Automobile Rental and Leasing
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Industry Overview
The auto rental and leasing industry in the US includes about 5,000 companies with combined annual revenue of about $35 billion. Large companies include Hertz, Enterprise Rent-A-Car, Vanguard Car Rental Group, Avis Budget Group, U-Haul International (a subsidiary of AMERCO), Ryder, and Dollar Thrifty Automotive Group. The industry is highly concentrated: the 50 largest companies generate more than 80 percent of revenue.
Competitive Landscape
The industry depends highly on the general state of the US economy because most customers are business or vacation/leisure travelers, whose numbers can rapidly fall during an economic slowdown. Big companies have economies of scale in acquiring vehicles and customers. Small companies can compete effectively by providing better service, alternative products, or lower prices.
Products, Operations & Technology
Operations are similar for car, truck, or specialty vehicle rental operations. A typical car rental operation has to acquire, maintain, clean, fuel, and repair cars, and dispose of older cars, and must operate a reservation system to acquire customers. Efficient operations are crucial for profitability, because the value of the rental asset is high.
The difference between the acquisition price of cars and their residual value when disposed of is crucial in determining the profitability of rental companies. Large companies like Hertz and Avis buy new cars directly from car manufacturers under "repurchase" or "residual value" programs that guarantee a repurchase price at which cars are taken back by the manufacturer as long as mileage limits are not exceeded (typically 30,000 miles) and cars are in reasonable condition. Such cars are called "non-risk" or "program" cars. Companies with high annual car turnover may get a large share of their cars through such programs, more than 60 percent for Hertz and Avis.
National car rental companies typically operate cars for less than a year, with an average fleet age of four months to one year. The average annual revenue per fleet car is around $14,000. Trucks and RVs aren't usually bought through manufacturer programs, because they remain in rental service longer than cars and their residual value is more difficult to forecast.
Smaller rental companies may be able to buy fleets directly from car manufacturers under manufacturer programs, but more typically acquire them from local dealers, financial leasing companies, other rental companies, or through leasing programs operated by the big car rental companies for their franchisees.
Used vehicles are returned to manufacturers or leasing operators, or are sold to used car dealers, wholesalers, other fleet operators or at auction. Some companies have their own retail sales operations.
Truck rental customers are either short-term users like home movers and businesses with seasonal needs, or corporations that engage in long-term contracts for trucks, maintenance services, truck supplies, and sometimes even drivers. Contract services are marketed through a sales force; short-term rentals, through Yellow Pages' advertising.
Most of the large national car chains operate in local markets through franchisees. Hertz owns virtually all its local operations, but large portions of the Avis system are franchised. Thrifty has bought back many of its franchisees in key markets. Franchise operations are usually exclusive within a geographic area. Franchisees make some required payments and can also contract for other services with the parent chain, including car leasing and reservations systems. Basic fees are tied to gross annual revenue. Avis franchisees, for example, pay annual required fees of 5 to 8 percent of revenue for administrative support and advertising. Under car leasing programs, the parent acquires cars from manufacturers and leases them to the franchisees.
