SIC 7514 Passenger Car Rental

 
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SIC 7514

This category covers establishments primarily engaged in the short-term rental of passenger cars without drivers.

NAICS CODE(S)

532111

Passenger Cars Rental

INDUSTRY SNAPSHOT

Along with the travel industry, the passenger car rental business was negatively impacted after the September 11, 2001, terrorist attacks on the United States. The conflict in the Middle East, the SARS virus outbreak, and political unrest in the early 2000s also contributed to a drop in travel in the United States. In 2000, the car rental industry took in $19.4 billion, which dropped to $18.2 billion in 2001. By 2002, revenue had dropped to $16.1 billion, the lowest in several years. Car rental companies were forced to cut down their fleets, while at least one company filed for bankruptcy protection.

By the mid-2000s, the passenger car rental business experienced a recovery with significantly increased revenues each year, to $42.19 billion in 2006, and a combined fleet of 1.7 billion cars. Due to the improved economy and increasing travel, the rental car companies were optimistic going into the late 2000s. Of the 13,100 establishments in this industry in 2006, the top four companies were Enterprise, Hertz, Avis, and Vanguard, a line-up that had been in place for some time. As in other sectors, consolidation was a major trend, with several of the major car rental players merging to lower costs. Companies also raised car rental prices in order to increase revenue. With fewer traditional rental cars from the likes of Ford and GM made available, companies in this industry were turning to more expensive, higher-end options.

BACKGROUND AND DEVELOPMENT

The car rental industry, known in it early years as the "Drive-Ur-Self" business, had its beginnings not long after the Ford Motor Company introduced the Model T automobile in 1908. An entrepreneur named Joe Saunders began renting a secondhand Model T in Omaha, Nebraska, in 1916. He affixed a mileage meter to the left front wheel and rented the car for 10 cents a mile. His first customer was a traveling salesman who had a date with a local girl. By 1925 Saunders had car rental operations in 21 states. The Chrysler Company ran full-page ads boasting that Saunders had purchased $1 million worth of Chrysler automobiles. Saunders went bankrupt, though, during the Great Depression of the early 1930s.

In the early days of the industry, most Drive-Ur-Self cars were rented by local residents. The industry gained a shady reputation because rental cars were often used by bootleggers, bank robbers, and prostitutes. In 1952 The Saturday Evening Post estimated that as many as 90 percent of the cars rented during Prohibition were used for illegal purposes. The industry began to gain more respectability in 1933 after the repeal of the Eighteenth Amendment that outlawed alcohol.

In 1940 the loss of passengers to private automobiles prompted a group of railroads to form Railway Extension Inc., which franchised car rental dealerships in cities stretching from Chicago to New Orleans. The railroads provided space for car rental booths in stations and free telegraph service so passengers could wire ahead and reserve cars, which would be waiting for them when they arrived. The railroads also paid for the advertising. The American Drive-Ur-Self Association, controlled by Hertz, negotiated a less favorable relationship with railroads east of Chicago. Under the Hertz plan, car rental dealerships paid for their own advertising and telegraph service, and cars were not available on-site at the train stations.

During World War II, the U.S. Office of Defense Transportation (ODT) limited rental cars to 1,500 miles per month to conserve gasoline. The limit was cut to 650 miles per month in the Miami area when the ODT discovered that local residents were using rental cars to circumvent gas rationing in the use of private automobiles. Rental car dealers also were not allowed to buy new or replacement cars for their fleets during the war and were required to maintain a record of each rental, including the person's name, address, occupation, and purpose of trip. Rates were frozen at 1942 levels, which averaged between 14 and 18 cents per mile for the first 50 miles. Government agencies and industries with war material contracts often monopolized available cars.

Airline Service

After the war, the car rental industry grew rapidly, carried along by the expanding economy. The railroads revived their car rental plans in 1947, establishing dealers in some 300 cities. However, the real growth coincided with a boom in airline passenger service. In 1947 the Hertz Drive-Ur-Self System, which then had about 2,300 rental cars nationwide, opened operations at airports in Atlanta and Milwaukee. The same year, Warren Avis, then president of Frost-Avis Inc., a Ford dealership in Detroit, formed the Avis Airline Rent-A-Car System.

Avis was a former Army Air Corps flyer who recognized that airplanes would soon replace passenger trains as America's favorite form of travel. He started with car rental booths at airports in Detroit and Miami and by 1949 had licensed use of the Avis name to rental agencies in New York; Chicago; Dallas; Washington, D.C.; Los Angeles; and Houston. More aggressive than Hertz, Avis also arranged for American Airlines and Eastern Airlines to include information about Avis in passengers' ticket envelopes. In 1949, Business Week reported that "this kind of business is operated on an exclusive franchise basis; the first firm in has a big advantage. At present, Avis seems to have a substantial lead."

Hertz, however, was not long in responding. By 1952 Hertz and its franchised dealers were operating at more than 120 airports. In 1953 General Motors Corp. sold the business back to John Hertz, then chairman of the Omnibus Corporation, which had divested itself of bus operations to concentrate on car and truck rentals. The price was $10.8 million. The following year Hertz opened operations in 50 additional airports and 20 more railroad stations. The company also began buying franchised dealers. By 1955 the Hertz Rent-A-Car System encompassed nearly 1,000 company-owned or licensed dealers with total revenues of $90 million. Avis had 850 dealers and $35 million in revenues.

In 1956, Hertz and National Rent-A-Car, then the third largest rental car operation in the country, cracked the exclusive franchise that Avis had held with the Miami International Airport for eight years. This opened up the lucrative Florida vacation business.

Price Wars

By the early 1960s, Hertz, Avis, and National were entrenched as the industry leaders. However, there were hundreds of independent companies, many with only a few cars, eager to cash in on the growing market. In 1965 there were more than 135,000 rental cars available in the United States. The industry at that juncture was a $450-million-a-year business, an increase in value of 80 percent from only three years previously.

The average Hertz or Avis rental in a resort city such as Miami or Las Vegas was $10 a day, but the frugal renter could find rates as low as $1. The discount companies often purchased used cars or replaced new cars less often. They also saved by locating their businesses near targeted airports, thus avoiding fees the leaders paid for on-site locations. Budget-conscious vacationers did not seem to mind the inconvenience. Many discount companies, however, were fly-by-night operators and managed to give the car rental industry a bad name before dropping by the wayside. Nevertheless, the success of reputable companies such as Budget Rent-A-Car eventually forced the industry leaders to cut their rates. Avis began offering compact, British-made Ford Cortinas for $3.95 a day and nine cents a mile. Hertz and National also began offering lower rates on smaller cars. The price wars lasted until 1985, when car rental companies suffered through one of the worst financial years in...

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