The Car Rental Industry

The Car Rental Industry

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, there are approximately 1. 9 million rental vehicles that service the us segment of the market. In addition, there 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 with 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 with about $5. 2 billion and Avis with $2. 97 in revenue.Car Rental NJ/NYC 

Level of Integration

The rental car industry faces a completely 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 imminent threat to backward integration within 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 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 because the market is saturated and well guarded by industry leader Enterprise, but competitors operate at a cost disadvantage along with 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. Because the industry underwent a massive economic downfall in recent years, it has upgraded the scale of competition within 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.