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Avis Industry Analysis

Essay by   •  August 5, 2011  •  Case Study  •  5,720 Words (23 Pages)  •  2,519 Views

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NTRODUCTION

AVIS was the first car rental company located at an airport and was found in 1946 by Warren Avis at the Willow Run Airport in Detroit. AVIS is a well-known brand in the rental car industry and specializes in the "premium commercial and leisure segments of the travel industry". Budget was found in 1958 by Morris Mirkin in Los Angeles and as opposed to AVIS, specializes in the "value-conscious segments of the industry". In June 1998, the Budget group became the owner of Ryder TRS and merged it with the Budget Truck Rental to create the Budget Truck Group. Cendant Corporation, the parent company of those three corporations split into four independent companies in 2006 making AVIS, Budget, and Budget Truck Rental subsidiaries of the AVIS Budget group, one of the four independent companies. Today, the Avis Budget Group is one of the market leaders of the car and truck rental industry operating about 350,000 vehicles at 6500 locations with a total of 23 millions transactions worldwide. They are mainly located at airports with 80 percent of their revenue being from airport locations. The Avis Budget Group's mission statement is to "provide the leadership and support necessary to sustain long-term growth and customer satisfaction for their world-class brands and to "passionately promote quality and service at all levels while enhancing each brand's competitive advantage." At the Avis Budget Group, they believe their subsidiaries together can lead the car and truck rental industry by emphasizing on their "customers, their people, growth, innovation and efficiency". They identify the company as being a value-driven organization by demonstrating their commitment to their clientele, their integrity in their business decisions and professional relationships, and their responsibility as a corporate citizen. The Avis Budget Group fulfills its corporate responsibility locally and nationally by contributing and donating to civic and charitable activities.

INDUSTRY ANALYSIS

The vehicle industry is very competitive with the major rental companies being Hertz Global Holdings (HTZ), Dollar Thrifty Automotive Group (DTG), Enterprise Rent-a-Car Vanguard Brands, and Avis Budget Group. Enterprise Rent-a-Car is the industry leader with 37.4 percent of the market followed by Avis Budget Group with 19.6 percent, Hertz Global Holdings with 18.4 percent, the Vanguard brands (Alamo and National) with 12.4%, Dollar Thrifty Automobile Group with 8.5% as of 2006. The following chart displays the total US market share for the vehicle rental industry in 2006 based on a table generated by www.winkinvest.com

However, Avis Budget Group is the leader of the airport rental segment with 30.3 percent of the market followed by Hertz Global Holdings with 28.4 percent, Vanguard Brands with 19.7 percent, Dollar Thrifty Automotive Group with 11.6 percent, Enterprise Rent-a-Car with 7.6%, and other companies with 2.4 percent. www.management.travel illustrated the US airport car rental market share in 2006 in the following chart.

US Airport Car Rental Market Share in 2006 |

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For a better understanding of the competitive analysis and the industry situation of the Avis Budget Group, it is essential to conduct a thorough examination of Porter's Five Forces of Competition Model for the vehicle rental industry.

1. Threat of New Entrants

The threat of new entrants in the vehicle industry is very low. Well-known companies Avis Budget Group, Enterprise Rent-a-Car, Hertz Global Holdings, Vanguard Brands, and Dollar Thrifty Automobile Group dominate the industry and possess the highest market shares of the industry. They have already built a reputation in the industry and established long-lasting relationships with their customers. Furthermore, 'most major rental companies have started increasing their market shares in the vacation sector of the industry as a way of insuring stability and lowering the level of dependency between the airline and the car rental industry". Existing manufacturers are entering new markets by merging or buying out other manufacturers. This is the case of Avis, Budget, and Budget Truck Rental merging to become the Avis Budget Group. To stress brand loyalty and meet their customers' expectations, the major companies are offering better services and lower prices; increasing the barriers of entry for new competitors.

2. The Bargaining Power of Suppliers

The power of suppliers is also minimal in the vehicle rental industry industry. The fact that there are too many suppliers present in this industry is the main reason why they do not have much power. Rental cars companies usually purchase their rental cars in large quantities from the suppliers so they have the power to determine the terms of the sales by playing one supplier against another in order to lower the sales price. Moreover, there are no switching costs from one supplier to another and consumers' rentals choices are not influenced by the vehicles suppliers. With that being said, rental car companies can easily switch from one supplier to another as they are pleased.

3. The Bargaining Power of Buyers

The bargaining power of buyers is high for the business segment of the vehicle rental industry. The business segment is extremely price sensitive and "well informed about the industry's price structure". They also rent cars in bulk and use websites such as www.priceline.com to compare the different companies' prices and acquire lower rates than the ones offered at the rental locations. The success of rental car companies solely depends on the buyers because if they do not rent vehicles from these firms, then these companies can hardly or impossibly realize big sales and profits. If the companies in this industry are incapable of meeting their buyers' needs and expectations, they risk losing them to their competitors. The switching costs for the buyers are non-existent because in the event a buyer is no longer satisfied with a rental car company, he can just switch to another company at no-cost.

The bargaining power of low for the leisure segment because the customers present in this segment are "less price sensitive, purchase in lesser amounts, and purchase more infrequently" than the customers present in the business industry. Also, they do not have the ability to integrate backwards into the industry.

4. The Threat of Substitutes

There are multiple substitutes existing in the vehicle rental industry. Not only there is the threat of renting from a different

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