The vehicle rental industry is a multi-billion dollar sector of the US economy. The US segment of this industry averages roughly $18.5 billion in revenue a year. Today, there are approximately 1.9 million leasing vehicles that service the US section of this market. Additionally, there are lots of rental agencies aside from the industry leaders that subdivide the entire earnings, namely Dollar Thrifty, Budget and Vanguard. Contrary to other mature service industries, the rental car market is highly consolidated which naturally puts prospective new comers at a cost-disadvantage because they face high input prices with reduced chance of economies of scale. Furthermore, the majority of the profit is generated by a few firms including Enterprise, Hertz and Avis. For the financial year of 2004, Enterprise generated $7.4 billion in earnings.
Level of Integration
According to Business Travel News, vehicles are being leased till they’ve gathered 20,000 to 30,000 miles until they are relegated into the used car sector whereas the turn-around mileage was 12,000 to 15,000 miles five years ago. Because of slow industry growth and narrow profit margin, there’s no impending threat to backward integration within the industry. In reality, among the industry players only Hertz is vertically integrated through Ford.
Scope of Competition
There are lots of factors that shape the competitive landscape of the auto rental market. Competition comes from two chief sources throughout the series. On the holiday consumer’s end of the spectrum, the competition is fierce not simply because the market is saturated and well guarded from industry leader Enterprise, but competitors operate at a price disadvantage along with smaller market shares since Enterprise has created a network of dealers over 90% the leisure section. Since the business underwent a huge economic downfall lately, it has upgraded the scale of competition within the majority of the companies that survived. Competitively speaking, the rental vehicle industry is a war-zone as most rental agencies such as Enterprise, Hertz and Avis one of the significant players participate in a battle of the fittest.
Within the previous five decades, most firms are working towards improving their fleet sizes and increasing the amount of profitability. Enterprise currently the firm with the largest fleet in the US has added 75,000 vehicles into its fleet since 2002 that help raise its number of amenities to 170 at the airports. Hertz, on the 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 current financial adversities. Over the years after the economic downturn, although most companies across the sector were struggling, Enterprise among the industry leaders had been growing steadily. As an example, annual earnings 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 the past four years. Since Car Rental Cleveland Ohio , the business has begun to regain its footing in the industry as total sales grew from $17.9 billion to $18.2 billion in 2003. According to business analysts, the greater days of the rental car sector have yet to come. Over the course of the next several years, the business is forecast to undergo rapid growth appreciated at $20.89 billion annually after 2008”which equates to a CAGR of 2.7 % [growth ] in the 2003-2008 period.