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The Car Rental Industry

Market Overview

The Car Rental industry is a multi-billion dollar sector of the US economy. The us phase of the industry averages about $18. 5 billion in revenue a year. Today, there are اجاره خودرو approximately 1. 9 million rental vehicles that service the us phase of the market. In addition, there are many rental agencies besides the industry leaders that subdivide the overall revenue, including 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 simply 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 economic 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 a fully different environment than it did five years ago. According to Business Travel News, vehicles are being rented until they have accumulated 20, 000 to 30, 000 miles until they are relegated to the used car industry whereas the turn-around gas mileage was 12, 000 to 15, 000 miles five years ago. Because of slow industry growth and narrow profit border, there is no forthcoming 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 company. On the vacation consumer’s end of the spectrum, competition is fierce not only because the market is saturated and well secured by industry leader Enterprise, but competitors operate at a cost disadvantage along with smaller market shares since Enterprise has built a network of dealers over 90 percent the leisure phase. On the corporate phase, on the other hand, competition is very strong at the air terminals since that phase is under tight supervision by Hertz. Because the industry undergone a massive economic downfall in recent years, it has upgraded the scale of competition within most of the companies that lived through. 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 navy sizes and increasing the quality of earning. Enterprise currently the company with the largest navy in the us has added 75, 000 vehicles to its navy since 2002 which help increase its number of facilities to 170 at the air terminals. Hertz, on the other hand, has added 25, 000 vehicles and broadened its international presence in one hundred and fifty counties as opposed to one hundred and forty in 2002. In addition, Avis has increased its navy from 210, 000 in 2002 to two hundred and twenty, 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, the has started to regain its ground 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, the is expected to experience accelerated growth valued at $20. 89 billion each year following 08 “which means 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 containing about 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 thought about in order to insure proper distribution throughout the industry. Distribution takes place within two interrelated messages. On the corporate market, the cars are distributed to air terminals and hotel surroundings. On the leisure phase, on the other hand, cars are distributed to agency owned facilities that are quickly located within most major roads and places.

In the past, managers 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 navy or the employment level and performance standards of keeping certain cars in one navy. With that methodology, it was very difficult to maintain a straight of balance that would satisfy consumer demand and the desired level of earning. The distribution process is very simple throughout the industry. To begin with, managers 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 navy of vehicles. Basically, with the costly in place, rental locations operate more efficiently simply reduce the risk of low inventory if not eliminate rental car shortages.

Market Segmentation

Most companies throughout the company gain profits 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 assure the most profit. For instance, the economy phase by itself is answerable to 37. 7 percent of the total market revenue in 2004. In addition, the compact phase accounted for 32. 3 percent of overall revenue. All of those other other categories covers the remainder of the 30 percent for the US phase.

Historical Levels of Earning

The overall earning of the Car Rental industry has been shrinking in recent years. Over the past five years, the has been struggling just like all of those other travel industry. In fact, between the years 2001 and 2003 the us market has experienced a moderate reduction in the quality of earning. Specifically, revenue fell from $19. 4 billion in 2000 to $18. 2 billion in 2001. Subsequently, the overall industry revenue eroded further to $17. 9 billion in 2002; an amount that is minimally higher than $17. 7 billion which is the overall revenue for the year 1999. In 2003, the experienced a barely noticeable increase which brought profit to $18. 2 billion. As a result of the economic downturn in recent years, some of the smaller players that were highly dependent on the airline industry have done a great deal of strategy realignments as a way of preparing their companies to face eventual economic adversities that may surround the. For the year 2004, on the other hand, the economic situation on most firms have gradually improved throughout the industry since 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 $5. 2 billion and Avis with $2. 9 billion in revenue for the economic year of 2004. According to industry analysts, the rental car industry is expected to experience steady growth of 2. 6 percent in revenue over the next several years which translates into an increase in profit.

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