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Market Overview

The car rental commerce is a multi-billion dollar sector of the Us economy. The Us segment of the commerce averages about .5 billion in income a year. Today, there are approximately 1.9 million rental vehicles that assistance the Us segment of the market. In addition, there are many rental agencies also the commerce leaders that subdivide the total revenue, namely Dollar Thrifty, budget and Vanguard. Unlike other mature assistance industries, the rental car commerce is very consolidated which plainly puts possible 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 along with Enterprise, Hertz and Avis. For the fiscal year of 2004, enterprise generated .4 billion in total revenue. Hertz came in second position with about .2 billion and Avis with .97 in revenue.

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Level of Integration

The rental car commerce faces a completely distinct environment than it did five years ago. Agreeing to enterprise trip News, vehicles are being rented until they have accumulated 20,000 to 30,000 miles until they are relegated to the used car commerce whereas the turn-around mileage was 12,000 to 15,000 miles five years ago. Because of slow commerce increase and narrow profit margin, there is no imminent threat to backward integration within the industry. In fact, among the commerce players only Hertz is vertically integrated straight through Ford.

Scope of Competition

There are many factors that shape the contentious scenery of the car rental industry. Competition comes from two main sources throughout the chain. On the vacation consumer’s end of the spectrum, competition is fierce not only because the market is saturated and well guarded by commerce 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 free time segment. On the corporate segment, on the other hand, competition is very strong at the airports since that segment is under tight administration by Hertz. Because the commerce underwent a immense economic downfall in recent years, it has upgraded the scale of competition within most of the clubs that survived. Competitively speaking, the rental car commerce is a war-zone as most rental agencies along with 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 enterprise with the largest fleet in the Us has added 75,000 vehicles to its fleet since 2002 which help increase 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 increased its fleet from 210,000 in 2002 to 220,000 despite recent economic adversities. Over the years following the economic downturn, although most clubs throughout the commerce were struggling, enterprise among the commerce leaders had been growing steadily. For example, yearly sales reached .3 in 2001, .5 in 2002, .9 in 2003 and .4 billion in 2004 which translated into a increase rate of 7.2 percent a year for the past four years. Since 2002, the commerce has started to collect its footing in the sector as wide sales grew from .9 billion to .2 billion in 2003. Agreeing to commerce analysts, the best days of the rental car commerce have yet to come. Over the policy of the next several years, the commerce is staggering to sense accelerated increase valued at .89 billion 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 commerce has made a great deal of strengthen to facilitate it distribution processes. Today, there are approximately 19,000 rental locations compliancy 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 taken into list in order to insure allowable distribution throughout the industry. Distribution takes place within two interrelated segments. On the corporate market, the cars are distributed to airports and hotel surroundings. On the free time segment, on the other hand, cars are distributed to branch owned facilities that are comfortably settled within most major roads and metropolitan areas.

In the past, managers of rental car clubs used to rely on gut-feelings or intuitive guesses to make decisions about how many cars to have in a singular fleet or the utilization level and doing standards of holding determined cars in one fleet. With that methodology, it was very difficult to utter a level of balance that would satisfy consumer inquire and the desired level of profitability. The distribution process is fairly easy throughout the industry. To begin with, managers must settle the number of cars that must be on list on a daily basis. Because a very noticeable qoute arises when too many or not sufficient cars are available, most car rental clubs along with 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 list if not eliminate rental car shortages.

Market Segmentation

Most clubs throughout the chain make a profit based of the type of cars that are rented. The rental cars are categorized into economy, compact, intermediate, prime and luxury. Among the five categories, the cheaper sector yields the most profit. For instance, the cheaper segment by itself is responsible for 37.7 percent of the total market income in 2004. In addition, the covenant segment accounted for 32.3 percent of wide revenue. The rest of the other categories covers the remaining 30 percent for the Us segment.

Historical Levels of Profitability

The wide profitability of the car rental commerce has been shrinking in recent years. Over the past five years, the commerce has been struggling just like the rest of the trip industry. In fact, in the middle of the years 2001 and 2003 the Us market has experienced a moderate reduction in the level of profitability. Specifically, income fell from .4 billion in 2000 to .2 billion in 2001. Subsequently, the wide commerce income eroded further to .9 billion in 2002; an number that is minimally higher than .7 billion which is the wide income for the year 1999. In 2003, the commerce experienced a barely noticeable increase which brought profit to .2 billion. As a effect of the economic downturn in recent years, some of the smaller players that were very dependent on the airline commerce have done a great deal of strategy realignments as a way of preparing their clubs to cope with eventual economic adversities that may surround the industry. For the year 2004, on the other hand, the economic situation of most firms have gently improved throughout the commerce since most rental agencies have returned far greater profits relative to the prior years. For instance, enterprise realized revenues of .4 billion; Hertz returned revenues of .2 billion and Avis with .9 billion in income for the fiscal year of 2004. Agreeing to commerce analysts, the rental car commerce is staggering to sense steady increase of 2.6 percent in income over the next several years which translates into an increase in profit.

Competitive Rivalry Among Sellers

There are many factors that drive competition within the car rental industry. Over the past few years, broadening fleet sizes and increasing profitability has been the focus of most clubs within the car rental industry. Enterprise, Hertz and Avis among the leaders have been growing both in sales and fleet sizes. In addition, competition intensifies as firms are enduringly trying to heighten their current conditions and offer more to consumers. enterprise has nearly doubled its fleet size since 1993 to approximately 600,000 cars today. Because the commerce operates on such narrow profit margins, price competition is not a factor; however, most clubs are actively involved in creating values and providing a range of amenities from technological gadgets to even free rental to satisfy customers. Hertz, for example, integrates its Never-Lost Gps principles within its cars. Enterprise, on the other hand, uses sophisticated yield administration software to administrate its fleets.

Finally, Avis uses its OnStar and Skynet principles to best serve the consumer base and offers free weekend rental if a buyer rents a car for five consecutive days Moreover, the consumer base of the rental car commerce has relatively low to no switching cost. Conversely, rental agencies face high fixed operating costs along with asset rental, assurance and maintenance. Consequently, rental agencies are sensitively pricing there rental cars just to recover operating costs and adequately meet their customers demands. Furthermore, because the commerce experienced slow increase in recent years due to economic stagnation that resulted in a immense decline in both corporate trip and the free time sector, most clubs along with the commerce leaders are aggressively trying to reposition their firms by gently lessening the dependency level on the airline commerce and regaining their footing in the free time contentious arena.

The possible Entry of new Competitors

Entering the car rental commerce puts new comers at a serious disadvantage. Over the past few years following the economic downturn of 2001, most major rental clubs have started increasing their market shares in the vacation sector of the commerce as a way of insuring stability and lowering the level of dependency in the middle of the airline and the car rental industry. While this trend has engendered long term success for the existing firms, it has heightened the contentious scenery for new comers. Because of the severity of competition, existing firms such as Enterprise, Hertz and Avis carefully monitor their contentious radars to anticipate Sharpe retaliatory strikes against new entrants. Another fence to entry is created because of the saturation level of the industry.

For example, enterprise has taken the first mover benefit with its 6000 facilities by saturating the free time segment thereby placing not only high restrictions on the most coarse distribution channels, but also high reserved supply requirements for new 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 established nearby the nation, it has come to be relatively stable, more recession proof and most importantly, less reliant on the airline commerce compared to its competitors. Hertz, on the other hand, is utilizing the full spectrum of its 7200 market to collect its position in the marketplace. Basically, the emergence of most of the commerce leaders into the free time market not only drives rivalry, but also it varies directly with the level of complexity of entering the car rental industry.

The Threat of Substitute

There are many substitutes available for the car rental industry. From a technological standpoint, renting a car to go the distance for a meeting is a less intriguing alternative as opposed to video conferencing, virtual teams and collaboration software with which a enterprise can immediately setup a meeting with its employees from everywhere nearby the world at a cheaper cost. In addition, there are other alternatives along with taking a cab which is a satisfactory substitute relative to quality and switching cost, but it may not be as attractively priced as a rental car for the policy of a day or more. While collective transportation is the most cost effective of the alternatives, it is more costly in terms of the process and time it takes to reach one’s destination. Finally, because flying offers convenience, speed and performance, it is a very enticing substitute; however, it is an unattractive alternative in terms of price relative to renting a car. On the enterprise segment, car rental agencies have more safety against substitutes since many clubs have implemented trip policies that develop the parameters of when renting a car or using a substitute is the best policy of action.

According to Tracy Esch, an benefit director of marketing operations, her enterprise rents cars up to a 200-mile trip before considering an alternative. Basically, the threat of substitute is reasonably low in the car rental commerce since the effects the substitute products have do not pose a indispensable threat of profit erosion throughout the industry.

The Bargaining Power of Suppliers

Supplier power is low in the car rental industry. Because of the availability of substitutes and the level of competition, suppliers do not have a great deal of influence in the terms and conditions of supplying the rental cars. Because the rental cars are usually purchased in bulk, rental car agents have indispensable influence over the terms of the sale since they possess the quality to play one provider against Another to lower the sales price. Another factor that reduces provider power is the absence of switching cost. That is, buyers are not affected from purchasing from one provider over Another and most importantly, changing to distinct supplier’s products is barely noticeable and does not influence consumer’s rental choices.

The Bargaining Power of Buyers

While the free time sector has limited or no power, the enterprise segment possesses a indispensable number of influence in the car rental industry. An intriguing trend that is currently underway throughout the commerce is forcing car rental clubs to adapt to the needs of corporate travelers. This trend significantly reduces provider power or the rental firms’ power and increases corporate buyer power since the enterprise segment is excruciatingly price sensitive, well informed about the industry’s price structure, purchase in larger quantities and they use the internet to force lower prices. Vacation buyers, on the other hand, have less influence over the rental terms. Because vacationers are usually less price sensitive, purchase in lesser amounts or purchase more infrequently, they have weak bargaining power.

Five Forces

Today the car rental commerce is facing a completely distinct environment than it did five years ago. Competitively speaking, the revolution of the five forces nearby the car rental commerce exerts some strong economic pressure that has significantly tarnished the contentious amenity of the industry. As a effect of the economic downturn in recent years, many clubs went under namely budget and the Vanguard Group because their enterprise infrastructure succumbed to the untenability of the contentious environment. Today, very few firms along with Enterprise, Hertz and Avis return a slightly above-average income compared to the rest of the industry. Realistically speaking, the car rental sector is not a very intriguing commerce because of the level of competition, the barriers to entry and the contentious pressure from the substitute firms.

Strategic Group Mapping

As a gently concentrated sector, there is a clear hierarchy in the car rental industry. From an economic standpoint, disparities exist from a number of dimensions along with revenue, fleet size and the market size each firm holds in the market place. For instance, enterprise dominates the commerce with a fleet size of approximately 600,000 vehicles along with its market size and its level of profitability. Hertz comes in second position with its number of market shares and fleet volume. In addition, Avis ranks third on the map. Avis is among one of the clubs that is having issues recovering its income margins from prior to the economic downturn. For instance, in 2000 Avis returned revenues of approximately .23 billion. Over the policy of the next several years following 2000, the income of Avis has been significantly lower than that of 2000. As a way of reducing uncertainty most clubs are gently lessening the level of dependency on the airline commerce and emerging the free time market. This trend may not be in the best interest of Hertz since its enterprise strategy is intricately related to the airports.

Key Success Factors

There are many key success factors that drive profitability throughout the car rental industry. Capacity utilization is one of the factors that determines success in the industry. Because rental firms sense loss of income when there are whether too few or too many cars sitting in their lots, it is of renowned significance to efficiently administrate the fleets. This success factor represents a big drive for the commerce since it lowers if not completely eliminates the perhaps of running short on rental cars. effective distribution is Another factor that keeps the commerce profitable. Despite the determined relationship in the middle of fleet sizes and the level of profitability, firms are enduringly growing their fleet sizes because of the contentious forces that surround the industry. In addition, 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 favorable rental and drop off locations. Another key success factor that is coarse among contentious firms is the integration of technology in their enterprise processes. straight through technology, for instance, the car rental clubs originate ways to meet consumer inquire by development renting a car a very agreeable ordeal by adding the convenience of online rental among other alternatives. Furthermore, firms have integrated sailing systems along with roadside aid to offer customers the piece of mind when renting cars.

Industry Attractiveness

There are many factors that impact the amenity of the car rental industry. Because the commerce is gently concentrated, it puts new market entrants at a disadvantage. That is, its low attentiveness represents a natural fence to entering the commerce as it allows existing firm to anticipate sharp retaliations against new entrants. Because of the risks related with entering the commerce among other factors, it is not a very intriguing sector of the marketplace. From a contentious standpoint, the free time market is 90 percent saturated because of the active efforts of enterprise to dominate this sector of the market. On the other hand, the airport terminals are heavily guarded by Hertz. Realistically speaking, entry in the commerce offers low profitability relative to the costs and risks associated. For most consumers, the main determining factors of selecting one enterprise over Another are price and convenience. Because of this reason, rental firms are very circumspect about setting their rates and that ordinarily force even the commerce major players in the position of offering more to the consumers for less just to remain competitive. Hertz, for example, offers wireless internet to its customers just to add more convenience to their trip plans. Avis on the other hand, offers free weekend specials if a buyer rents a car for five consecutive weekdays. Based on the impact of the five forces, the car rental sector is not a very intriguing commerce to possible new market entrants.

Conclusion

The rental car commerce is in a state of recovery. Although it may seem like the commerce is performing well financially, it is nonetheless gently regaining its footing relative to its actual economic position within the last five years. As a way of insuring profitability, also seeking market shares and stability, most clubs throughout the chain have a coarse goal that deals with lowering the level of dependency on the airline commerce and intriguing toward the free time segment. This state of petition has engendered some fierce competition among commerce competitors as they attempt to defend their market shares. From a futuristic perspective, the best days of the car rental commerce have yet to come. As the level of profitability increases, I believe that most of the commerce leaders along with Enterprise, Hertz and Avis will be bounded by the economic and contentious barriers of mobility of their strategic groups and new comers will have a best occasion of infiltrating and realizing success in the car rental industry.

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The Car Rental industry