Market Overview
The u-drive industry is a multi-billion dollar sphere of the US economy. The US segment of the industry averages about $18.5 billion in revenue a year. Today, there are or s 1.9 million rental vehicles that service the US segment of the market. In addition, there are many rental agencies besides the industry drawing cardship that subdivide the total revenue, namely Dollar Thrifty, Budget and Vanguard. Unlike other mature service industries, the rental car industry is extremely consolidated which naturally puts potential new comers at a cost-disadvantage since they face high input costs with reduced possibility of economies of scale. Moreover, most of the profit is generated by a couple of firms including Enterprise, Hertz and Avis. For the commercial enterprise year of 2004, Enterprise generated $7.4 billion in total revenue. Hertz came in second position with about $5.2 billion and Avis with $2.97 in revenue.
Level of Integration
MARKETING TO WOMEN
The rental car industry faces a entirely different environment than it did five years ago. According to Business Travel News, vehicles are being rented until they have 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. Because of slow industry growth and narrow profit margin, there is no at hand threat to backward integration inside the industry. In fact, among the industry players only Hertz is vertically integrated through Ford.
Scope of Competition
There are many factors that shape the competitive landscape of the u-drive industry. Competition comes from two main sources throughout the chain. On the vacation consumer's end of the spectrum, competition is fierce not only because the market is saturated and well cautious by industry drawing card Enterprise, but competitors operate at a cost disadvantage on with small market shares since Enterprise has established a network of dealers over 90 percentage the leisure segment. On the corporate segment, on the other hand, competition is very strong at the airdromes since that segment is under tight oversight by Hertz. Because the industry underwent a massive economic downfall in recent years, it has upgraded the scale of competition inside 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 the past five years, most firms have been working towards enhancing their fleet sizes and increasing the level of profitpower. Enterprise presently the company with the largest fleet in the US has added 75,000 vehicles to its fleet since 2002 which help increase its number of facilities to 170 at the airdromes. 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 raised its fleet from 210,000 in 2002 to 220,000 despite recent economic adversities. Over the years following the economic downswing, although most companies throughout the industry were troubled, Enterprise among the industry drawing cardship had been growing steadily. For example, annual gross revenue 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 percentage a year for the past four years. Since 2002, the industry has started to regain its footing in the sphere as overall gross revenue grew from $17.9 billion to $18.2 billion in 2003. According to industry analysts, the better days of the rental car industry have yet to come. Over the course of the next several years, the 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 the 2003-2008 period."
Distribution
Over the past few years the rental car industry has made a peck of make facilitate it distribution processes. Today, there are or s 19,000 rental locations yielding about 1.9 million rental cars in the US. Because of the increasingly thick number of u-drive locations in the US, strategic and military science approaches are taken into account in order to insure proper distribution throughout the industry. Distribution takes place inside two interconnected segments. On the corporate market, the cars are shared dead set airdromes and hotel surroundings. On the leisure segment, on the other hand, cars are shared dead set agency closely-held facilities that are handily set inside most major roads and municipality areas.
In the past, managers of rental car companies accustomed depend on gut-feelings or intuitive guesses to make decisions about how many cars to have in a particular fleet or the exercis level and performance standards of keeping certain cars in one fleet. With that methodology, it was very difficult to maintain a level of balance that would satisfy consumer demand and the desired level of profitpower. The distribution process is fairly simple throughout the industry. To begin with, managers must determine the number of cars that must get on inventory on a daily basis. Because a very noticeable problem arises when too many or not enough cars are available, most u-drive companies including Hertz, Enterprise and Avis, use a "pool" which is a group of independent rental facilities that share a fleet of vehicles. Basically, with 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 the chain make a profit based of the type of cars that are rented. The rental cars are classified into economy, compact, intermediate, premium and luxury. Among the five categories, the economy sphere yields the most profit. For instance, the economy segment by itself is responsible 37.7 percentage of the total market revenue in 2004. In addition, the compact segment accounted for 32.3 percentage of overall revenue. The rest of the other categories covers the left 30 percentage for the US segment.
Historical Levels of Profitpower
The overall profitpower of the u-drive industry has been shrinkage in recent years. Over the past five years, the industry has been troubled just like the rest of the travel industry. In fact, between the years 2001 and 2003 the US market has tough a moderate reduction in the level of profitpower. Specifically, revenue fell from $19.4 billion in 2000 to $18.2 billion in 2001. Subsequently, the overall industry revenue worn further to $17.9 billion in 2002; an amount that is minimally higher than $17.7 billion which is the overall revenue for the year 1999. In 2003, the industry tough a barely noticeable increase which brought profit to $18.2 billion. As a result of the economic downswing in recent years, some of the small players that were extremely conditional the airline industry have done a peck of scheme realignments as a way of preparing their companies to match ultimate economic adversities that may surround the industry. For the year 2004, on the other hand, the economic situation of most firms have bit by bit improved throughout the industry since most rental agencies have returned far greater profits relative to the anterior years. For instance, Enterprise complete revenues of $7.4 billion; Hertz returned revenues of $5.2 billion and Avis with $2.9 billion in revenue for the commercial enterprise year of 2004. According to industry analysts, the rental car industry is expected to experience steady growth of 2.6 percentage in revenue over the next several years which translates into an increase in profit.
Competitive Rivalry Among Sellers
There are many factors that drive competition inside the u-drive industry. Over the past few years, broadening fleet sizes and increasing profitpower has been the focus of most companies inside the u-drive industry. Enterprise, Hertz and Avis among the drawing cardship have been growing both in gross revenue 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 twofold its fleet size since 1993 to or s 600,000 cars today. Because 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 comforts from technological gadgets to even free rental to satisfy clients. Hertz, for example, integrates its Never-Lost GPS system inside its cars. Enterprise, on the other hand, uses sophisticated yield direction package 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 client rents a car for five consecutive days Moreover, the consumer base of the rental car industry has comparatively low to no switch cost. Conversely, rental agencies face high fixed operational costs including property rental, insurance and maintenance. Consequently, rental agencies are sensitively pricing there rental cars just to recover operational costs and adequately meet their clients demands. Furthermore, because the industry tough slow growth in recent years ascribable economic stagnation that resulted in a massive decline in both corporate travel and the leisure sphere, most companies including the industry drawing cardship are sharply trying to reposition their firms by bit by bit decrease the dependency level on the airline industry and restoration their footing in the leisure competitive arena.
The Potential Entry of new Competitors
Entering the u-drive industry puts new comers at a serious disadvantage. Over the past few years following the economic downswing of 2001, most major rental companies have started increasing their market shares in the vacation sphere of the industry as a way of insuring stpower and lowering the level of dependency between the airline and the u-drive industry. While this trend has engendered long term winner for the existing firms, it has heightened the competitive landscape for new comers. Because of the severity of competition, existing firms such as Enterprise, Hertz and Avis cautiously monitor their competitive radars to anticipate Sharpe punitive strikes against new entrants. Another roadblock to entry is created because of the saturation level of the industry.
For example, Enterprise has taken the first mover advantage with its 6000 facilities by saturating the leisure segment thereby placing not only high restrictions on the most common distribution channels, but also high imagination requirements for new firms. Today, Enterprise has a rental location inside 15 miles of 90 percentage of the US population. Because of the network of dealers Enterprise has established around the nation, it has become comparatively stable, more recession proof and most importantly, less contingent 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 drawing cardship into the leisure market not only drives rivalry, but also it varies directly with the level of complexity of entering the u-drive industry.
The Threat of Substitute
There are many substitutes available for the u-drive industry. From a technological standpoint, rental a car to go the distance for a meeting is a less attractive alternative as opposed to video conferencing, virtual teams and collaboration package with which a company can like a sho setup a meeting with its employees from anyplace around the world at a cheaper cost. In addition, there are other alternatives including taking a cab which is a satisfactory substitute relative to quality and switch cost, but it may not be as attractively priced as a rental car for the course of a day or more. While public transportation is the most cost efficient of the alternatives, it is more costly in terms of the process and time it takes to reach one's destination. Finally, because flying offers convenience, speed and performance, it is a very beguiling substitute; however, it is an unattractive alternative in terms of price relative to rental a car. On the business segment, u-drive agencies have more protection against substitutes since many companies have enforced travel policies that establish the parameters of when rental a car or exploitation a substitute is the best course of action.
According to Tracy Esch, an Advantage director of marketing operations, her company rents cars up to a 200-mile trip before considering an alternative. Basically, the threat of substitute is reasonably low in the u-drive industry since the effects the substitute products have do not pose a significant threat of profit erosion throughout the industry.
The Bargaining Power of Suppliers
Supplier power is low in the u-drive industry. Because of the availpower of substitutes and the level of competition, providers do not have a peck of influence in the terms and conditions of provision the rental cars. Because the rental cars are commonly purchased in bulk, rental car agents have significant influence over the terms of the sale since they have the power to play one provider against other to lower the gross revenue price. Another factor that reduces provider power is the epilepsia minor epilepsy of switch cost. That is, buyers are not affected from buying from one provider over other and most importantly, dynamic to different provider's products is barely noticeable and does not affect consumer's rental choices.
The Bargaining Power of Buyers
While the leisure sphere has little or no power, the business segment havees a significant amount of influence in the u-drive industry. An fascinating trend that is presently current throughout the industry is forcing u-drive companies to adapt to the inevitably of corporate travelers. This trend importantly reduces provider power or the rental firms' power and increases corporate buyer power since the business segment is excruciatingly price sensitive, well familiar about the industry's price structure, purchase in big quantities and they use the net to force lower prices. Vacation buyers, on the other hand, have less influence over the rental terms. Because vacationers are commonly less price sensitive, purchase in small amounts or purchase more infrequently, they have weak bargaining power.
Five Forces
Today the u-drive industry is facing a entirely different environment than it did five years ago. Competitively speaking, the gyration of the five forces around the u-drive industry exerts some strong economic pressure that has importantly spotted the competitive attraction of the industry. As a result of the economic downswing in recent years, many companies went under namely Budget and the Vanguard Group because their business infrastructure succumbed to the untenpower of the competitive environment. Today, very few firms including Enterprise, Hertz and Avis return a slightly above-average revenue compared to the rest of the industry. Realistically speaking, the u-drive sphere is not a very attractive industry because of the level of competition, the roadblocks to entry and the competitive pressure from the substitute firms.
Strategic Group Mapping
As a moderately concentrated sphere, there is a clear pecking order in the u-drive industry. From an economic standpoint, disparities exist from a number of dimensions including revenue, fleet size and the market size each firm holds in the market place. For instance, Enterprise dominates the industry with a fleet size of or s 600,000 vehicles on with its market size and its level of profitpower. Hertz comes in second position with its number of market shares and fleet volume. In addition, Avis ranks third on the map. Avis is among one of the companies that is having issues sick its revenue margins from antecedent to the economic downswing. For instance, in 2000 Avis returned revenues of or s $4.23 billion. Over the course of the next several years following 2000, the revenue of Avis has been importantly lower than that of 2000. As a way of reduction uncertainty most companies are bit by bit decrease the level of dependency on the airline industry and emerging the leisure market. This trend may not be in the best interest of Hertz since its business scheme is elaborately joined to the airdromes.
Key Success Factors
There are many key winner factors that drive profitpower throughout the u-drive industry. Capacity exercis is one of the factors that determines winner in the industry. Because rental firms experience loss of revenue when there are either too few or too many cars sitting in their lots, it is of dominant grandness to efficiently manage the fleets. This winner factor represents a big strength for the industry since it lowers if not entirely eliminates the possibly of running short on rental cars. Efficient distribution is other factor that keeps the industry profitable. Despite the positive relationship between fleet sizes and the level of profitpower, firms are constantly growing their fleet sizes because of the competitive forces that surround the industry. In addition, convenience is one of the crucial attributes by which consumers select rental firms. That is, u-drive consumers are more prone to rental cars from firms that have convenient rental and drop off locations. Another key winner factor that is common among competitive firms is the integration of technology in their business processes. Through technology, for instance, the u-drive companies create ways to meet consumer demand by making rental a car a very agreeable ordeal by adding the convenience of online rental among other alternatives. Furthermore, firms have integrated navigation systems on with roadside assistance to offer clients the piece of mind when rental cars.
Industry Attractiveness
There are many factors that impact the attraction of the u-drive industry. Because the industry is moderately concentrated, it puts new market entrants at a disadvantage. That is, its low concentration represents a natural roadblock to entering the industry as it allows existing firm to anticipate sharp retaliations against new entrants. Because of the risks associated with entering the industry among other factors, it is not a very attractive sphere of the marketplace. From a competitive standpoint, the leisure market is 90 percentage saturated because of the active efforts of Enterprise to dominate this sphere of the market. On the other hand, the airdrome terminals are heavily cautious by Hertz. Realistically speaking, entry in the industry offers low profitpower relative to the costs and risks associated. For most consumers, the main determinant factors of choosing one company over other are price and convenience. Because of this reason, rental firms are very discreet about setting their rates and that generally force even the industry major players in the position of offering more to the consumers for less just to remain competitive. Hertz, for example, offers wireless net to its clients just to add more convenience to their travel plans. Avis on the other hand, offers free weekend specials if a client rents a car for five consecutive weekdays. Based on the impact of the five forces, the u-drive sphere is not a very attractive industry to potential new market entrants.
Conclusion
The rental car industry is in a state of recovery. Although it may seem like the industry is acting well financially, it is still bit by bit restoration its footing relative to its actual economic position inside the last five years. As a way of insuring profitpower, besides quest market shares and stpower, most companies throughout the chain have a common goal that deals with lowering the level of dependency on the airline industry and moving toward the leisure segment. This state of motion has engendered some fierce competition among industry competitors as they attempt to defend their market shares. From a art movement perspective, the better days of the u-drive industry have yet to come. As the level of profitpower increases, I believe that most of the industry drawing cardship including Enterprise, Hertz and Avis will be delimited by the economic and competitive roadblocks of mobility of their strategic groups and new comers will have a better chance of infiltrating and realizing winner in the u-drive industry.
Sources
"Passenger Car Rental." Encyclopedia of Global Industries. Dec. 2004. Gale group. 02 Feb 2005. http://galenet.galegroup.com.ucfproxy.fcla.edu/servlet/BCRC.
"Car & Truck Rental." Hoover's AB&D Company. Jan. 2005 . Hoovers. 04 Feb 2005. http://premium.hoovers.com.ucfproxy.fcla.edu/subscribe/ind/factsheet.xhtm. "
Rental car foes war on each other's turf." The Associate Press. Fall 2004. The Enquirer. 08 March 2005. http://www.enquirer.com/editions/2004/10/11/biz_rentalcars111.html.
"United States - Car Rental." Data Monitor Industry Market Research. Nov. 2004. Gale. 12 March 2005. http://search.rdsinc.com.ucfproxy.fcla.edu/sessions?products=BNI.
"A synthesis of military science fleet preparation models for the u-drive industry." IIE Transactions. Sept. 2003. Gale. 12 March 2005. [http://www.fleet-central.com/arn/01stat3.cfm].
"Corporate travel plans moving to Web." Crain's Chicago Business. Apr. 2001. ProQuest. 12 March 2005. http://www.proquest.com.ucfproxy.fcla.edu.
"Tracy Esch." "Car rental market drawing cardship make rebound ." Business Travel News. May 2002. Gale. 12 March 2005. http://search.rdsinc.com.ucfproxy.fcla.edu.
"Avis Equips Rental Car with Satcomms 1999." Newsbytes News Network. Oct. 1999. Gale. 12 March 2005. http://search.rdsinc.com.ucfproxy.fcla.edu.
"Car Rental In the United States." Data Monitor Industry Market Research. Nov. 2004 . Gale. 13 March 2005. http://search.rdsinc.com.ucfproxy.fcla.edu.
"Global - Car Rental." Data Monitor Industry Market Research. Nov. 2004 . Gale. 13 March 2005. http://search.rdsinc.com.ucfproxy.fcla.edu.
"Corporate and Travel Trends." Travel Trade Gazette. Nov. 2003 . ProQuest. 14 March 2005. http://www.proquest.com.ucfproxy.fcla.edu.
"Car rental market drawing cardship make rebound." Business Travel News. May. 2002 . Gale. 14 March 2005. http://search.rdsinc.com.ucfproxy.fcla.edu.
"Car rental market drawing cardship make rebound." Business Travel News. May. 2002 . Gale. 14 March 2005. http://search.rdsinc.com.ucfproxy.fcla.edu.
"Ovation Travel." Wall Street Transcript. May. 2002 . LexisNexis. 14 March 2004. http://www.lexisnexis.com.ucfproxy.fcla.edu/cis.
"Avis Offers New Deal for Free Weekends." Newswire. Feb. 2004 . LexisNexis. 15 March 2004. http://www.lexisnexis.com.ucfproxy.fcla.edu/cis.
0 Comments