Passenger Car Rental
SIC 7514
NAICS 532111
Car rental firms provide short-term use of automobiles and light trucks to consumers and businesses.
In some respects less traditional in makeup than other industries, the car rental industry nonetheless is a major player in the world market. Its initial development was primarily a U.S. phenomenon, and U.S.-owned companies have continued to dominate the entire industry. Smaller European operations arose, primarily after the Second World War, but the more lucrative of them eventually found themselves affiliated with, or owned by, the U.S. firms.
The terrorist attacks of September 11 and a sluggish economy both contributed to declining revenues and fleet sizes during the early 2000s. For example, in the United States, the nation's rental car fleet fell from a high of 1.83 million vehicles in 2000 to 1.64 million vehicles in 2002. For these same years, revenues fell from US$19.4 billion to a projected $16.43 billion, according to Fleet Central. By 2004, the car rental industry was showing improvement. A stronger stock market, improved profits within the corporate sector, an uptick in business travel, and a weak dollar that helped to attract tourists from Latin America and Europe were all factors that increased optimism among industry players. In 2003, U.S. industry revenues increased slightly from 2002 levels, reaching a projected US$16.45 billion. By 2004, this amount had increased to US$17.4 billion.
At the peak of post-World War II industry development, most major car rental corporations were owned by large conglomerates. For a time, Ford Motor Company wholly owned Hertz Corporation and Budget Rent A Car Corp. General Motors controlled 81.5 percent of the National Car Rental System, while Thrifty Rent-A-Car System and Dollar Rent-A-Car System were owned by a Chrysler Corp. holding company. Vendors operating under franchise or license agreements privately owned individual car rental locations, with few exceptions. Adjustments in the industry to keep pace with changes in global economy saw these alignments give way in the last years of the century. By 1997, Hertz, Dollar, and Thrifty traded publicly. Avis continued to be primarily a public corporation, but Cendant Corporation owned 20 percent of the company, and Republic Industries, known for its sprawling auto dealership empire, owned Alamo, National Car Rental, and Spirit Rent-A-Car. Enterprise, sharing industry domination with Hertz, stood alone as a private company.
The focus on the relationship between car rental and air travel was not accidental. The car rental industry blossomed after World War II when commercial air travel began to be commonplace. Car rental entrepreneurs capitalized on the need for convenient ground transportation for business travelers. The late 1970s and early 1980s saw the deregulation of the airline industry—a move that dramatically increased air travel and provided consequent stimulus to the car rental market. As airlines competed for business by lowering fares, air travel suddenly lay within the grasp of innumerable travelers who had been theretofore earth-bound by the need for economy.
However, following the airline crisis in September 2001, many airlines faced bankruptcy despite a US$15 billion federal bailout plan. Some in the car rental industry feared that as airlines approached bankruptcy they could be forced into mergers at the same time the air travel industry was re-regulated. Higher fares for air travel would potentially damage car rental revenues.
In the 1970s and 1980s, car rental companies quickly capitalized on the resulting growth in air travel by increasing the size of rental car fleets and number of rental agency outlets. As more car rental companies entered the field, it became necessary for each to distinguish itself in some way, by price or by service. Many companies specialized in niche markets (corporate, leisure, or insurance replacement). Others emphasized geographic coverage, focusing on local, national, or international operation.
The economic downturn of the 1990s witnessed a shakeout in the industry, particularly among the car rental companies that catered to corporate accounts. The ability to quickly shift supply to meet demand became the single factor that dictated a given company's future. Consumers insisted upon newer cars, cheaper prices, and better service, and, at the same time, the auto industry suddenly was unable to continue supplying car rental companies with large numbers of "program" cars. Those companies that could overcome supply issues through implementation of good management techniques, shrewd pricing schemes, and large distribution systems tended to thrive. Where attrition failed to attack and thin the ranks of smaller firms, increasing competition led to a series of mergers and acquisitions that restructured the industry by the mid-1990s. At the close of the century, several major car rental firms, previously owned by automobile manufacturers, were trading publicly. Ever-increasing emphasis was placed on levels of service and the convenience that could be provided to customers through increased automation, better reservation and delivery systems, and the existence of huge worldwide fleets. Corporate service contracts were negotiated with sharper pencils in hand, and the resulting improvements in cash flow worked to improve the health of the industry as a whole.
By the end of the century, most car rental firms were niche players, some catering primarily (though not exclusively) to corporate accounts, and some addressing the needs of individuals seeking a rental car for personal reasons. Large firms expanded their businesses, becoming ever larger and keeping track of large fleets with the help of sophisticated reservations systems and high-speed computers.
The car rental business arose out of a prototypically American entrepreneurial spirit. The industry traced its roots to Walter L. Jacobs, who in September 1918, at the age of 22, took wrench and brush in hand and repaired and repainted a dozen Model T Fords—and proceeded to use them to open a car rental operation in Chicago. In five years time, Jacobs had expanded his operation to the point where his annual revenues neared US$1 million. That year, in 1927, Jacobs sold his creation to John Hertz, president of Yellow Cab and Yellow Truck, and Coach Manufacturing Company. Jacobs stayed on as an operating officer, but it was Hertz who gave the business his name and bright yellow trademark. "Hertz Drive-Ur-Self" attracted enough attention that, three short years later, General Motors Corporation purchased the operation at the same time that it acquired John Hertz's Yellow Truck company.
Hertz became the first car rental company to set up rental offices at railroad stations—a logical step, since the train was the predominant mode of travel in the 1920s. Similarly, Hertz was the first to establish advance-reservation capabilities. In 1932 it opened a facility at Chicago's Midway airport, thus becoming the first car rental agency to capitalize on the potential needs of air travelers. By the advent of jet travel, in 1953, two-thirds of Hertz's customers were out-of-towners, 70 percent of those who rented for business reasons. Further analysis of the industry showed that in the 1950s, 60 percent of car rental customers reached their rental locations by air, while only 30 percent were traveling by rail. Hertz and other rental firms altered business strategy accordingly.
The emergence of Avis, Hertz's closest early competitor, was almost entirely a consequence of the postwar establishment of the airline industry as the primary mode of commercial travel. As early as 1946, Warren E. Avis, a World War II Army Air Corps flyer and auto dealer in Detroit, was confident that airlines were about to become the preferred transportation mode throughout the world. Capitalizing on the fact that no car rental agency had an airport operation complete with a fleet of cars (Hertz's pioneer efforts consisted only of an airport office), Avis opened the Avis Airlines Rent-A-Car System, both at Miami Airport and at Metropolitan Detroit's Willow Run Airport. His venture was an immediate success. The fledgling business grew steadily and Avis built a network of local, independent operators, each licensed to do business at airports under the Avis name. New York, Chicago, Dallas, Washington, Los Angeles, and Houston soon joined the Avis System.
In a continued effort to carry his business to his customers, in 1948, Warren Avis opened numerous downtown locations serving major hotels and office buildings. By 1954, the Avis System included 185 locations in the United States, 10 in Canada, and one in Mexico, as well as established working agreements with local rent-a-car companies in England, France, Germany, Ireland, Italy, Scotland, and Switzerland. That same year, Avis was sold to Richard Robie, who expanded the company's corporate-owned locations to 16 additional cities, developed the first nationwide plan for one-way car rentals, and began distribution of the company's own charge card.
Boosts in international travel prompted car rental companies to expand beyond national boundaries. By 1955, Hertz operated in Ireland, Switzerland, Canada, and France, as well as in 227 U.S. airports and more than 20 domestic railroad stations. In 1957, the Hertz facility at Orly airport (Paris) was the first...
To continue reading
Request your trial