Things You Should Know Before Approaching Car Rental Companies

People are increasingly going in for car rentals. This could be for a variety of reasons such as vacations, moving furniture or for some special occasion. In any of these cases, there are some things you should be aware of before approaching car rental companies.

Searching for Rental Car Companies

Well the first thing to do is to start scouting for car rental companies. One option would be for you to approach your local vendor in the neighborhood. The other option which you can exercise is through the online medium. Browsing for rental car companies over the internet means that you save time, energy and even money as you can avail special discounts reserved for online customers. You can also go through the descriptions of the various cars along with pictures and accompanying rental rates. When you compare rates of different car rental companies, you must take into account factors such as the kind of car you wish to rent, its size, its availability, location and hours of operation. For example, going in for a smaller vehicle such as a car is always cheaper as compared to going in for bigger ones such as minivans, SUVs and other special vehicles.

Aspects to Consider While Making a Rental Reservation

It is always a good idea to have an advance arrangement with the rental car companies. Try and make a reservation at least a week or ten days in advance if you wish to secure the best rentals. If you book at the last minute or during the heavy holiday rush, you will land up paying more money and have less choice in the kind and size of vehicle you want. You can either rent a car online or over the phone. In each of these cases, you should try and avail the auto rental discounts and coupons. These are usually offered by professional associations such as auto clubs and travel clubs to their members and can really work to your benefit. Timing is a key element even in terms of the days you wish to have the car for. Some car rental companies offer cheaper deals if you book the vehicle for a weekend. This is true except in cases of the busy holiday season. So if you have a flexible schedule and you are basically seeking the vehicle for leisure travel, then it makes sense to go in for weekend rentals. But if you need the vehicle for the entire week or more, then it is advisable to go in for the weekly rate.

Tips to Keep in Mind while Dealing with Car Rentals Companies

Now when you are dealing with car rental companies, there are a few issues which you need to be aware of. One is the issue of fuel utilization and payment. There are two ways of going about it. You can either take the vehicle as it is and refuel it before you return it to the car rental company. The second option is that you can pay for the full tank of fuel in advance itself. While the second option is convenient, it can prove to be cost-effective for you only if you manage to utilize the entire tank of fuel. However, if you consume less, then you may actually end up paying for more than what you needed. The other thing to consider is the insurance coverage of the rental car. It is a good idea to go over your existing personal auto insurance policy as well as your credit card and see if they extend adequate coverage for car rental before you sign up for any additional coverage offered by car rental companies. All these things should help you while renting a vehicle with car rentals companies.

Rental Cars: Do You Make This Costly Car Rental Mistake?

Doesn’t it seem confusing sometimes just to get a rental car? There seems to be so much paperwork and so many decisions to make.

For example, should you get the collision damage waiver or not? Should you buy additional insurance coverage from the car rental company?

If you’ve ever watched people at the rental car counter, you know these are questions that most people struggle with. Sometimes you can decline additional insurance on car rentals, but there are specific instances that you should always buy the insurance. But how do you know?

One of the biggest areas of confusion is the Collision Damage Waiver (CDW) offered by the car rental company at the time of rental. It covers damage to the rental car if you are involved in an accident.

The CDW isn’t exactly insurance, and it only covers only damage to the rental car. It doesn’t cover property damage or personal injury. If CDW is purchased, the car rental company waives some or all of its right to gain from you for physical damages to the car.

So should you purchase the CDW the car rental agency pushes at you? Experts say that most people don’t need it but purchase it anyway. This is a very costly mistake!

You can save yourself a lot of hassle and unnecessary cost by doing three things. First, check your own car insurance policy to see what coverage carries over to rental cars. Second, see if the credit card you are using offers any coverage for renting. And finally, check the options the car rental agency offers in its own policies.

Many car insurance policies include all-inclusive and collision coverage to damages to rental cars. There is no sense paying for more if your policy includes this coverage, right? Just verify the details with your insurance agent before you decline the car rental company’s additional insurance options.

Typical car insurance policies provide liability coverage that extends to car rentals. If you injure someone in an accident while driving a rental car, your policy will often cover you. If your car insurance policy does not provide these coverages when you are driving car rentals, be sure to purchase additional insurance from the car rental company to protect yourself.

In addition, many credit cards offer coverage for rental cars. If your credit card includes coverage for car rentals that have been damaged in an accident, you don’t need to buy any other additional insurance coverage the car rental company offers you.

Finally, read the car rental policy carefully and decide whether or not your car insurance or credit card covers you. Then discuss the car rental’s coverage with the agent. Always make an informed decision. Don’t give into pressure by the car rental agent.

Deciding whether or not to pay for additional insurance coverage the car rental companies offer can be a tough decision. Check with your credit cards and existing car insurance policy to see if they provide rental car provisions, and if they don’t, you’d better consider spending the extra money for additional insurance for your own protection.

You shouldn’t pay for anything that you really don’t need! On the other hand, you don’t want to have inadequate coverage in the event of an accident with rental cars.

Tips to Help Lower Your Car Rental Costs

With the high cost of car rental, the price is sometimes no longer worth the convenience. Sure, the rising price of gasoline at the pump has something to do with high car rental fees. But what most of us don’t realize is that most of what’s in your rental bill is due to hidden charges. These charges can actually contribute to half of what they charge for your bill.

Most rental car agencies won’t tell you this, but most of those hidden charges are optional. You can save money by having them removed in your car rental bill. We’ll show you what these hidden charges are, what they mean, and how you can talk your way out of them.

* Airport taxes and surcharges is what car rental agencies charge you extra for the convenience of picking up your rental car at the airport. This extra service can actually amount to 10% of your total bill. The reason they charge you more when you want your car bought to the airport is because of taxes and concession fees. Car rental agencies have to pay concession fees to the airport management every time they bring a rental to the airport. The agency also has to pay business taxes to the local government for doing business at the airport.

Most airports and some rental companies have free shuttle service with fixed routes. To remove this hidden charge from your car rental bill, take advantage of this free service and just have your car dropped off at a location away from the airport. That way, the car rental reduces cost and you don’t get charged extra for their service.

* Collision Damage or Loss Damage Waiver is the extra $10-$25 you have to pay per day in order to avoid liability for any damage on your rental car, provided that the damage wasn’t caused by gross negligence.

Most car insurance and credit card insurance cover rental cars as part of their standard coverage. Check if your insurance company covers rental cars and if they do, have the Loss Damage Waiver removed. You’re just wasting money if you’re paying for collision damage on top of your regular insurance.

* At first glance, gasoline charges seem like a great idea. Imagine getting your rental car with a full tank. You don’t need to stop by gas stations along the way and you can return the car with an empty tank if you want to.

However, most car renters can’t completely consume a full tank of gas. You won’t get a refund if you don’t use up all your gas but you could get penalties added up to your bill. It’s still cheaper to gas up your own rental car you only have to pay for the amount of fuel that you need.

* If you drop of your rental car at a different location from where you picked it up, you may get charged with a drop-off fee. Drop-off fees vary from state to state. Some states don’t have drop-off fees while some have fees that can go as high as $1000.

So as much as possible, return your car at its original pick-up point. If it’s not possible to return your car back in the same place, look for drop-off places where the fee is minimal.

* The early return fee is something that car rental agencies charge you when you return your car too early. A car rental company can charge you $10-$15 per day for early returns. And if that’s not enough, they’ll also change your rental rates. Instead of charging you their weekly rate, they’ll charge you their daily rate. Not only do you have to pay for your early return fees, you have to pay for that rate difference too. In order to save yourself from paying hundreds of dollars in fees, make sure you return your rental car on the exact date stated in your policy.

Most of the hidden charges that car rental companies add to your bill are due to penalties for breaking your rental policy. This is why you should read and understand your rental policy before signing the contract. Ask your car rental company to make sure you have everything covered in your contract. By knowing everything there is to know about your policy, you’ll be able to avoid any penalties and keep your car rental costs at a minimum.

Guide to Car Rental Companies in Costa Rica

“My time’s limited… how do I choose?”

Car rental is a hot topic for vacationers headed to Costa Rica. Recent research conducted by the Costa Rican Institute of Tourism (ICT) indicates that, after accommodations, renting a car is the largest expense, averaging $702 for an eleven-day vacation.

The Internet is buzzing with negative reviews discussing overcharging, poor customer service and mechanical breakdowns. You might have even written one yourself!

A typical midsize (3 – 4 adults) 4X4 rental runs between $58 and $65 daily with third party insurance and rates can vary as much as 20 percent among car rental companies, so reading a quick review will be time well spent once you calculate the savings.

So the question is; which rental company offers the best balance of fair price, capable customer service and reliable vehicles? I’ve researched it all for you, so keep reading!

Disclosure: This research was conducted in May – July 2013. The following companies were selected because they are the most widely used in Costa Rica. Some are local companies; others are international franchises of recognized brand names. Comparisons include: customer service, pricing and the reservation process. The companies are listed alphabetically and not based on personal or online preferences.
Consider this information before renting:

Insurance

One of the biggest causes for complaints is from the stack of unforeseen charges presented to the renter once standing at the rental company’s counter. Vacationers are typically tired after a long flight and then are confronted by costs that were not anticipated, explained or budgeted.

Topping the list of grievances is the non-disclosure of fees associated with the mandatory third-party insurance at the time the reservation is made.

According to Costa Rican law, every driver is required to carry liability coverage to insure against injuries to third parties. Car rental companies generally refrain from disclosing the cost of this policy in the quoted rental rate to appear more competitive. Mandatory third-party insurance can sometimes be as much as double the vehicle’s rental cost. The only guarantee against insurance confusion is to inquire if your estimate includes the third party insurance and insist on a written quotation.

Cost of Mandatory Insurance (also called Third Party or SLI)

Expect to pay between $12 and $15 daily for this insurance, depending on the make and model of the rented vehicle and the rental car agency. This is a legal condition of your rental agreement and is generally not covered by credit cards and cannot be waived. It’s a fact of renting a car in Costa Rica.

Collision Damage Waiver (CDW)

As the name suggests, this isn’t insurance, but a waiver, which relieves the renter from any liability for damage to the rental car after the deductible is paid (usually from $750 to $1,500). Some agencies require renters to purchase their CDW policy; thereby negating any credit card program. For an additional fee, many agencies do offer a zero liability option where the renter will be freed from paying for any damage to the car. Some companies may put pressure upon renters to purchase the zero liability coverage; however, it is entirely optional, unless it is in the fine print of their rental agreement.

Credit card insurance programs may cover the CDW for a rental vehicle. Check with your chosen rental car company to find which proof of insurance is needed and then request that from your credit card company prior to arriving. If you use your credit card’s CDW policy, expect to pay a higher deposit on the vehicle; around $1,500 to $2000 is common. The higher deposit ensures that the credit card holder has enough financial reserves to cover damages if needed. It is important to consider that if using CDW coverage provided by a credit card (in lieu of the rent a car operator), all damages will be billed to the renter’s credit card. The credit card company will then reimburse the card holder for damages.

More Insurance

Tires and windshields are rarely included in insurance policies, although additional policies may be taken out for covering these frequently damaged items. Neither the interior nor the underneath of the vehicle may be covered. Always read the fine print.

Standard Procedure

Your credit card will be charged, or a ‘hold’ placed, for the rental vehicle during the time of the rental agreement; i.e. from picking up the rental until you return it. Debit cards are generally not acceptable.

Additional Charges

Most companies have surcharges for additional drivers, car seats/boosters, cell phones, coolers, GPS and/or roof racks. The costs vary from company to company, but since these extras are billed at a daily rate, it is worth checking the total cost — additional options can add up very quickly! A GPS is around $8 to $10 per day; however, some operators may offer discounted units. Expect to pay around $5 daily for a child seat and a few dollars a day for all the other ‘niceties’. Vamos is notable for offering most of these options and, during some promotions, even the GPS rental complimentarily. Alamo, Budget, Hertz and National charge the most for such additional options; whereas the other companies listed, charge more reasonable prices.

Surcharges

Most companies add small incremental costs, such as license plate and environmental fees, into the total tally. Be wary of operators who insert these additional charges into the small print of the rental contract. Vehicles rented direct at the airport incur airport taxes, which are a whopping 12% of your rental cost!

The rental vehicle should be returned with the same amount of fuel, unless otherwise indicated. If not, companies may charge above gas station rates for missing fuel.

Vehicles

There is a debate over the vehicles supplied by rental companies: Older cars allow the driver to blend in more than a shiny, new car. Having an older model may have the indirect benefit of being less scrutinized by car rental agencies for recent nicks and scratches, unlike a newer vehicle. However, a newer vehicle may be more roadworthy. This debate carries on into the different vehicle makes and models. Generally, Costa Rican firms are able to rent their vehicles for a lower rate because their cars are typically three to five years old (versus two to three). Online reviews would suggest that the local firms have no more complaints concerning vehicle quality than transnational franchises; research on forums, such as TripAdvisor.com, seems to indicate that customers frequently appreciate driving a less-than-new vehicle through the wilds of Costa Rica. The reasons are plenty, from road conditions to the notion of less-then-new vehicles blending in better — a newer vehicle may draw more unwanted attention.

The choices of rental cars in Costa Rica are mostly limited to makes and models that maintain a competitive resale value, are a common brand in the country, and are inexpensive to maintain. As such a rent-a-car operator’s fleet tend not to be as diverse as the United States. Toyota, Nissan, Mitsubishi and Hyundai constitute the mainstay brands of most rental fleets.

Sometimes, drivers are charged for supposed ‘damages’ to the vehicle upon return. Once receiving the vehicle, renters should meticulously check for pre-existing flaws and compare it with the vehicle inspection document used by the rental car representative. Some renters suggest photographing or videoing the vehicle from all angles, to avoid any disagreement between pre-existing and recently damaged items.

Pricing

Car rentals in Costa Rica are pricier compared to other countries. Duties on vehicles are high (as much as 50% of their value!), parts are costlier and unforgiving road conditions contribute to higher wear and tear, generating higher maintenance costs.

The rule is you get what you pay for — there are other options than those rental companies listed here, but they are not listed for a good reason. They simply fail to offer basic customer service and/or a suitable vehicle condition required for a (nearly) trouble-free vacation.

When comparing rental car charges, it is best to go directly to the Costa Rican website of the rental car company, rather than trying to use their international format or an intermediary (Expedia, Travelocity, Orbitz, Kayak, et al.). For the same vehicles and reservation dates, the rates offered by the respective international vs. Costa Rican websites for Alamo, Budget, Hertz and Thrifty differed substantially.

To avoid confusion, print out all correspondence with the car rental company with whom you have reserved a vehicle and bring this to the rental office with the quote given at the time of reservation.

The following top ten chart ranks the companies from highest priced to lowest and it includes the mandatory insurance charge. In the cases of Alamo and Hertz, the figure contains their CDW fee as it is one of their rental requirements. This price comparison is based on a week’s rental of a Daihatsu Bego, where available (Dollar offers the Suzuki Vitara) from September 14th – 21st, then again in December to view both Green and High Season rates. The list quickly demonstrates that the price variation depends greatly on the company — for basically the same service. These prices were obtained in June/July 2013.

Rental Car Companies Ranked According to Price

September

10. Alamo $650.96
9. Hertz $514.27
8. Adobe $449
7. Budget $455
6. National $428.01
5. Thrifty $421.05
4. Service $374.43
3. Vamos $370.30
2. Dollar $364
1. Wild Rider $350

December

10. Alamo $650.96
9. National $597.51
8. Hertz $566.52
7. Budget $555
6. Dollar $532
5. Thrifty $506.58
4. Service $494.43
3. Vamos $461.30
2. Adobe $459
1. Wild Rider $395

Alamo ranks number ten for both seasons, making it the most expensive company. Budget, Hertz and National also rate low on the scale for economical rental options.

Company Summaries

Adobe

Website is clear and easy to use, but pricing and even the vehicles listed are not the same as those given by an office representative over the phone. Mandatory insurance costs are not shown with the list of vehicles and rental charges, but they are clearly displayed on the following page as a customer moves towards booking a reservation. Mixed customer reviews online. Email response is less than 24 hours, but may not provide all requested information.

Toll-free U.S.A and Canada phone number. No Live Chat.
10 offices nationwide
Mandatory insurance: $19 daily
Additional charges: GPS $9/day, child seat $5/day

Alamo

Website is clear and easy to use, but prices differ against quotes received over the phone. Mandatory insurance costs are not given with the list of vehicles and rental charges, but they are clearly displayed on the following page as the customer moves towards making a reservation. Mixed customer reviews online. Email response is less than 24 hours.

No toll-free U.S.A and Canada phone number or Live chat
14 offices nationwide
Mandatory insurance: $11.95 daily, but must also take their CDW at $12.95 daily
Additional charges: GPS $12/day, child seat $6/day

Budget

Website is basic, but easy to use. Prices online differ to the quotations given by a representative over the phone and depending on whether the international or Costa Rican website is used. Mandatory insurance costs are given along with the list of vehicles; however, the other charges are not listed. Mixed customer reviews online. Email response is more than 24 hours.

No toll-free U.S.A and Canada phone number. No Live Chat on Costa Rican website.
10 offices nationwide
Mandatory insurance: included in the listed price
Additional charges: GPS $10.95/day, child seat $12/day (the most expensive of the top ten)

Dollar

Website is clear and easy to use. Prices quoted differ if calling from the U.S. or in Costa Rica. Mandatory insurance costs are not given with the list of vehicles and rental charges, but they are clearly displayed on the following page as a customer moves towards a making a reservation. Mixed reviews online, but generally receives positive feedback. Email inquiries answered within 24 hours.

Toll-free U.S.A and Canada phone number. No Live Chat.
3 offices nationwide
Mandatory insurance: $16 daily
Additional charges: GPS $9/day, child seat $5/day

Hertz

Website is clear and easy to use. Mandatory insurance costs are not given besides the list of vehicles and rental charges, but they are clearly displayed on the following page as the customer moves towards a booking a reservation. Mixed customer reviews online. Email response less than 24 hours.

Toll-free U.S.A and Canada phone number and Live Chat (although it seems to be permanently offline)
7 offices nationwide
Mandatory insurance: $17.43 daily, but their CDW is also a requirement
Additional charges: GPS $12/day, child seat $2/day

National

Website is clear and easy to use. Mandatory insurance costs are not given along with the list of vehicles and rental charges, but they are clearly displayed on the following page as a customer moves towards making a reservation. Mixed customer reviews online, but more positive than negative. Email response less than 24 hours.

Toll-free U.S.A and Canada phone number. Live Chat.
22 offices nationwide
Mandatory insurance: $25 daily (the most expensive of the top ten)
Additional charges: GPS $12/day, child seat $6/day

Service

Website is clear and user friendly with just a slight confusion in that an online quote is obtained by clicking on ‘Reserve Now’ and not the ‘Get a Quote’ option. The response to a phone inquiry was to use the website. Mandatory insurance costs are given along with the list of vehicles and rental charges for the low season charges and on the second page of the other quotation page. Remember is a highly recommended sales representative who is mentioned in many online reviews for the high level of his customer service. Generally online reviews are positive for Service. Email response is less than 24 hours, although all information requested may not be received.

U.S.A phone number, but not toll-free. No Live Chat.
5 offices nationwide
Mandatory insurance: $15 daily
Additional charges: GPS $5.99/day, child seat $2.99/day

Thrifty

Costa Rican version of the website is impossible to use and you are asked to register for a user name and password. Mandatory insurance costs are not given along with the list of vehicles and rental charges. A customer has to click on “Protection Options” on the U.S. website and select the mandatory insurance by clicking on it — implying that it is optional and not a required cost. Thrifty tend to receive mixed reviews online. Email response is more than 24 hours.

Toll-free U.S.A and Canada phone number. No Live Chat.
4 offices nationwide
Mandatory insurance: $19.99 daily
Additional charges: GPS $10/day, child seat $5/day

Vamos

Website is clear and easy to use. Mandatory insurance costs are not given along side the list of vehicles and rental charges, but are clearly displayed on the following page as the customer moves towards booking a reservation. Anibal, a representative, is frequently mentioned in online reviews for his high level of customer service skills. General Manager, George Schwarzenbach is known on Trip Advisor for his upfront and honest responses to customers’ posts.

In recent years, Vamos has received very positive reviews online. Email response is less than 24 hours. Live Chat has instant response time to inquiries.

Toll-free U.S.A and Canada phone number. Live Chat.
3 offices nationwide
Mandatory insurance: $11.95 daily
Additional charges: GPS $8/day, child seat free

Wild Rider

Website is clear and easy to use. Mandatory insurance costs are given next to the list of vehicles. Wild Rider is the only car rental firm in Costa Rica with no visible bad reviews online. Owner, Thorsten, is often praised for his efficiency and customer service, despite the very limited resources the company has at hand. Emails receive very prompt and detailed responses in less than 12 hours.

No toll-free phone number or Live Chat
1 office — no Liberia airport office
Mandatory insurance: included
Additional charges: GPS $8/day, child seat $5/day

Comparison Review

Customer Service

Vamos and Wild Rider respond quickly and efficiently to email or live chat inquiries. Adobe, Alamo, Dollar, Hertz, National, and Service respond to email inquiries in less than 24 hours, but Adobe and Service did not provide all the information requested (possibly a language barrier). Budget offers a free phone service, but it appears to be always busy. Hertz’s live chat appears to be constantly offline. During the past year, customers who posted to online review sites expressed a particular satisfaction with the customer service offered by Service, Vamos and Wild Rider.

Clarity

Adobe, Alamo and Budget have different rental prices posted on their websites than those quoted over the phone. Telephone prices were lower than that quoted on the website in the cases of Adobe and Alamo, but yet higher in the case of Budget. Adobe also offers different vehicle models over the phone as compared to their website. International car rental firms with both a Costa Rican and international website appear to have pricing differences between the two sites.

Budget and Wild Rider include the mandatory insurance in their rental prices, but Budget states that ‘other charges’ which will be presented at the counter in the small print on their website. Rental prices for car seating had to be verified on the phone as they are not listed on the Budget website.

All other companies with the exception of Thrifty (a U.S. website), clearly show the mandatory insurance cost with the quotation given. Thrifty’s Costa Rican website is simply unusable.

Pricing

Service, Vamos and Wild Rider consistently offer the best rates for both Green and High seasons, although Dollar has one of the lowest Green season rates available, while Adobe has a cheaper High season rate. Vamos offer the best “all inclusive” rates, given that most options are offered for free.

Adobe, Dollar, Service, Thrifty and Wild Rider remain competitive with their pricing of items such as child seats. Alamo, Hertz and National are the most expensive companies to rent from and their additional option costs are also more expensive.

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.

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.

Growth

Over the past five years, most firms have been working towards enhancing their fleet sizes and increasing the level of profitability. Enterprise currently 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 airports. 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 increased its fleet from 210,000 in 2002 to 220,000 despite recent economic adversities. Over the years following the economic downturn, although most companies throughout the industry were struggling, Enterprise among the industry leaders had been growing steadily. For example, annual sales 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 percent a year for the past four years. Since 2002, the industry has started to regain its footing in the sector as overall sales 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 great deal of progress to facilitate it distribution processes. Today, there are approximately 19,000 rental locations yielding about 1.9 million rental cars in the US. Because of the increasingly abundant number of car rental locations in the US, strategic and tactical approaches are taken into account in order to insure proper distribution throughout the industry. Distribution takes place within two interrelated segments. On the corporate market, the cars are distributed to airports and hotel surroundings. On the leisure segment, on the other hand, cars are distributed to agency owned facilities that are conveniently located within most major roads and metropolitan areas.

In the past, managers of rental car companies used to rely on gut-feelings or intuitive guesses to make decisions about how many cars to have in a particular fleet or the utilization 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 profitability. The distribution process is fairly simple throughout the industry. To begin with, managers must determine the number of cars that must be on inventory on a daily basis. Because a very noticeable problem arises when too many or not enough cars are available, most car rental 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 categorized into economy, compact, intermediate, premium and luxury. Among the five categories, the economy sector yields the most profit. For instance, the economy segment by itself is responsible for 37.7 percent of the total market revenue in 2004. In addition, the compact segment accounted for 32.3 percent of overall revenue. The rest of the other categories covers the remaining 30 percent for the US segment.

Historical Levels of Profitability

The overall profitability of the car rental industry has been shrinking in recent years. Over the past five years, the industry has been struggling just like the rest of the travel industry. In fact, between the years 2001 and 2003 the US market has experienced a moderate reduction in the level of profitability. Specifically, revenue fell from $19.4 billion in 2000 to $18.2 billion in 2001. Subsequently, the overall industry revenue eroded 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 experienced a barely noticeable increase which brought profit to $18.2 billion. As a result of the economic downturn in recent years, some of the smaller players that were highly dependent on the airline industry have done a great deal of strategy realignments as a way of preparing their companies to cope with eventual economic adversities that may surround the industry. For the year 2004, on the other hand, the economic situation of most firms have gradually improved throughout the industry since most rental agencies have returned far greater profits relative to the anterior years. For instance, Enterprise realized revenues of $7.4 billion; Hertz returned revenues of $5.2 billion and Avis with $2.9 billion in revenue for the fiscal year of 2004. According to industry analysts, the rental car industry is expected to experience steady growth of 2.6 percent 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 within the car rental industry. Over the past few years, broadening fleet sizes and increasing profitability has been the focus of most companies within the car rental industry. Enterprise, Hertz and Avis among the leaders have been growing both in sales 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 doubled its fleet size since 1993 to approximately 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 amenities from technological gadgets to even free rental to satisfy customers. Hertz, for example, integrates its Never-Lost GPS system within its cars. Enterprise, on the other hand, uses sophisticated yield management software 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 customer rents a car for five consecutive days Moreover, the consumer base of the rental car industry has relatively low to no switching cost. Conversely, rental agencies face high fixed operating costs including property rental, insurance and maintenance. Consequently, rental agencies are sensitively pricing there rental cars just to recover operating costs and adequately meet their customers demands. Furthermore, because the industry experienced slow growth in recent years due to economic stagnation that resulted in a massive decline in both corporate travel and the leisure sector, most companies including the industry leaders are aggressively trying to reposition their firms by gradually lessening the dependency level on the airline industry and regaining their footing in the leisure competitive arena.

The Potential Entry of new Competitors

Entering the car rental industry puts new comers at a serious disadvantage. Over the past few years following the economic downturn of 2001, 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. While this trend has engendered long term success 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 carefully monitor their competitive radars to anticipate Sharpe retaliatory strikes against new entrants. Another barrier 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 resource requirements for new firms. Today, Enterprise has a rental location within 15 miles of 90 percent of the US population. Because of the network of dealers Enterprise has established around the nation, it has become relatively stable, more recession proof and most importantly, less reliant 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 leaders into the leisure market not only drives rivalry, but also it varies directly with the level of complexity of entering the car rental industry.

The Threat of Substitute

There are many substitutes available for the car rental industry. From a technological standpoint, renting a car to go the distance for a meeting is a less attractive alternative as opposed to video conferencing, virtual teams and collaboration software with which a company can immediately setup a meeting with its employees from anywhere 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 switching 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 enticing substitute; however, it is an unattractive alternative in terms of price relative to renting a car. On the business segment, car rental agencies have more protection against substitutes since many companies have implemented travel policies that establish the parameters of when renting a car or using 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 car rental 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 car rental industry. Because of the availability of substitutes and the level of competition, suppliers do not have a great deal of influence in the terms and conditions of supplying the rental cars. Because the rental cars are usually purchased in bulk, rental car agents have significant influence over the terms of the sale since they possess the ability to play one supplier against another to lower the sales price. Another factor that reduces supplier power is the absence of switching cost. That is, buyers are not affected from purchasing from one supplier over another and most importantly, changing to different supplier’s products is barely noticeable and does not affect consumer’s rental choices.

The Bargaining Power of Buyers

While the leisure sector has little or no power, the business segment possesses a significant amount of influence in the car rental industry. An interesting trend that is currently underway throughout the industry is forcing car rental companies to adapt to the needs of corporate travelers. This trend significantly reduces supplier power or the rental firms’ power and increases corporate buyer power since the business segment is excruciatingly price sensitive, well informed about the industry’s price structure, purchase in larger quantities and they use the internet to force lower prices. Vacation buyers, on the other hand, have less influence over the rental terms. Because vacationers are usually less price sensitive, purchase in lesser amounts or purchase more infrequently, they have weak bargaining power.

Five Forces

Today the car rental industry is facing a completely different environment than it did five years ago. Competitively speaking, the revolution of the five forces around the car rental industry exerts some strong economic pressure that has significantly tarnished the competitive attractiveness of the industry. As a result of the economic downturn in recent years, many companies went under namely Budget and the Vanguard Group because their business infrastructure succumbed to the untenability 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 car rental sector is not a very attractive industry because of the level of competition, the barriers to entry and the competitive pressure from the substitute firms.

Strategic Group Mapping

As a moderately concentrated sector, there is a clear hierarchy in the car rental 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 approximately 600,000 vehicles along with its market size and its level of profitability. 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 recovering its revenue margins from prior to the economic downturn. For instance, in 2000 Avis returned revenues of approximately $4.23 billion. Over the course of the next several years following 2000, the revenue of Avis has been significantly lower than that of 2000. As a way of reducing uncertainty most companies are gradually lessening 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 strategy is intricately linked to the airports.

Key Success Factors

There are many key success factors that drive profitability throughout the car rental industry. Capacity utilization is one of the factors that determines success 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 paramount importance to efficiently manage the fleets. This success factor represents a big strength for the industry since it lowers if not completely eliminates the possibly of running short on rental cars. Efficient distribution is another factor that keeps the industry profitable. Despite the positive relationship between fleet sizes and the level of profitability, 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, car rental consumers are more prone to renting cars from firms that have convenient rental and drop off locations. Another key success factor that is common among competing firms is the integration of technology in their business processes. Through technology, for instance, the car rental companies create ways to meet consumer demand by making renting a car a very agreeable ordeal by adding the convenience of online rental among other alternatives. Furthermore, firms have integrated navigation systems along with roadside assistance to offer customers the piece of mind when renting cars.

Industry Attractiveness

There are many factors that impact the attractiveness of the car rental industry. Because the industry is moderately concentrated, it puts new market entrants at a disadvantage. That is, its low concentration represents a natural barrier 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 sector of the marketplace. From a competitive standpoint, the leisure market is 90 percent saturated because of the active efforts of Enterprise to dominate this sector of the market. On the other hand, the airport terminals are heavily guarded by Hertz. Realistically speaking, entry in the industry offers low profitability relative to the costs and risks associated. For most consumers, the main determining factors of choosing one company over another are price and convenience. Because of this reason, rental firms are very circumspect 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 internet to its customers just to add more convenience to their travel plans. Avis on the other hand, offers free weekend specials if a customer rents a car for five consecutive weekdays. Based on the impact of the five forces, the car rental sector 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 performing well financially, it is nonetheless gradually regaining its footing relative to its actual economic position within the last five years. As a way of insuring profitability, besides seeking market shares and stability, 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 futuristic perspective, the better days of the car rental industry have yet to come. As the level of profitability increases, I believe that most of the industry leaders including Enterprise, Hertz and Avis will be bounded by the economic and competitive barriers of mobility of their strategic groups and new comers will have a better chance of infiltrating and realizing success in the car rental industry.