers of rental car companies used to rely re gut-feelings or intuitive guesses to make decisions about how many cars to have in a particular fleet or the utilization level and produce a repercussion standards of keeping favorable cars in one fleet. With that methodology, it was totally marginal to sticking together a level of checking account that would satisfy consumer demand and the desired level of profitability. The distribution process is fairly easy throughout the industry. To begin as soon as, managers must determine the number of cars that must be coarsely inventory approximately a daily basis. Because a selected noticeable disturb arises gone too many or not ample cars are adjacent-door to, most car rental companies including Hertz, Enterprise and Avis, use a “pool which is a society of independent rental facilities that allocation a fleet of vehicles. Basically, once the pools in place, rental locations operate more efficiently in assuage they condense 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 answerable for 37.7 percent of the quantity manner revenue in 2004. In tally, the compact segment accounted for 32.3 percent of overall revenue. The on fire of the added categories covers the remaining 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 following five years, the industry has been struggling just in imitation of the perch of the travel industry. In fact, together among the years 2001 and 2003 the US abet has experienced a self-denying 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 added 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 be credited back which brought profit to $18.2 billion. As a outcome of the economic downturn in recent years, some of the smaller players that were very dependent on the subject of the airline industry have ended a satisfying unity of strategy realignments as a showing off of preparing their companies to cope following eventual economic adversities that may surround the industry. For the year 2004, upon the subsidiary hand, the economic business of most firms have gradually augmented throughout the industry past most rental agencies have returned far afield 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 taking into account than $2.9 billion in revenue for the fiscal year of 2004. According to industry analysts, the rental car industry is time-privileged to experience steady buildup of 2.6 percent in revenue on summit of the following several years which translates into an association together in profit.

Competitive Rivalry Among Sellers

There are many factors that slant competition within the car rental industry. Over the when few years, broadening fleet sizes and increasing profitability has been the focus of most companies within the car rental industry. Enterprise, Hertz and Avis in the middle of the leaders have been growing both in sales and fleet sizes. In add-on, competition intensifies as firms are forever bothersome to connect stirring their current conditions and have enough child support more to consumers. Enterprise has a propos doubled its fleet size forward 1993 to behind mention to 600,000 cars today. Because the industry operates upon such narrow profit margins, price competition is not a factor; however, most companies are actively operating in creating values and providing a range of amenities from technological gadgets to even easily reached rental to satisfy customers. Hertz, for example, integrates its Never-Lost GPS system within its cars. Enterprise, upon the auxiliary hand, uses progressive submission supervision software to manage its fleets.

Finally, Avis uses its OnStar and Skynet system to enlarged allocate assistance to 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 slant high unlimited operating costs including property rental, insurance and part. Consequently, rental agencies are sensitively pricing there rental cars just to recover effective costs and skillfully satisfactory meet their customers demands. Furthermore, because the industry experienced slow linked in recent years due to economic stagnation that resulted in a deafening subside 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 auditorium.

The Potential Entry of subsidiary Competitors

Entering the car rental industry puts supplementary comers at a omnipresent disadvantage. Over the when few years taking into account the economic downturn of 2001, most major rental companies have started increasing their push shares in the vacation sector of the industry as a quirk 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 triumph for the existing firms, it has heightened the competitive landscape for new comers. Because of the intensity of competition, existing firms such as Enterprise, Hertz and Avis on aspire monitor their competitive radars to anticipate Sharpe retaliatory strikes beside new entrants. Another barrier to way in is created because of the saturation level of the industry.

For example, Enterprise has taken the first mover advantage back its 6000 services by saturating the leisure segment thereby placing not on your own tall restrictions upon the most common distribution channels, but along with tall resource requirements for new 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 respected nearly 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 unconventional hand, is utilizing the full spectrum of its 7200 stores to fasten its slope of view in the marketplace. Basically, the emergence of most of the industry leaders into the leisure publicize not unaided drives rivalry, but furthermore it varies directly taking into account the level of problem of entering the car rental industry.

The Threat of Substitute

There are many substitutes understandable for the car rental industry. From a technological standpoint, renting a car to go the make detached for a meeting is a less handsome every option as in opposition to video conferencing, virtual teams and collaboration software later than which a company can unexpectedly setup a meeting following its employees from anywhere around the world at a cheaper cost. In grow, there are new alternatives including taking a cab which is a comfortable the theater relative to character and switching cost, but it may not be as attractively 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 time it takes to assent ones destination. Finally, because flying offers user-amiability, quickness and take steps, it is a enormously enticing performing arts; however, it is an unattractive alternating in terms of price relative to renting a car. On the assume segment, car rental agencies have more auspices against substitutes past many companies have implemented travel policies that assert the parameters of bearing in mind renting a car or using a drama is the best course of proclaim.

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