The Car Rental Industry

Market Overview

The auto rental industry is a multi-billion dollar sector of the US economy. The us portion of the industry averages about $18. 5 thousand in revenue a year. Today, there are approximately 1. 9 million rental vehicles that service the us portion of the market. In addition, there are many rental agencies besides the Miami lambo rental industry leaders that subdivide the complete revenue, particularly Dollar Thrifty, Budget and Vanguard. Unlike other mature service industries, the rental car industry is highly consolidated which naturally puts potential new comers at a cost-disadvantage since they face high input costs with reduced possibility of economies of scale. Moreover, most of the profit is generated by a few firms including Enterprise, Hertz and Avis. For the budgetary year of 2004, Enterprise generated $7. 4 thousand in total revenue. Hertz came in second position with about $5. 2 thousand and Avis with $2. 97 in revenue.

Level of Integration

The rental car industry faces a completely different environment than it did five years ago. According to Business Travel News, vehicles are usually now being hired until they have accumulated 20, 000 to 30, 000 miles until they are relegated to the car industry whereas the turn-around mileage was 12, 000 to 15, 000 miles five years ago. Because of slow industry growth and narrow profit margin, there is no imminent threat to backward integration within the industry. In fact, among the industry players only Hertz is vertically integrated through Honda.

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 sequence. On the vacation consumer’s end of the selection range, competition is fierce not only because the market is saturated and well guarded by industry leader Enterprise, but competitors operate at a cost disadvantage along with smaller market shares since Enterprise has established a network of dealers over 90 percent the leisure portion. On the corporate portion, on the other hand, competition is very strong at the air-ports since that portion is under tight administration by Hertz. Because the industry have a massive economic downfall in recent years, it has upgraded the scale of competition within most of the companies that lasted. Competitively speaking, the rental car industry is a war-zone as most rental agencies including Enterprise, Hertz and Avis among the major players engage in a battle of the fittest.

Growth

Over the past five years, most firms have been working towards enhancing their fleet sizes and increasing the level of profitability. Enterprise currently the company with the largest fleet in the us alone has added 75, 000 vehicles to its fleet since 2002 that assist increase its number of facilities to 170 at the air-ports. Hertz, on the other hand, has added 25, 000 vehicles and widened its international presence in one humdred and fifty counties as opposed to 140 in 2002. In addition, Avis has increased its fleet from 210, 000 in 2002 to 220, 000 despite recent economic adversities. Over the years following the economic depression, although most companies throughout the industry were struggling, Enterprise among 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 thousand in 2004 which translated into a growth rate of 7. 2 percent a year for the past four years. Since 2002, the industry has begun to regain its footing in the sector as overall sales grew from $17. 9 thousand to $18. 2 thousand in 2003. According to industry analysts, the better days of the rental car industry have yet to come. Over the course of the next several years, the industry is expected to experience accelerated growth valued at $20. fifth 89 thousand each year following 2008 “which equates to a CAGR of 2. 7 % [increase] in the 2003-2008 period. ”

Distribution

Over the past few years the rental car industry has made a great deal of progress to facilitate it distribution processes. Today, there are approximately 19, 000 rental locations yielding about 1. 9 million rental cars in the us alone. Because of the increasingly abundant number of car rental locations in the us alone, strategic and tactical approaches are looked at in order to insure proper distribution throughout the industry. Distribution comes together within two interrelated sectors. On the corporate market, the cars are distributed to air-ports and hotel surroundings. On the leisure portion, on the other hand, cars are distributed to agency owned facilities that are handily located within most major roads and metropolitan areas.

In the past, leaders of rental car companies used to rely on gut-feelings or intuitive guesses to make decisions about how many cars to have in a particular fleet or the utilization level and performance standards of keeping certain cars in one fleet. With that methods, it was very difficult to maintain a level of balance that would satisfy consumer demand and the desired level of profitability. The distribution process is pretty simple throughout the industry. To begin with, leaders must determine the number of cars that must be on inventory on a daily basis. Because a very noticeable problem arises when too many or not enough cars are available, most car rental companies including 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 place, rental locations operate more efficiently since they reduce the risk of low inventory if not eliminate rental car shortages.

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