Market Overview

The automobile apartment enterprise is a multi-billion dollar quarter of the United States economic system. The US section of the industry averages approximately $18.5 billion in sales a 12 months. Today, there are approximately 1.nine million rental automobiles that carrier the US section of the market. In addition, there are numerous rental groups except the industry leaders that subdivide the whole revenue, namely Dollar Thrifty, Budget and Vanguard. Unlike other mature carrier industries, the condominium automobile industry is tremendously consolidated which certainly puts potential new comers at a value-downside considering the fact that they face high input charges with reduced possibility of economies of scale. Moreover, maximum of the profit is generated by means of a few companies along with Enterprise, Hertz and Avis. For the fiscal yr of 2004, Enterprise generated $7.4 billion in total revenue. Hertz got here in second function with about $five.2 billion and Avis with $2.97 in revenue.

Level of Integration

The condo automobile enterprise faces a very different surroundings than it did 5 years ago. According to Business Travel News, cars are being "Car rental
" until they have collected 20,000 to 30,000 miles till they're relegated to the used vehicle industry whereas the turn-around mileage became 12,000 to 15,000 miles 5 years ago. Because of slow industry growth and narrow profit margin, there may be no imminent threat to backward integration inside the industry. In fact, among the enterprise players best Hertz is vertically incorporated via Ford.

Scope of Competition

There are many elements that form the competitive landscape of the auto apartment enterprise. Competition comes from predominant sources during the chain. On the excursion client’s cease of the spectrum, competition is fierce now not simplest because the market is saturated and well guarded through industry chief Enterprise, but competitors function at a cost disadvantage at the side of smaller market shares considering Enterprise has mounted a network of sellers over 90 percentage the enjoyment phase. On the company segment, on the other hand, competition is very sturdy on the airports considering that phase is beneath tight supervision by Hertz. Because the industry underwent a large economic downfall in current years, it has upgraded the scale of opposition within most of the agencies that survived. Competitively speaking, the apartment vehicle enterprise is a war-zone as most condominium businesses such as Enterprise, Hertz and Avis some of the principal players interact in a struggle of the fittest.


Over the past 5 years, maximum companies have been working toward enhancing their fleet sizes and increasing the extent of profitability. Enterprise presently the organisation with the biggest fleet inside the US has added 75,000 vehicles to its fleet seeing that 2002 which help boom its number of centers to 170 on the airports. Hertz, on the opposite hand, has brought 25,000 motors and broadened its global presence in one hundred fifty counties instead of one hundred forty in 2002. In addition, Avis has improved its fleet from 210,000 in 2002 to 220,000 despite current financial adversities. Over the years following the financial downturn, although most corporations during the industry were struggling, Enterprise the various industry leaders had been growing steadily. For example, annual income reached $6.three in 2001, $6.5 in 2002, $6.nine in 2003 and $7.four billion in 2004 which translated into a increase fee of 7.2 percentage a 12 months for the beyond four years. Since 2002, the industry has started to regain its footing inside the region as basic sales grew from $17.nine billion to $18.2 billion in 2003. According to industry analysts, the higher days of the condominium car enterprise have not begun to come. Over the direction of the next several years, the enterprise is anticipated to revel in accelerated increase valued at $20.89 billion each yr following 2008 "which equates to a CAGR of 2.7 % [increase] in the 2003-2008 period.”


Over the past few years the apartment car industry has made a excellent deal of development to facilitate it distribution processes. Today, there are approximately 19,000 rental places yielding approximately 1.nine million condo cars in the US. Because of the an increasing number of abundant number of car condo places in the US, strategic and tactical procedures are taken into account on the way to insure proper distribution for the duration of the enterprise. Distribution takes place inside interrelated segments. On the company market, the vehicles are allotted to airports and inn surroundings. On the enjoyment section, on the opposite hand, cars are disbursed to employer owned facilities which might be conveniently positioned inside maximum major roads and metropolitan areas.

In the past, managers of rental car agencies used to depend on gut-emotions or intuitive guesses to make choices approximately what number of vehicles to have in a particular fleet or the usage level and overall performance requirements of keeping positive vehicles in a single fleet. With that methodology, it was very difficult to hold a stage of balance that would satisfy consumer demand and the preferred degree of profitability. The distribution method is fairly easy for the duration of the enterprise. To begin with, managers have to determine the range of automobiles that need to be on inventory on a day by day basis. Because a completely substantive hassle arises whilst too many or now not sufficient cars are available, most automobile apartment groups which includes Hertz, Enterprise and Avis, use a "pool” that is a group of impartial rental facilities that proportion a fleet of vehicles. Basically, with the pools in location, apartment locations function greater efficiently because they reduce the threat of low stock if now not take away apartment vehicle shortages.

Market Segmentation

Most organizations at some point of the chain make a income based totally of the type of automobiles that are rented. The rental vehicles are categorized into economy, compact, intermediate, top class and luxury. Among the 5 categories, the financial system area yields the maximum profit. For instance, the economic system section via itself is responsible for 37.7 percentage of the whole marketplace sales in 2004. In addition, the compact phase accounted for 32.three percent of typical revenue. The relaxation of the opposite categories covers the ultimate 30 percent for america phase.

Historical Levels of Profitability

The overall profitability of the auto apartment enterprise has been shrinking in latest years. Over the past 5 years, the industry has been struggling just like the relaxation of the travel industry. In fact, between the years 2001 and 2003 america market has experienced a mild reduction inside the level of profitability. Specifically, revenue fell from $19.4 billion in 2000 to $18.2 billion in 2001. Subsequently, the overall enterprise sales eroded in addition to $17.9 billion in 2002; an quantity this is minimally better than $17.7 billion that is the overall revenue for the yr 1999. In 2003, the enterprise experienced a slightly noticeable increase which introduced earnings to $18.2 billion. As a result of the financial downturn in recent years, a number of the smaller players that have been quite depending on the airline enterprise have done a first rate deal of method realignments as a way of making ready their businesses to address eventual financial adversities that could surround the industry. For the yr 2004, on the opposite hand, the financial state of affairs of most corporations have gradually improved throughout the enterprise when you consider that maximum condominium corporations have again a ways greater earnings relative to the anterior years. For instance, Enterprise found out revenues of $7.four billion; Hertz back sales of $five.2 billion and Avis with $2.9 billion in revenue for the fiscal year of 2004. According to enterprise analysts, the rental vehicle industry is predicted to experience steady boom of 2.6 percentage in sales over the next numerous years which translates into an increase in profit.

Competitive Rivalry Among Sellers

There are many elements that drive opposition inside the vehicle condominium industry. Over the beyond few years, broadening fleet sizes and growing profitability has been the focus of maximum groups inside the car rental industry. Enterprise, Hertz and Avis most of the leaders have been developing both in sales and fleet sizes. In addition, opposition intensifies as corporations are continuously seeking to enhance their current conditions and offer extra to consumers. Enterprise has almost doubled its fleet length because 1993 to about 600,000 automobiles today. Because the enterprise operates on such narrow profit margins, charge competition is not a element; however, most agencies are actively worried in creating values and providing a number facilities from technological gadgets to even free condominium to satisfy clients. Hertz, for example, integrates its Never-Lost GPS system within its cars. Enterprise, on the alternative hand, uses sophisticated yield control software to manage its fleets.

Finally, Avis makes use of its OnStar and Skynet gadget to better serve the patron base and gives loose weekend condominium if a patron rents a vehicle for five consecutive days Moreover, the customer base of the condo automobile industry has noticeably low to no switching price. Conversely, rental corporations face excessive fixed operating prices inclusive of belongings condominium, insurance and maintenance. Consequently, condominium businesses are sensitively pricing there condominium vehicles simply to get better operating prices and thoroughly meet their clients demands. Furthermore, due to the fact the enterprise experienced slow boom in latest years due to economic stagnation that led to a huge decline in both company travel and the leisure sector, most organizations together with the industry leaders are aggressively seeking to reposition their companies by using steadily lessening the dependency degree on the airline enterprise and regaining their footing within the leisure aggressive arena.

The Potential Entry of recent Competitors

Entering the automobile condominium industry puts new comers at a serious drawback. Over the past few years following the monetary downturn of 2001, maximum predominant rental companies have started growing their market stocks within the holiday zone of the industry as a way of insuring balance and decreasing the level of dependency between the airline and the automobile apartment industry. While this fashion has engendered long term fulfillment for the existing corporations, it has heightened the aggressive landscape for brand spanking new comers. Because of the severity of competition, existing corporations such as Enterprise, Hertz and Avis cautiously screen their competitive radars to anticipate Sharpe retaliatory strikes against new entrants. Another barrier to access is created due to the saturation stage of the industry.

For example, Enterprise has taken the primary mover benefit with its 6000 centers by using saturating the entertainment phase thereby placing no longer simplest high regulations on the maximum common distribution channels, however also high resource requirements for brand new firms. Today, Enterprise has a condominium place inside 15 miles of 90 percent of the US population. Because of the community of dealers Enterprise has set up across the nation, it has end up surprisingly stable, more recession proof and maximum importantly, less reliant on the airline enterprise in comparison to its competition. Hertz, on the other hand, is utilizing the full spectrum of its 7200 shops to stable its position in the marketplace. Basically, the emergence of most of the industry leaders into the leisure market not only drives rivalry, however also it varies at once with the level of complexity of getting into the automobile apartment enterprise.

The Threat of Substitute

There are many substitutes to be had for the auto rental enterprise. From a technological standpoint, renting a vehicle to go the gap for a meeting is a less appealing alternative instead of video conferencing, virtual groups and collaboration software with which a business enterprise can without delay setup a meeting with its personnel from everywhere round the sector at a cheaper price. In addition, there are other alternatives such as taking a cab that is a great substitute relative to quality and switching value, however it is able to no longer be as attractively priced as a apartment car for the course of a day or more. While public transportation is the most fee efficient of the options, it is extra high priced in phrases of the system and time it takes to attain one’s destination. Finally, because flying gives convenience, speed and performance, it's far a very enticing alternative; however, it is an unattractive alternative in phrases of rate relative to renting a automobile. On the commercial enterprise section, car condominium organizations have extra protection against substitutes considering that many agencies have implemented tour rules that establish the parameters of while renting a car or the use of a replacement is the nice path of action.

According to Tracy Esch, an Advantage director of marketing operations, her organisation rents cars up to a 200-mile journey before thinking about an opportunity. Basically, the threat of replacement is fairly low inside the car condominium industry given that the outcomes the synthetic products have do not pose a sizable chance of earnings erosion at some stage in the enterprise.

The Bargaining Power of Suppliers

Supplier strength is low in the car condo industry. Because of the provision of substitutes and the extent of opposition, providers do not have a super deal of have an impact on inside the terms and situations of offering the condominium vehicles. Because the apartment cars are normally bought in bulk, condominium vehicle sellers have enormous have an effect on over the terms of the sale due to the fact they own the capability to play one supplier in opposition to another to decrease the sales price. Another component that reduces provider electricity is the absence of switching fee. That is, buyers aren't affected from purchasing from one dealer over any other and most importantly, converting to different provider’s merchandise is slightly noticeable and does no longer affect patron’s condo choices.

The Bargaining Power of Buyers

While the leisure zone has little or no strength, the enterprise section possesses a considerable amount of have an effect on inside the vehicle condo enterprise. An interesting trend that is presently underway at some point of the industry is forcing automobile rental organizations to adapt to the desires of corporate travelers. This fashion notably reduces provider electricity or the condo firms’ electricity and increases company buyer electricity seeing that the business segment is excruciatingly price sensitive, nicely knowledgeable about the enterprise’s charge structure, buy in larger quantities and they use the internet to force lower prices. Vacation buyers, on the alternative hand, have less influence over the rental phrases. Because travelers are typically less rate sensitive, buy in lesser amounts or purchase more infrequently, they've vulnerable bargaining electricity.

Five Forces

Today the auto rental industry is facing a very different surroundings than it did 5 years ago. Competitively speaking, the revolution of the five forces round the auto condominium enterprise exerts a few sturdy economic stress that has considerably tarnished the aggressive attractiveness of the industry. As a end result of the monetary downturn in current years, many groups went under particularly Budget and the Vanguard Group because their enterprise infrastructure succumbed to the untenability of the competitive surroundings. Today, very few corporations along with Enterprise, Hertz and Avis return a barely above-average sales as compared to the relaxation of the industry. Realistically speaking, the auto rental area is not a totally appealing enterprise due to the level of competition, the limitations to entry and the competitive stress from the substitute corporations.

Strategic Group Mapping

As a moderately concentrated area, there may be a clean hierarchy inside the automobile rental industry. From an economic standpoint, disparities exist from a number of dimensions which include revenue, fleet size and the marketplace size every corporation holds inside the market place. For instance, Enterprise dominates the industry with a fleet length of approximately 600,000 automobiles along with its marketplace size and its level of profitability. Hertz comes in second role with its wide variety of market stocks and fleet volume. In addition, Avis ranks 1/3 on the map. Avis is amongst one in all the companies this is having issues recovering its sales margins from prior to the financial downturn. For instance, in 2000 Avis returned revenues of about $four.23 billion. Over the route of the next numerous years following 2000, the revenue of Avis has been notably decrease than that of 2000. As a manner of lowering uncertainty maximum corporations are steadily lessening the extent of dependency on the airline enterprise and rising the leisure marketplace. This fashion won't be within the satisfactory hobby of Hertz seeing that its business approach is intricately related to the airports.

Key Success Factors

There are many key fulfillment factors that pressure profitability in the course of the auto apartment enterprise. Capacity usage is one of the factors that determines achievement inside the industry. Because condominium corporations enjoy loss of sales while there are either too few or too many cars sitting of their lots, it's miles of paramount significance to successfully control the fleets. This fulfillment aspect represents a large power for the industry because it lowers if now not absolutely eliminates the in all likelihood of going for walks short on rental cars. Efficient distribution is another aspect that continues the enterprise profitable. Despite the wonderful relationship among fleet sizes and the extent of profitability, corporations are constantly growing their fleet sizes because of the aggressive forces that surround the enterprise. In addition, comfort is one among the essential attributes by way of which clients select condominium companies. That is, car condo consumers are extra vulnerable to renting vehicles from companies that have handy condominium and drop off places. Another key fulfillment element this is commonplace among competing companies is the integration of generation of their enterprise processes. Through generation, for instance, the car apartment businesses create ways to meet purchaser demand with the aid of making renting a automobile a very agreeable ordeal by means of adding the benefit of online apartment amongst other alternatives. Furthermore, firms have integrated navigation systems at the side of roadside assistance to offer clients the piece of thoughts when renting automobiles.

Industry Attractiveness

There are many factors that impact the beauty of the car condo industry. Because the industry is reasonably concentrated, it puts new marketplace entrants at a drawback. That is, its low awareness represents a natural barrier to entering the industry as it lets in existing firm to assume sharp retaliations in opposition to new entrants. Because of the dangers associated with coming into the enterprise among other elements, it isn't always a very attractive sector of the marketplace. From a competitive standpoint, the leisure marketplace is 90 percentage saturated because of the active efforts of Enterprise to dominate this zone of the market. On the opposite hand, the airport terminals are heavily guarded via Hertz. Realistically speaking, access inside the enterprise offers low profitability relative to the fees and risks associated. For most purchasers, the main determining elements of selecting one corporation over some other are price and comfort. Because of this reason, apartment firms are very circumspect about putting their charges and that typically force even the enterprise essential gamers in the position of offering more to the consumers for less simply to remain competitive. Hertz, for example, offers wireless net to its customers just to add greater comfort to their travel plans. Avis on the other hand, offers unfastened weekend specials if a purchaser rents a vehicle for 5 consecutive weekdays. Based at the impact of the five forces, the automobile rental zone isn't a totally appealing enterprise to capability new market entrants.


The condo automobile enterprise is in a country of recovery. Although it can look like the enterprise is performing properly financially, it's miles nevertheless progressively regaining its footing relative to its actual economic role in the last five years. As a way of insuring profitability, besides seeking marketplace stocks and balance, maximum companies all through the chain have a not unusual intention that offers with lowering the level of dependency at the airline industry and moving in the direction of the entertainment segment. This kingdom of motion has engendered some fierce competition among industry competitors as they strive to guard their marketplace shares. From a futuristic perspective, the better days of the car apartment industry haven't begun to come. As the level of profitability increases, I consider that maximum of the industry leaders inclusive of Enterprise, Hertz and Avis might be bounded by the financial and aggressive barriers of mobility in their strategic corporations and new comers will have a higher danger of infiltrating and realizing fulfillment inside the car apartment enterprise.

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