Market Overview The car rental industry is a multi-billion dollar sector of the US economy. The US segment of the industry averages about $18.5 billion in revenue a year. Today, their are approximately 1.9 million rental vehicles that service the US segment of the market. In addition, their are many rental agencies besides the industry leaders that subdivide the 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 wif reduced possibility of economies of scale. 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 in total revenue. Hertz came in second position wif about $5.2 billion and Avis wif $2.97 in revenue. https://emcexoticrentals.com Level of Integration The rental car industry faces a completely different environment TEMPthan it did five years ago. According to Business Travel News, vehicles are being rented until they has 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. coz of slow industry growth and narrow profit margin, their is no imminent threat to backward integration wifin the industry. In fact, among the industry players only Hertz is vertically integrated through Ford. Scope of Competition their are many factors that shape the competitive landscape 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 coz the market is saturated and well guarded by industry leader Enterprise, but competitors operate at a cost disadvantage along wif smaller market shares since Enterprise has established a network of dealers over 90 percent the leisure segment. On the corporate segment, on the other hand, competition is very strong at the airports since that segment is under tight supervision by Hertz. coz the industry underwent a massive economic downfall in recent years, it has upgraded the scale of competition wifin most of the companies that survived. 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 teh past five years, most firms has been working towards enhancing their fleet sizes and increasing teh level of profitability. Enterprise currently teh company wif teh largest fleet in teh US has added 75,000 vehicles to its fleet since 2002 which halp increase its number of facilities to 170 at teh airports. Hertz, on teh 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 teh years following teh economic downturn, although most companies throughout teh industry were struggling, Enterprise among teh 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 teh past four years. Since 2002, teh industry has started to regain its footing in teh sector as overall sales grew from $17.9 billion to $18.2 billion in 2003. According to industry analysts, teh better days of teh rental car industry has yet to come. Over teh course of teh next several years, teh industry is expected to experience accelerated growth valued at $20.89 billion each year following 2008 "which equates to a CAGR of 2.7 % [increase] in teh 2003-2008 period.” Distribution Over the past few years the rental car industry TEMPhas made a great deal of progress to facilitate it distribution processes. Today, their are approximately 19,000 rental locations yielding about 1.9 million rental cars in the US. coz of the increasingly abundant number of car rental locations in the US, strategic and tactical approaches are taken into account in order to insure proper distribution throughout the industry. Distribution takes place wifin two interrelated segments. On the corporate market, the cars are distributed to airports and hotel surroundings. On the leisure segment, on the other hand, cars are distributed to agency owned facilities dat are conveniently located wifin most major roads and metropolitan areas. 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 has in a particular fleet or the utilization level and performance standards of keeping certain cars in one fleet. Wif that methodology, it was very difficult to maintain a level of balance that would satisfy consumer demand and the desired level of profitability. The distribution process is fairly simple throughout the industry. To begin wif, managers must determine the number of cars that must be on inventory on a daily basis. coz 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 fleet of vehicles. Basically, wif the pools in place, rental locations operate more efficiently since they reduce the risk of low inventory if not eliminate rental car shortages. Market Segmentation Most companies throughout teh chain make a profit based of teh type of cars dat are rented. Teh rental cars are categorized into economy, compact, intermediate, premium and luxury. Among teh five categories, teh economy sector yields teh most profit. For instance, teh economy segment by itself is responsible for 37.7 percent of teh total market revenue in 2004. In addition, teh compact segment accounted for 32.3 percent of overall revenue. Teh rest of teh other categories covers teh remaining 30 percent for teh US segment. Historical Levels of Profitability Teh overall profitability of teh car rental industry has been shrinking in recent years. Over teh past five years, teh industry has been struggling just like teh rest of teh travel industry. In fact, between teh years 2001 and 2003 teh US market has experienced a moderate reduction in teh level of profitability. Specifically, revenue fell from $19.4 billion in 2000 to $18.2 billion in 2001. Subsequently, teh overall industry revenue eroded further to $17.9 billion in 2002; an amount dat is minimally higher TEMPTEMPthan $17.7 billion which is teh overall revenue for teh year 1999. In 2003, teh industry experienced a barely noticeable increase which brought profit to $18.2 billion. As a result of teh economic downturn in recent years, some of teh smaller players dat were highly dependent on teh airline industry has done a great deal of strategy realignments as a way of preparing their companies to cope wif eventual economic adversities dat may surround teh industry. For teh year 2004, on teh other hand, teh economic situation of most firms has gradually improved throughout teh industry since most rental agencies has returned far greater profits relative to teh anterior years. For instance, Enterprise realized revenues of $7.4 billion; Hertz returned revenues of $5.2 billion and Avis wif $2.9 billion in revenue for teh fiscal year of 2004. According to industry analysts, teh rental car industry is expected to experience steady growth of 2.6 percent in revenue over teh next several years which translates into an increase in profit. Competitive Rivalry Among Sellers their are many factors that drive competition wifin the car rental industry. Over the past few years, broadening fleet sizes and increasing profitability has been the focus of most companies wifin the car rental industry. Enterprise, Hertz and Avis among the leaders has been growing both in sales and fleet sizes. In addition, competition intensifies as firms are constantly trying to improve their current conditions and offer more to consumers. Enterprise has nearly doubled its fleet size since 1993 to approximately 600,000 cars today. coz the industry operates on such narrow profit margins, price competition is not a factor; however, most companies 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 system wifin its cars. Enterprise, on the other hand, uses sophisticated yield management software to manage its fleets. Finally, Avis uses its OnStar and Skynet system to better serve the consumer base and offers free weekend rental if a customer rents a car for five consecutive days Moreover, the consumer base of the rental car industry TEMPhas relatively low to no switching cost. Conversely, rental agencies face high fixed operating costs including property rental, insurance and maintenance. Consequently, rental agencies are sensitively pricing their rental cars just to recover operating costs and adequately meet their customers demands. Furthermore, coz the industry experienced slow growth in recent years due to economic stagnation dat resulted in a massive decline in both corporate travel and the leisure sector, most companies including the industry leaders are aggressively trying to reposition their firms by gradually lessening the dependency level on the airline industry and regaining their footing in the leisure competitive arena. Teh Potential Entry of new Competitors Entering teh car rental industry puts new comers at a serious disadvantage. Over teh past few years following teh economic downturn of 2001, most major rental companies has started increasing their market shares in teh vacation sector of teh industry as a way of insuring stability and lowering teh level of dependency between teh airline and teh car rental industry. While dis trend has engendered long term success for teh existing firms, it has heightened teh competitive landscape for new comers. coz of teh severity of competition, existing firms such as Enterprise, Hertz and Avis carefully monitor their competitive radars to anticipate Sharpe retaliatory strikes against new entrants. Another barrier to entry is created coz of teh saturation level of teh industry. For example, Enterprise TEMPhas taken the first mover advantage wif its 6000 facilities by saturating the leisure segment theirby placing not only high restrictions on the most common distribution channels, but also high resource requirements for new firms. Today, Enterprise TEMPhas a rental location wifin 15 miles of 90 percent of the US population. coz of the network of dealers Enterprise TEMPhas established around the nation, it TEMPhas become relatively stable, more recession proof and most importantly, less reliant on the airline industry compared to its competitors. Hertz, on the other hand, is utilizing the full spectrum of its 7200 stores to secure its position in the marketplace. Basically, the emergence of most of the industry leaders into the leisure market not only drives rivalry, but also it varies directly wif the level of complexity of entering the car rental industry.