Market Overview
The car rental business is a multi-billion dollar segment that is part of the US economy. The US segment of the market averages approximately $18.5 billion in revenues a year. At the present, there are around 1.9 million cars for rent servicing customers in the US sector of the market. There are also several rental companies, in addition to the major players in the industry that split the total revenue, including the Dollar Thrifty, Budget, and Vanguard. Contrary to other established service industries that are regulated, the rental car market is highly constrained, which puts newcomers at a disadvantage since they have high costs for input and are less likely to benefit from economies of scale. Additionally, the majority of profits are generated by a handful of companies, including Enterprise, Hertz, and Avis. In the fiscal year, 2004 Enterprise was able to generate $7.4 billion in revenue. Hertz was second with $5.2 billion, and Avis had $2.97 in revenues. https://quizcars.com
Grad of Integration
The rental car industry is in an entirely different situation than it was just five years ago. As per Business Travel News, vehicles are rented until they've traveled 20,000 to 30k miles before they are transferred to the used car market, whereas the turn-around time was 12,000-15,000 miles fifteen years ago. Due to the slow growth of the industry and the sluggish profits margins and the lack of a risk of backward integration within the business. Actually, of the companies in the industry, there is only Hertz has been vertically integrated via Ford.
Scope of the Competition
Many variables influence the competitive landscape of the car rental business. The competition comes from two primary sources within the chain. At the end of the spectrum for vacation consumers on the spectrum competition is intense not just because the market is overcrowded and protected by the industry's leading Enterprise however, competitors have a lower cost of entry and have smaller market share because Enterprise has created an extensive network of dealers that covers 90% of the leisure segment. For the corporate market, however, the competition is extremely strong in the airports, since this segment is under strict control by Hertz. Since the sector experienced an economic crisis of immense proportions over the last few years and has boosted the competition level within many of the companies that made it through. The rental car market is in a war zone as many rental companies, including Enterprise, Hertz, and Avis the biggest players are in a race for the fittest.
Growth
In the last five years, a majority of firms have worked towards increasing their fleets and increasing their profitability. Enterprise, which has one of the biggest fleets across the US adds 75,000 new vehicles in 2002. This will have helped increase the number of facilities up to 170 at airports. Hertz, however, on the contrary side has added 255,000 vehicles and expanded its global presence to 150 counties, as opposed to being 140 at the time of 2002. Additionally, Avis has increased its fleet from 210,000 in 2002 to 220,000, despite recent economic challenges. In the aftermath of the recession, though all companies in the sector were struggling, Enterprise among the leaders in the industry was growing consistently. As an example, sales of $6.3 for 2001. They also reached $6.5 during 2002. $6.9 in 2003, and $7.4 billion in 2004, which was a rate of growth of 7.2 percent per year over the last four years. In 2002 the rental car industry has begun to find its place in the industry since overall sales increased from $17.9 billion up to $18.2 billion during 2003. According to industry experts that the best days of the rental vehicle industry are still to be. Over the next few years, the sector is predicted to witness accelerated growth, valued at $20.89 billion annually following the year 2008 "which amounts to an increase of 2.7 percent [increase] over the 2003-2008 timeframe."
Distribution
Over the last couple of years, the rental car business has made lots of progress in its distribution methods. At the present, there are around 19,000 rental places that produce around 1.9 million cars for rental within the US. Because of the growing amount of car rental facilities in the US Strategic and tactical strategies are taken into consideration to ensure the right distribution throughout the market. Distribution is carried out in two interconnected segments. In the corporate market, the vehicles get distributed among airports as well as hotels within their surroundings. In the leisure sector in contrast the cars are distributed to agencies owned facilities that are situated within major cities and roads.
The past was when the managers of rental car firms relied on gut feelings or guesses based on intuition in deciding the number of cars that should be in a fleet or the rate of utilization and performance requirements for keeping specific cars within a fleet. In this way, it was extremely difficult to keep an equilibrium that satisfied the needs of consumers and also the desired level of profit. The distribution process is quite easy in the business. In the beginning, managers need to determine the number of vehicles that must be in inventory every day. Since a significant issue occurs when there are too many or insufficient cars on the market, many car rental firms like Hertz, Enterprise, and Avis make use of the term "pool" in which there is a collection of rental companies which share a vehicle fleet. In essence, with pools in place, rental establishments perform more efficiently as they decrease the possibility of having a shortage in inventory if they do not solve the issue of rental car shortages.
Market Segmentation
The majority of companies in the chain earn a profit depending on the kind of cars hired. The cars that are rented are categorized into compact, economy premium, intermediate, and luxurious. In the five categories, the economy segment produces the highest profit. For instance, the economic segment alone is the main contributor to 37.7 percent of total market revenues in 2004. Additionally, the compact segment was responsible for 32.3 percent of the total revenue. The other categories account for the remaining 30 percent of this US segment.
The Past levels of profitability
The overall revenue of the car rental business has been declining over the past few years. In the last five years, this industry is struggling like the rest of the travel sector. In fact, between the period of 2001 to 2003, the US market suffered a gradual decline in its profit. In particular, the revenue decreased from $19.4 billion in 2000 to $18.2 billion by 2001. In the following year, overall revenue decreased even more to $17.9 billion by 2002, which is barely greater than $17.7 billion, which was the total revenue for 1999. As of 2003, this industry witnessed an increase that was barely noticeable and led to a profit of $18.2 billion. Due to the economic slump in recent times, some of the smaller players who depended heavily upon the industry of airlines have made an extensive amount of strategy re-alignments in the hopes of preparing their businesses to face any eventual adverse economic conditions that might affect the industry. In the year 2004 on the other hand the economic conditions of the majority of firms have been improving gradually across the industry as the majority of rental companies have earned more profit than they did in prior times. For example, Enterprise realized revenues of $7.4 billion, Hertz generated revenue of $5.2 billion, and Avis had $2.9 billion in revenues in the fiscal year 2004. According to industry experts that the rental car business is expected to witness an increase of 2.6 percent over the next few years, which will translate into an increase in profits.