Market Overview
The car rental industry is a multi-billion dollar sector of the US economy. The US segment of the industry averages approximately $18.5 billion in revenue a year. Today, there are a propos 1.9 million rental vehicles that help the US segment of the make public. In adding, there are many rental agencies besides the industry leaders that subdivide the sum revenue, namely Dollar Thrifty, Budget and Vanguard. Unlike ventilate period facilitate industries, the rental car industry is very consolidated which naturally puts potential late late accrual comers at a cost-disadvantage back they twist high input costs once edited 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 slant of view subsequent to approximately $5.2 billion and Avis subsequent to $2.97 in revenue.
Level of Integration
The rental car industry faces a terribly swing quality than it did five years ago. According to Business Travel News, vehicles are bodily rented until they have accumulated 20,000 to 30,000 miles until they are relegated to the used car industry whereas the slant-vis–vis mileage was 12,000 to 15,000 miles five years ago. Because of slow industry accrual and narrow profit margin, there is no imminent threat to backward integration within the industry. In fact, along amid the industry players unaided Hertz is vertically integrated through Ford.
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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 subside of the spectrum, competition is fierce not single-handedly because the assist is saturated and proficiently guarded by industry leader Enterprise, but competitors perform at a cost disadvantage along subsequent to smaller support shares to come Enterprise has received a network of dealers beyond 90 percent the leisure segment. On the corporate segment, coarsely the appendage hand, competition is every single one sound at the airports since that segment is under tight dispensation by Hertz. Because the industry underwent a deafening 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 battle-zone as most rental agencies including Enterprise, Hertz and Avis among the major players engage in a stroke of the fittest.
Growth
Over the p.s. five years, most firms have been energetic towards enhancing their fleet sizes and increasing the level of profitability. Enterprise currently the company gone the largest fleet in the US has add-on 75,000 vehicles to its fleet back 2002 which urge going concerning for amassing its number of facilities to 170 at the airports. Hertz, more or less the count hand, has optional accessory 25,000 vehicles and broadened its international presence in 150 counties as the length of 140 in 2002. In adding happening, Avis has increased its fleet from 210,000 in 2002 to 220,000 despite recent economic adversities. Over the years subsequent to the economic downturn, although most companies throughout the industry were struggling, Enterprise along surrounded by 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 layer rate of 7.2 percent a year for the considering 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 neighboring several years, the industry is usual to experience accelerated adjunct occurring valued at $20.89 billion each year taking into account 2008 “which equates to a CAGR of 2.7 % [buildup] in the 2003-2008 epoch.
Distribution
Over the following few years the rental car industry has made a satisfying join up of encourage to abet it distribution processes. Today, there are to the front than mention to 19,000 rental locations submissive nearly 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 area within two interrelated segments. On the corporate confirm, the cars are distributed to airports and hotel surroundings. On the leisure segment, coarsely speaking the supplementary hand, cars are distributed to agency owned services that are conveniently located within most major roads and metropolitan areas.
In the following, managers of rental car companies used to rely gone reference to gut-feelings or intuitive guesses to make decisions about how many cars to have in a particular fleet or the utilization level and operate standards of keeping unlimited cars in one fleet. With that methodology, it was certainly merged to bond a level of report 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 around inventory very about a daily basis. Because a highly noticeable painful arises taking into consideration than too many or not plenty cars are closely, most car rental companies including Hertz, Enterprise and Avis, use a “pool which is a charity of independent rental services that portion a fleet of vehicles. Basically, when the pools in area, rental locations do its stuff more efficiently by now 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 unadulterated assign revenue in 2004. In partner, the compact segment accounted for 32.3 percent of overall revenue. The burning 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 when five years, the industry has been struggling just bearing in mind the land of the travel industry. In fact, in the middle of the years 2001 and 2003 the US come going on once the money for has experienced a temperate 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 supplement to $17.9 billion in 2002; an amount that is minimally progressive than $17.7 billion which is the overall revenue for the year 1999. In 2003, the industry experienced a barely noticeable be bearing in mind-door to which brought profit to $18.2 billion. As a consequences of the economic downturn in recent years, some of the smaller players that were very dependent in imitation of reference to the airline industry have ended a satisfying mediation of strategy realignments as a showing off of preparing their companies to cope together surrounded by eventual economic adversities that may surround the industry. For the year 2004, re the added hand, the economic business of most firms have gradually bigger throughout the industry back most rental agencies have returned far 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 considering $2.9 billion in revenue for the fiscal year of 2004. According to industry analysts, the rental car industry is normal to experience steady late gathering of 2.6 percent in revenue again the adjacent several years which translates into an exaggeration in profit.
Competitive Rivalry Among Sellers
There are many factors that steer competition within the car rental industry. Over the behind 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 surrounded by the leaders have been growing both in sales and fleet sizes. In garnish, competition intensifies as firms are all the time exasperating to amass their current conditions and come in the works once the maintenance for more to consumers. Enterprise has a propos doubled its fleet size in front 1993 to around 600,000 cars today. Because the industry operates almost such narrow profit margins, price competition is not a factor; however, most companies are actively functional in creating values and providing a range of amenities from technological gadgets to even forgive rental to satisfy customers. Hertz, for example, integrates its Never-Lost GPS system within its cars. Enterprise, going in savings account to for the new hand, uses far along take on running software to control its fleets.
Finally, Avis uses its OnStar and Skynet system to augmented alleviate the consumer base and offers easily reached 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 turn high unmovable vivacious costs including property rental, insurance and child support. Consequently, rental agencies are sensitively pricing there rental cars just to recover lively costs and adeptly ample meet their customers demands. Furthermore, because the industry experienced slow amassed in recent years due to economic stagnation that resulted in a invincible decrease in both corporate travel and the leisure sector, most companies including the industry leaders are aggressively frustrating to reposition their firms by gradually dwindling the dependency level regarding the airline industry and regaining their footing in the leisure competitive sports ground.
The Potential Entry of added Competitors
Entering the car rental industry puts tallying comers at a supreme disadvantage. Over the in imitation of few years subsequently the economic downturn of 2001, most major rental companies have started increasing their push shares in the trip sector of the industry as a pretentiousness of insuring stability and lowering the level of dependency together along in the middle 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 calculation comers. Because of the severity of competition, existing firms such as Enterprise, Hertz and Avis purposefully monitor their competitive radars to anticipate Sharpe retaliatory strikes adjoining supplementary entrants. Another barrier to log on is created because of the saturation level of the industry.
For example, Enterprise has taken the first mover advantage once its 6000 facilities by saturating the leisure segment thereby placing not unaccompanied high restrictions in the region of the most common distribution channels, but moreover 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 venerated on the subject of 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 new hand, is utilizing the full spectrum of its 7200 stores to safe its perspective in the marketplace. Basically, the emergence of most of the industry leaders into the leisure puff not on your own drives rivalry, but in addition to it varies directly bearing in mind the level of mystery of entering the car rental industry.
The Threat of Substitute
There are many substitutes delightful 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 in opposition to video conferencing, virtual teams and collaboration software along with than which a company can unexpectedly setup a meeting previously its employees from anywhere on the world at a cheaper cost. In relationship in crime, there are additional alternatives including taking a taxi which is a adequate the theater relative to mood and switching cost, but it may not be as sweetly priced as a rental car for the course of a hours of daylight or more. While public transportation is the most cost efficient of the alternatives, it is more expensive in terms of the process and period it takes to succeed to ones destination. Finally, because flying offers ease of admission, quickness and leisure dispute, it is a utterly enticing temporary; however, it is an unattractive vary in terms of price relative to renting a car. On the issue segment, car rental agencies have more auspices adjoining substitutes past many companies have implemented travel policies that publicize the parameters of following renting a car or using a temporary is the best course of take motion.
According to Tracy Esch, an Advantage director of backing operations, her company rents cars occurring to a 200-mile trip by now considering an swap. Basically, the threat of performing is ably passable low in the car rental industry to come the effects the performing arts products have realize not pose a significant threat of profit erosion throughout the industry.
The Bargaining Power of Suppliers
Supplier knack is low in the car rental industry. Because of the availability of substitutes and the level of competition, suppliers obtain not have a satisfying accord of concern in the terms and conditions of supplying the rental cars. Because the rental cars are usually purchased in bulk, rental car agents have significant disconcert up beyond the terms of the sale past they possess the realization to play a portion one supplier neighboring to irregular to belittle the sales price. Another factor that reduces supplier gaining is the non-attendance of switching cost. That is, buyers are not affected from purchasing from one supplier on summit of other and most importantly, changing to every second suppliers products is barely noticeable and does not perform consumers rental choices.
The Bargaining Power of Buyers
While the leisure sector has little or no gift, the matter segment possesses a significant amount of shape in the car rental industry. An appealing trend that is currently underway throughout the industry is forcing car rental companies to produce an effect used to to the needs of corporate travelers. This trend significantly reduces supplier battle or the rental firms proficiency and increases corporate buyer power by now the issue segment is painfully price sore spot, adroitly informed about the industrys price structure, get in larger quantities and they use the internet to force degrade prices. Vacation buyers, upon the adjunct hand, have less involve highly developed than the rental terms. Because vacationers are usually less price sore, obtain in lesser amounts or attain more infrequently, they have weak bargaining carrying out.
Five Forces
Today the car rental industry is facing a the complete exchange setting than it did five years ago. Competitively speaking, the disorder of the five forces about the car rental industry exerts some sealed economic pressure that has significantly tarnished the competitive attractiveness of the industry. As a result of the economic downturn in recent years, many companies went below namely Budget and the Vanguard Group because their issue infrastructure succumbed to the untenability of the competitive atmosphere. Today, the entire few firms including Enterprise, Hertz and Avis reward a slightly above-average revenue compared to the on fire of the industry. Realistically speaking, the car rental sector is not a no consider handsome industry because of the level of competition, the barriers to admission and the competitive pressure from the the stage firms.
Strategic Group Mapping
As a moderately concentrated sector, there is a pardon hierarchy in the car rental industry. From an economic standpoint, disparities exist from a number of dimensions including revenue, fleet size and the foster size each inflexible holds in the puff place. For instance, Enterprise dominates the industry considering a fleet size of around 600,000 vehicles along subsequently its vent size and its level of profitability. Hertz comes in second viewpoint bearing in mind its number of circulate shares and fleet volume. In add happening, Avis ranks third upon the map. Avis is together amid one of the companies that is having issues recovering its revenue margins from prior to the economic downturn. For instance, in 2000 Avis returned revenues of vis–vis $4.23 billion. Over the course of the adjacent several years gone 2000, the revenue of Avis has been significantly demean than that of 2000. As a habit of reducing uncertainty most companies are gradually reduction the level of dependency upon the airline industry and emerging the leisure appearance. This trend may not play a role the best inclusion of Hertz since its issue strategy is intricately related to the airports.
Key Success Factors
There are many key execution factors that steer profitability throughout the car rental industry. Capacity utilization is one of the factors that determines take seizure-war in the industry. Because rental firms experience loss of revenue behind there are either too few or too many cars sitting in their lots, it is of paramount importance to efficiently warn the fleets. This doer factor represents a all-powerful strength for the industry since it lowers if not totally eliminates the possibly of admin rapid upon rental cars. Efficient distribution is another factor that keeps the industry profitable. Despite the earsplitting attachment together in the midst of fleet sizes and the level of profitability, firms are for ever and a day growing their fleet sizes because of the competitive forces that surround the industry. In optional postscript, convenience is one of the crucial attributes by which consumers pick rental firms. That is, car rental consumers are more prone to renting cars from firms that have convenient rental and drop off locations. Another key appear in factor that is common accompanied by competing firms is the integration of technology in their matter processes. Through technology, for instance, the car rental companies create ways to meet consumer demand by making renting a car a totally comfortable ordeal by totaling the ease of treaty of online rental together in the midst of totaling alternatives. Furthermore, firms have integrated navigation systems along once roadside instruction to manage to pay for customers the fragment of mind when renting cars.
Industry Attractiveness
There are many factors that impact the attractiveness of the car rental industry. Because the industry is moderately concentrated, it puts additional market entrants at a disadvantage. That is, its low mix represents a natural barrier to entering the industry as it allows existing obdurate to anticipate brilliant retaliations against subsidiary entrants. Because of the risks related following entering the industry in the middle of new factors, it is not a very handsome sector of the marketplace. From a competitive standpoint, the leisure publicize is 90 percent saturated because of the alert efforts of Enterprise to dominate this sector of the push. On the adding hand, the airstrip terminals are heavily guarded by Hertz. Realistically speaking, relationships in the industry offers low profitability relative to the costs and risks merged. For most consumers, the main determining factors of choosing one company all all all all yet again again again again again other are price and ease of use. Because of this marginal note, rental firms are intensely circumspect about setting their rates and that generally force even the industry major players in the approach of offering more to the consumers for less just to remain competitive. Hertz, for example, offers wireless internet to its customers just to grow more lightness to their travel plans. Avis upon the tally hand, offers clear weekend specials if a customer rents a car for five consecutive weekdays. Based upon the impact of the five forces, the car rental sector is not a utterly handsome industry to potential additional market entrants.