The Car Rental Industry

The US segment of the sector averages about $18.five billion in revenue a year. These days, there are roughly 1.9 million rental vehicles that service the US segment of the industry. In addition, there are countless rental agencies besides the industry leaders that subdivide the total revenue, namely Dollar Thrifty, Budget and Vanguard. Unlike other mature service industries, the rental automobile market is very consolidated which naturally puts prospective new comers at a expense-disadvantage since they face high input expenses with reduced possibility of economies of scale. Furthermore, most of the profit is generated by a couple of firms which includes Enterprise, Hertz and Avis. For the fiscal year of 2004, Enterprise generated $7.four billion in total income. Hertz came in second position with about $5.2 billion and Avis with $two.97 in revenue.

Level of Integration

The rental car market faces a totally numerous atmosphere than it did five years ago. According to Business enterprise Travel News, vehicles are being rented till they have accumulated 20,000 to 30,000 miles until they are relegated to the employed automobile sector whereas the turn-around mileage was 12,000 to 15,000 miles 5 years ago. Simply because of slow industry growth and narrow profit margin, there is no imminent threat to backward integration within the business. In fact, among the business players only Hertz is vertically integrated via Ford.

Scope of Competition

There are quite a few factors that shape the competitive landscape of the car rental business. Competition comes from two principal sources throughout the chain. On the vacation consumer's finish of the spectrum, competition is fierce not only for the reason that the industry is saturated and properly guarded by market leader Enterprise, but competitors operate at a cost disadvantage along with smaller industry shares due to the fact Enterprise has established a network of dealers over 90 percent the leisure segment. On the corporate segment, on the other hand, competition is highly powerful at the airports since that segment is under tight supervision by Hertz. Considering that the industry underwent a enormous economic downfall in recent years, it has upgraded the scale of competition within most of the organisations that survived. Competitively speaking, the rental automobile sector is a war-zone as most rental agencies which includes Enterprise, Hertz and Avis among the significant players engage in a battle of the fittest.

Growth

Over the past 5 years, most firms have been operating towards enhancing their fleet sizes and escalating the level of profitability. Enterprise presently the enterprise with the largest fleet in the US has added 75,000 vehicles to its fleet considering that 2002 which aid enhance its number of facilities to 170 at the airports. Hertz, on the other hand, has added 25,000 vehicles and broadened its international presence in 150 counties as opposed to 140 in 2002. In addition, Avis has improved its fleet from 210,000 in 2002 to 220,000 despite current economic adversities. Over the years following the economic downturn, while most organizations all through the sector were struggling, Enterprise among the industry leaders had been expanding steadily. For example, annual sales reached $6.3 in 2001, $6.five in 2002, $6.9 in 2003 and $7.4 billion in 2004 which translated into a growth rate of 7.2 percent a year for the past four years. Considering that 2002, the business has began to regain its footing in the sector as overall sales grew from $17.9 billion to $18.two billion in 2003. According to sector analysts, the much better days of the rental car sector have yet to come. More than the course of the next many years, the sector is expected to expertise accelerated growth valued at $20.89 billion every year following 2008 "which equates to a CAGR of two.7 % [enhance] in the 2003-2008 period."

Distribution

More than the past few years the rental vehicle sector has produced a terrific deal of progress to facilitate it distribution processes. At this time, there are around 19,000 rental locations yielding about 1.9 million rental vehicles in the US. Since of the increasingly abundant number of vehicle rental locations in the US, strategic and tactical approaches are taken into account in order to insure appropriate distribution all through the sector. Distribution takes place within two interrelated segments. On the corporate industry, the automobiles are distributed to airports and hotel surroundings. On the leisure segment, on the other hand, cars are distributed to agency owned facilities that are conveniently situated within most significant roads and metropolitan places.

In the past, managers of rental automobile providers employed to rely on gut-feelings or intuitive guesses to make decisions about how countless automobiles to have in a particular fleet or the utilization level and performance standards of keeping specific cars in 1 fleet. With that methodology, it was quite challenging to retain a level of balance that would satisfy consumer demand and the desired level of profitability. The distribution process is fairly effortless all through the sector. To begin with, managers ought to ascertain the quantity of automobiles that need to be on inventory on a daily basis. Since a very noticeable trouble arises when too various or not adequate vehicles are available, most car rental providers such as Hertz, Enterprise and Avis, use a "pool" which is a group of independent rental facilities that share a fleet of vehicles. Basically, with the pools in location, rental places operate significantly more efficiently since they reduce the risk of low inventory if not get rid of rental auto shortages.

Marketplace Segmentation

Most suppliers throughout the chain make a profit based of the sort of cars that are rented. The rental vehicles are categorized into economy, compact, intermediate, premium and luxury. Among the 5 categories, the economy sector yields the most profit. For instance, the economic climate segment by itself is responsible for 37.7 percent of the total industry income in 2004. In addition, the compact segment accounted for 32.3 percent of overall revenue. The rest of the other categories covers the remaining 30 percent for the US segment.

Historical Levels of Profitability

The overall profitability of the auto rental industry has been shrinking in current years. Over the past 5 years, the sector has been struggling just like the rest of the travel industry. In reality, among the years 2001 and 2003 the US market has experienced a moderate reduction in the level of profitability. Particularly, income fell from $19.four billion in 2000 to $18.two billion in 2001. Subsequently, the overall market income eroded further to $17.9 billion in 2002 an quantity that is minimally greater than $17.7 billion which is the overall revenue for the year 1999. In 2003, the market experienced a barely noticeable enhance which brought profit to $18.2 billion. As a result of the economic downturn in current years, some of the smaller players that had been highly dependent on the airline market have accomplished a fantastic deal of method realignments as a way of preparing their firms to cope with eventual economic adversities that may well surround the market. For the year 2004, on the other hand, the economic situation of most firms have gradually improved all through the industry due to the fact most rental agencies have returned far greater profits relative to the anterior years. For instance, Enterprise realized revenues of $7.4 billion Hertz returned revenues of $five.two billion and Avis with $2.9 billion in revenue for the fiscal year of 2004. According to industry analysts, the rental automobile business is expected to expertise steady growth of 2.6 percent in revenue over the subsequent a few years which translates into an improve in profit.