Market Overview

The automobile rental industry is really a multi-billion dollar sector of the US economy. The US segment of a averages about $18.5 billion in revenue a year. Today, you will find approximately 1.9 million rental vehicles that service the US segment of the market. Additionally, there are lots of rental agencies besides a leaders that subdivide the sum total revenue, namely 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 chance for economies of scale appliance rentals. 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 as a whole revenue. Hertz came in second position with about $5.2 billion and Avis with $2.97 in revenue.

Amount of Integration

The rental car industry faces a completely different environment than it did five years ago. Based on Business Travel News, vehicles are now 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 mileage was 12,000 to 15,000 miles five years ago. As a result of slow industry growth and narrow profit margin, there's no imminent threat to backward integration within the industry. Actually, among a players only Hertz is vertically integrated through Ford.

Scope of Competition

There are numerous factors that shape the competitive landscape of the automobile rental industry. Competition comes from two main sources throughout the chain. On the vacation consumer's end of the spectrum, competition is fierce not merely because the marketplace is saturated and well guarded by industry leader Enterprise, but competitors operate at a high price disadvantage along with smaller market shares since Enterprise has established a network of dealers over 90 percent the leisure segment. On the corporate segment, on one other hand, competition is quite strong at the airports since that segment is under tight supervision by Hertz. Because a underwent an enormous 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 really a war-zone since many rental agencies including Enterprise, Hertz and Avis among the major players participate in a struggle of the fittest.

Growth

Within the last five years, most firms have already been working towards enhancing their fleet sizes and increasing the degree of profitability. Enterprise currently the organization with the biggest fleet in the US has added 75,000 vehicles to its fleet since 2002 that assist increase its amount of facilities to 170 at the airports. Hertz, on one other hand, has added 25,000 vehicles and broadened its international presence in 150 counties instead of 140 in 2002. Additionally, Avis has increased its fleet from 210,000 in 2002 to 220,000 despite recent economic adversities. Through the years following a economic downturn, although most companies throughout a were struggling, Enterprise among a 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 right into a growth rate of 7.2 percent a year for yesteryear four years. Since 2002, a has begun to regain its footing in the sector as overall sales grew from $17.9 billion to $18.2 billion in 2003. Based on industry analysts, the better days of the rental car industry have yet to come. Over the length of another many years, a is expected to have accelerated growth valued at $20.89 billion every year following 2008 "which equates to a CAGR of 2.7 % [increase] in the 2003-2008 period.”

Distribution

Within the last couple of years the rental car industry has made a lot of progress to facilitate it distribution processes. Today, you will find approximately 19,000 rental locations yielding about 1.9 million rental cars in the US. Because of the increasingly abundant amount of car rental locations in the US, strategic and tactical approaches are taken into consideration in order to insure proper distribution throughout the industry. Distribution occurs within two interrelated segments. On the corporate market, the cars are distributed to airports and hotel surroundings. On the leisure segment, on one other hand, cars are distributed to agency owned facilities which are conveniently located within most major roads and metropolitan areas.

Before, managers of rental car companies used to depend on gut-feelings or intuitive guesses to produce decisions about exactly how many cars to have in a specific fleet or the utilization level and performance standards of keeping certain cars in one single fleet. With that methodology, it was very difficult to steadfastly keep up a level of balance that could satisfy consumer demand and the desired level of profitability. The distribution process is pretty simple throughout the industry. To start with, managers must determine how many cars that must be on inventory on an everyday basis. Just because a very noticeable problem arises when a lot of or insufficient cars can be found, most car rental companies including Hertz, Enterprise and Avis, work with a "pool” which really is a number of independent rental facilities that share a fleet of vehicles. Basically, with the pools in position, rental locations operate more proficiently since they reduce the danger of low inventory or even eliminate rental car shortages.

Market Segmentation

Most companies throughout the chain make a gain based of the kind of cars which are rented. The rental cars are categorized into economy, compact, intermediate, premium and luxury. On the list of five categories, the economy sector yields the most profit. For instance, the economy segment on it's own is accountable for 37.7 percent of the sum total market revenue in 2004. Additionally, the compact segment accounted for 32.3 percent of overall revenue appliance rentals. The remaining portion of the other categories covers the rest of the 30 percent for the US segment.