The Car Rental Industry

Market Overview

The automobile rental industry is a multi-billion dollar sector of the US economy. The us area of the industry averages about $18. 5 billion in revenue a year. Today, there are approximately 1. 9 million rental vehicles that service the us area of the market. In addition, there are many rental agencies besides the industry leaders that subdivide the whole revenue, which is Dollar Thrifty, Budget and lamborghini rental miami Vanguard. Unlike other mature service industries, the rental car industry is highly consolidated which naturally puts potential new comers at a cost-disadvantage simply because 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 money year of 2004, Enterprise generated $7. 4 billion in total revenue. Hertz came in second position with about $5. 2 billion and Avis with $2. ninety seven in revenue.

Level of Integration

The rental car industry faces an entirely different environment than it did five years ago. According to Business Travel News, vehicles will be rented until they have accumulated 20, 000 to 30, 000 miles until they are relegated to the used car industry whereas the turn-around miles was 12, 000 to 15, 000 miles five years ago. Because of slow industry growth and narrow profit perimeter, there is no upcoming threat to backward integration within the industry. In fact, among the industry players only 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 stringed. On the vacation consumer’s end of the selection, competition is fierce not only because the market is saturated and well safeguarded by industry leader Enterprise, but competitors operate at a cost disadvantage along with smaller market shares since Enterprise has generated a network of dealers over 90 percent the leisure area. On the corporate area, on the other hand, competition is very strong at the airlines since that area is under tight watch by Hertz. Because the industry had a massive economic downfall in recent years, it has upgraded the scale of competition within most of the companies that held up. 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 fast sizes and increasing the degree of earnings. Enterprise currently the company with the largest fast the united states has added 75, 000 vehicles to its fast since 2002 which help increase its number of facilities to 170 at the airlines. Hertz, on the other hand, has added 25, 000 vehicles and broadened its international presence in one hundred fifty counties as opposed to 160 in 2002. In addition, Avis has increased its fast from 210, 000 in 2002 to 230, 000 despite recent economic adversities. Over the years following the economic downturn, 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 billion in 2004 which translated into a growth rate of 7. 2 percent a year for the past four years. Since 2002, a has started to regain its a foot-hold in the sector as overall sales grew from $17. 9 billion to $18. 2 billion 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, a is expected to experience accelerated growth valued at $20. 89 billion each year following ’08 “which compatible 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 glorious about 1. 9 million rental cars the united states. Because of the increasingly abundant number of car rental locations the united states, strategic and tactical approaches are considered in order to insure proper distribution throughout the industry. Distribution develops within two interrelated clips. On the corporate market, the cars are distributed to airlines and hotel surroundings. On the leisure area, on the other hand, cars are distributed to agency owned facilities that are ideally located within most major roads and towns.

In the past, operators 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 fast or the use level and performance standards of keeping certain cars in one fast. With that system, it was very difficult to maintain an even of balance that would satisfy consumer demand and the desired level of earnings. The distribution process is sort of simple throughout the industry. To begin with, operators 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 fast of vehicles. Basically, with the private pools in place, rental locations operate more efficiently simply because they reduce the risk of low inventory if not eliminate rental car shortages.

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