The car rental industry is a multi-billion dollar sector in the US economy. The US segment of the industry is on average about 18.5 billion. Dollars on sale each year. Today there are approximately. 1.9 million rental cars serving the US segment of the market. In addition, there are many rental agencies along industry leaders who break up total revenue, sometimes Dollar Thrifty, Budget and Vanguard. Unlike other mature service companies, the rental car industry is heavily consolidated, which naturally puts potential new customers at risk as they face high input costs with reduced likelihood of economies of scale. In addition, most of the profits are generated by a few companies, including Enterprise, Hertz and Avis. For the 2004 financial year, Enterprise generated 7.4 billion. Dollars in total revenue. Hertz came in second position with around 5.2 billion. Dollars and Newspaper with $ 2.97 in revenue.
The car industry is facing a completely different environment than it did five years ago. According to Business Travel News, vehicles are rented until they have accrued 20,000 to 30,000 miles until they are referred to the used automotive industry, while the revolutions were 12,000 to 15,000 miles five years ago. Due to the slow growth in industry and the narrow earnings margin, there is no imminent threat to backward integration within the industry. In fact, only the industry players, Hertz, are integrated vertically through Ford.
There are many factors that shape the competitive landscape of the car rental industry. Competition comes from two main sources through the chain. At the end of the holiday consumer end of the spectrum, competition is hard not only because the market is organized and well-guarded by industry leader Enterprise, but competitors operate with a minor disadvantage along with smaller market shares as Enterprise has established a network of retailers over 90 percent of the leisure segment. In the business segment, competition is very strong at airports, as this segment is under strict control of Hertz. Because the industry has undergone a massive economic downturn in recent years, it has upgraded the scale of competition within most of the companies that survived. Competitively, the rental car industry is a war zone like most rental companies, including Enterprise, Hertz and Avis, among the major players involved in a battle of the hardest.
Over the past five years, most companies have worked to strengthen their fleet sizes and increase profitability. The company currently has the largest fleet in the US, adding 75,000 cars to its fleet since 2002, which contributes to increasing the number of facilities to 170 at airports. Hertz, on the other hand, has added 25,000 vehicles and expanded 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 in spite of recent economic opposites. Over the years after the economic downturn, although most companies throughout the industry fought, Enterprise among industry leaders had grown 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 means growth of 7.2 percent per year over the last four years . Since 2002, the industry has begun to regain its feet in the sector, with total sales growing from 17.9 billion. Dollar to 18.2 billion. USD in 2003. According to industry analysts, the best days in the rental car industry have not yet come. Over the next several years, industry is expected to experience accelerated growth of 20.89 billion. USD each year after 2008, "which corresponds to a CAGR of 2.7% [increase] in the period 2003-2008."
In the last couple of years, the rental car industry has made a significant contribution to facilitating the distribution processes. Today there are approximately. 19,000 rental locations, providing about 1.9 million rental cars in the United States. Due to the increasing number of car rental locations in the United States, strategic and tactical approaches are taken into account to ensure proper distribution throughout the industry. Distribution takes place within two interlinked segments. In the commercial market, the cars are distributed to airports and hotel environments. In the leisure segment, the cars are distributed at the agency's owned facilities, conveniently located within most major roads and metropolitan areas.
Previously, leasing companies used gut feelings or intuitive guesses to make decisions about how many cars should be in a particular fleet or utilization and performance standards to keep certain cars in a fleet. With the methodology, it was very difficult to maintain a level of balance that would satisfy consumer demand and the desired profitability level. The distribution process is quite simple throughout the industry. Initially, managers must determine the number of cars that will be in stock each day. Because a very noticeable problem occurs when there are too many or not enough cars, 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. The pools in place are less efficient, as they reduce the risk of low inventory, if not eliminating rental car shortages.
Most companies throughout the chain make a profit based on the type of vehicles rented out. The rental cars are categorized in economy, compact, intermediate, premium and luxury. Among the five categories, the economy gives the most profit. For example, the financial segments account for 37.7 percent of total market turnover in 2004. In addition, the compact segment represented 32.3 percent of total revenue. The rest of the remaining categories cover the remaining 30 percent for the US segment.
Historical wage levels
The overall profitability of the car rental industry has declined in recent years. Over the past five years, industry has fought like the rest of the travel industry. In fact, the US market between 2001 and 2003 has experienced a moderate reduction in profitability. Specifically, revenue fell from 19.4 billion. Dollars in 2000 to 18.2 billion. Dollars in 2001. Thereafter, total industrial income was poured further to 17.9 billion. USD in 2002; an amount that is at least higher than 17.7 billion. dollars, which is the total revenue for 1999. In 2003, the industry hardly experienced a significant increase, earning profits to 18.2 billion. Due to the economic downturn in recent years, some of the smaller players heavily dependent on the aviation industry have done a lot of strategic adjustments as a way to prepare their businesses for dealing with economic economic downturns that can surround the industry. For 2004, the economic situation for most companies has gradually improved through the industry, as most rental companies have returned a far greater profit than in previous years. For example, Enterprise realized revenue of 7.4 billion. Hertz returned revenues of 5.2 billion. Dollars and Newspaper with 2.9 billion. Dollars in revenue for the financial year 2004. According to industry analysts, the rental car industry is expected to experience stable growth of 2.6 percent in revenue over the coming several years, which means an increase in profits.
Competitive Rivalry Among Merchants
There are many factors driving competition in car hire. In recent years, wider fleet sizes and increasing profitability have been the focus of most car rental companies. Enterprise, Hertz and Avis among the leaders have grown in sales and fleet sizes. In addition, competition is intensifying as companies constantly try to improve their current relationships and offer more to consumers. The company has almost doubled its fleet size since 1993 to approx. 600,000 cars today. As industry is operating with such narrow profit margins, price competition is not a factor; However, most companies are actively involved in creating values and offering a range of facilities from technological gadgets to even free rental to satisfy customers. For example, Hertz integrates its never-lost GPS system within its cars. However, Enterprise uses advanced performance management software to control 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. In addition, the consumer base in the rental car industry has relatively low or no conversion costs. Conversely, rental companies are facing fixed operating costs, including rental of property, insurance and maintenance. Therefore, rental companies are sensitive prices that rent cars only to restore operating costs and adequately meet their customers' requirements. As the industry has experienced slow growth in recent years due to economic stagnation that resulted in a massive decline in both business and leisure sectors, most companies, including industry leaders, aggressively try to relocate their companies by gradually reducing the level of dependence on the aviation industry and regaining their foot in the free-competition arena.
Potential entry of new competitors
Entering the car rental industry puts new comes into serious disadvantage. In recent years after the economic downturn in 2001, most major rental companies have begun to increase their market shares in the industry's holiday industry as a way to ensure stability and lower the level of dependency between the airline and car hire. Although this trend has achieved long-term success for existing companies, it has increased the competitive conditions for new businesses. Due to the severity of competition, existing companies like Enterprise, Hertz and Avis closely monitor their competitive radar to expect Sharpe retaliation attacks against new players. Another entry barrier is created due to industry's saturation level.
Enterprise has, for example, taken the first mover advantage with its 6000 facilities by measuring the leisure segment, thus not only placing high limitations on the most common distribution channels, but also high resource needs for new businesses. Today, Enterprise has a rental space within 15 miles of 90 percent of the American population. Due to the Enterprise Network Network, it has been reliably stable, more decisive and most importantly less dependent on the aircraft industry compared to its competitors. Hertz, on the other hand, uses the full range of its 7200 stores to secure its position on the market. Basically, the emergence of most industry leaders in the leisure market is not only rivalry, but it also varies directly with the complexity of entering the car rental industry.
There are many replacements for car hire. From a technological point of view, car rental at a distance for a meeting is a less attractive alternative as opposed to video conferencing, virtual teams and collaboration programs that a company can immediately set up a meeting with its employees from all over the world at a cheaper cost. In addition, there are other alternatives including taking a cab which is a satisfactory replacement in terms of quality and change, but it can not be as attractive as a hire car during a day or more. While public transport is the most cost effective of the alternatives, it is more expensive with regard to the process and the time it takes to reach a destination. Finally, because flight gives convenience, speed and performance, it's a very enticing substitution; However, it is an uninteresting option in terms of price when renting a car. In the business segment, car rental companies have more protection against replacements, as many companies have implemented travel policies that determine the parameters for renting a car or using a substitution is the best course of action.
According to Tracy Esch, an Advantage Director of Marketing Activities, her company rents cars up to a 200-mile trip before considering an option. Basically, the threat of compensation is relatively low in the car rental industry, as the effects of substitution products do not pose a significant threat to profitability through industry.
Vendor negotiation strength
Vendor strength is low in the car rental industry. Due to the availability of substitutes and the level of competition, suppliers do not have a major influence on the terms of delivery of the rental cars. Because the rental cars are usually bought in bulk, car hire agents have a significant influence on the terms of sale as they have the ability to play one vendor against another to lower the selling price. Another factor that reduces supplier strength is the lack of switching. That is, buyers are not affected by buying from one supplier over another, and most importantly, the change to different suppliers' products is strictly noticeable and does not affect the consumer's choice of rental.
Buyers' purchasing power
While the leisure industry has little or no strength, the business segment has a significant impact in the car rental industry. An interesting trend that is currently underway through the industry forces car rental companies to adapt to business travelers' needs. This trend significantly reduces supplier strength or rental companies & # 39; power and increase business purchasing power, as the business segment is inappropriate price sensitive, well-informed about the industry's pricing structure, purchases in larger volumes, and they use the internet to force lower prices. Holiday buyers, on the other hand, have less influence on the rental conditions. Because vacationers are usually less price sensitive, buy in smaller quantities or buy more rarely, they have weak negotiation options.
Today, the car rental sector faces a completely different environment than it did five years ago. Competitively, exports of the five forces around the car rental industry show some strong economic pressure that has significantly damaged the competitive attractiveness of the industry. As a result of the economic downturn in recent years, many companies went under the nominal budget and the Vanguard Group because their business infrastructure succumbed to the unavailability of the competitive environment. Today, very few companies, including Enterprise, Hertz and Avis, live a little above average compared to the rest of the industry. In real terms, the car rental sector is not a very attractive industry because of competition, barriers to access and competitive pressure from substitution companies.
Strategic Group Mapping
As a moderately concentrated sector there is a clear hierarchy in car hire. From an economic point of view, there are differences from a number of dimensions, including revenue, fleet size and market size, as each company has on the market. For example, Enterprise dominates the industry with a fleet size of approx. 600,000 vehicles along with its market size and its profitability level. Hertz is in second position with its number of market shares and fleet volume. In addition, Avis is third place on the map. Newspaper is one of the companies that has problems recovering its earnings margins from before the economic downturn. For example, in 2000, Avis generated a turnover of approx. 4.23 billion Over the next several years after 2000, newspaper revenue is significantly lower than in 2000. As a way to reduce uncertainty, most companies gradually reduce the level of dependence for the aviation industry and promote the leisure market. This tendency may not be in Hertz's interest as the business strategy is complex with regard to airports.
Key Success Factors
There are many important success factors that provide profitability through car hire. Capacity utilization is one of the factors that determines success in the industry. Because rental companies have lost revenue when there are too few or too many cars in their parties, it is vital to effectively manage the fleets. This success factor represents a big strength for the industry as it lowers if it does not completely eliminate the potential for missing rental cars. Efficient distribution is another factor that keeps the industry profitable. Despite the positive relationship between fleet size and profitability, companies still grow their fleet size because of the competitive forces surrounding the industry. In addition, convenience is one of the critical features with which consumers choose rental companies. That is, car hire consumers are more likely to hire cars from companies that have convenient rental and drop off locations. Another important success factor shared by competition authorities is the integration of technology into their business processes. Through technology, for example, car rental companies create. Ways to meet consumer demand by renting a car a very comfortable ordinary by adding the convenience of online rental among other alternatives. In addition, companies have integrated navigation systems along with road assistance to give customers meaning about car hire.
There are many factors that affect the attractiveness of the car rental sector. Because the industry is moderately concentrated, the new market participants are in disadvantage. That is, the low concentration constitutes a natural barrier to enter the industry as it allows the existing company to expect sharp retaliation against new players. Due to the risks associated with entering the industry among other factors, it is not a very attractive sector on the market. From a competitive point of view, the leisure market is 90 percent planned due to Enterprise's active efforts to dominate this sector of the market. On the other hand, the airport terminals are heavily guarded by Hertz. Realistically, access to the industry gives a low profitability in relation to the costs and risks associated with it. For most consumers, the key decisive factors to choose a company are beyond a different price and convenience. For this reason, rental companies are very careful to set their rates, and it generally forces the industry's major players to offer more to consumers for less than remaining competitive. For example, Hertz offers wireless internet to its customers just to add more convenience to their travel plans. Newspaper on the other hand offers free weekend deals if a customer returns a car for five consecutive weekdays. Based on the effect of the five forces, the car rental sector is not a very attractive industry for potential new market participants.
The car industry is in a state of recovery. Although it seems that the industry is doing well, it is still gradually resumed in relation to its actual economic position within the last five years. As a way of ensuring profitability, including seeking market share and stability, most companies across the chain have a common goal of lowering the aircraft industry's dependency level and moving towards the leisure segment. This movement status has created some fierce competition among industry competitors as they attempted to defend their market shares. From a futuristic perspective, the better days in the car rental industry have not yet come. As wage levels rise, I believe that most industry leaders, including Enterprise, Hertz and Avis, will be bound by the economic and competitive barriers to mobility in their strategic groups and new ones will have a better chance of infiltrating and Realize success in the car rental industry.
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