The Car Hire Industry

The car rental industry is really a multi-billion dollar market of the US economy. The UNITED STATES segment of the averages about $18.5 million in income per year. Today, you will find roughly 1.9 million hire automobiles that service the UNITED STATES part of industry. Furthermore, there are numerous rental agencies aside from the business leaders that sub-divide the full total revenue, particularly Budget, Dollar Thrifty and Vanguard. Unlike other mature service sectors, the rental car business is extremely combined which obviously sets potential new comers at a cost-disadvantage given that they face high input costs with paid off possibility of economies of scale. Furthermore, all of the profit is created by a few firms including Hertz, Enterprise and Avis. For the fiscal year of 2004, Enterprise generated $7.4 million as a whole income. Hertz came in 2nd place with about $5.2 million and Avis with $2.97 in income.

Level of Integration

The rental car business faces an entirely different atmosphere than it did five years before. According to Business Travel News, automobiles are being hired until they've accumulated 20,000 to 30,000 miles until they're directed for the used-car industry whereas the turn-around distance was 12,000 to 15,000 miles five years ago. Because of thin profit margin and slow industry development, there is no imminent risk to backward integration within the industry. The truth is, one of the market players only Hertz is vertically built-in through Ford. Southern Trust Property Management

Scope of Competition

There are numerous elements that shape the competitive landscape of the automobile rental business. Opposition arises from two main sources through the chain. On the vacation consumers end-of the variety, competition is tough not merely because the market is saturated and well guarded by market leader Enterprise, but competitors run at a cost 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 another hand, opposition is extremely powerful at the airports since that segment is under tight supervision by Hertz. Because the industry underwent a huge economic fall lately, it has replaced the scale of competition within most of the companies that survived. Competitively speaking, the rental car industry is just a war-zone because so many rental organizations including Hertz, Enterprise and Avis among the major players take part in a battle of the fittest property manager

Progress

In the last five years, most organizations have already been working towards increasing the degree of profitability and enhancing their fleet dimensions. Venture currently the company with the biggest fleet in the US has included 75,000 cars to its fleet since 2002 that assist increase its variety of facilities to 170 in the airports. Hertz, on the other hand, has added 25,000 vehicles and widened its global reputation in 150 areas as opposed to 140 in 2002. Furthermore, Avis has increased its fleet from 210,000 in 2002 to 220,000 despite recent economic adversities. Over time following the economic depression, although most companies through the entire industry were struggling, Enterprise among the industry leaders have been growing steadily. For case, annual revenue reached $6.5 in 2002, $6.3 in 2001, $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 industry has started to regain its ground in the field as overall revenue grew from $17.9 billion to $18.2 billion in 2003. According to industry professionals, the higher days of the rental car industry have yet to return. Over the course of the next several years, the industry is likely to experience accelerated growth valued at $20.89 million each year following 2008 "which means a CAGR of 2.7-4 [increase] inside the 2003-2008 period.

Circulation

Within the last several years the rental-car industry has made a great deal of development to help it distribution procedures. To-day, you'll find around 19,000 rental spots glowing about 1.9 million rental cars in the US. Due to the increasingly abundant variety of car rental places in the US, tactical and strategic methods are taken into consideration as a way to ensure proper distribution throughout the industry. Circulation occurs within two inter-related segments. To the corporate market, the vehicles are distributed to airports and hotel environments. On the leisure section, on another hand, cars are allocated to firm owned facilities that are easily situated within metropolitan areas and most major highways.

In the past, managers of rental-car businesses used to count on gut-feelings or intuitive guesses to make decisions about just how many cars to have in a specific fleet or the use stage and performance standards of keeping certain cars in a single fleet. With that technique, it was very difficult to maintain a level of the specified level of profitability and harmony that would fulfill consumer demand. The circulation method is rather easy throughout the industry. Administrators must determine the amount of cars that must be on stock on a daily basis, to begin with. Most car rental businesses including Avis, Enterprise and Hertz, because a very obvious problem occurs when too many or insufficient cars are available, use a "pool which is a group of independent rental facilities that share a fleet of vehicles. Generally, with the pools set up, rental locations operate more efficiently simply because they reduce the threat of low stock if not eradicate rental car shortages.

Industry Segmentation

Many businesses through the string create a profit based of the type of cars which are rented. The rental cars are categorized into economy, compact, intermediate, premium and luxury. One of the five categories, the economy sector brings the most profit. For instance, the economy segment on it's own is responsible for 37.7 percent of the whole market income in 2004. Furthermore, the compact portion accounted for 32.3% of over all revenue. The remaining 30 percent is covered by the rest of the other categories for the US portion.

Old Degrees of Profitability

The general profitability of the automobile rental business has been shrinking recently. In the last five years, the industry has been fighting just like the remaining travel industry. In fact, between the years 2001 and 2003 the US market has experienced a modest reduction in the degree of profitability. Exclusively, revenue fell from $19.4 billion in 2,000 to $18.2 billion in 2001. Eventually, the overall market revenue eroded further to $17.9 billion in 2002; an amount that is minimally more than $17.7 billion which is the overall revenue for the year 1999. In 2003, the experienced a scarcely recognizable increase which brought profit to $18.2 billion. Consequently of the economic downturn lately, some of the smaller participants that were highly dependent on the airline industry have inked a good deal of method realignments as a way of organizing their companies to cope with eventual economic adversities that might surround the industry. For the year 2004, on the other hand, the economic situation of most corporations have gradually increased throughout the market since most rental companies have returned far greater profits relative to the anterior years. For occasion, Enterprise recognized revenues of $7.4 billion; Hertz returned Avis with $2.9 billion and revenues of $5.2 billion in income for the fiscal year of 2004. According to industry analysts, the rental car industry is likely to experience steady growth of 2.6 percent in revenue within the next many years which means a rise in profit.

Competitive Competition Among Retailers

There are various elements that drive competition inside the car rental market. Over the past several years, increasing profitability and broadening fleet sizes has-been the focus of most companies within the car rental industry. Hertz, organization and Avis among the leaders have been increasing both in revenue and fleet sizes. Moreover, opposition intensifies as companies are continually trying to enhance their present problems and provide more to customers. Organization has nearly doubled its fleet size since 1993 to approximately 600,000 vehicles today. Since the industry works on such slim income, price competition is not a factor; but, most companies are actively involved in creating beliefs and giving a variety of facilities from technical gadgets to actually free rental to satisfy clients. Hertz, like, integrates its Never-Lost GPS system within its cars. Business, on the other hand, uses sophisticated yield management software to manage its fleets.

Finally, Avis employs its OnStar and Skynet process to better serve the consumer base and provides free weekend rental in case a consumer rents a car for five straight days Moreover, the consumer base of the rental car market has relatively low to no switching cost. Conversely, rental businesses face high fixed operating expenses including house rental, insurance and maintenance. Consequently, rental firms are sensitively pricing there rental cars simply to recover operating expenses and effectively meet their clients demands. Furthermore, since the industry experienced slow growth in recent years as a result of economic stagnation that come in an enormous drop in both corporate travel and the leisure industry, most businesses including the industry leaders are aggressively looking to reposition their firms by gradually lessening the dependency stage on the airline industry and regaining their footing in the leisure competitive world.