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Guide to Car Rental Companies in Costa Rica 2015

April 8th, 2021

Guide to Car Rental Companies in Costa Rica

Rate Comparisons for 2015

Car rental in Costa Rica is an opportunity to explore the remote beaches and quiet corners of this breathtakingly beautiful country. Travel without the restrictions set by public transport timetables and with freedom over group tours. For the unprepared traveler; however, car rental costs and services can be a rude shock and a blow to that vacation budget.

Renting a vehicle for your vacation will probably be the most expensive part of your budget, so understanding the terms and managing expectations is very important. The information below is not meant to be an exhaustive manual, but it should set you on the path towards an informed decision for your car rental needs in Costa Rica.

Why is car rental so expensive?

Visitors from outside of Costa Rica are often surprised by the cost of car rental. While hotel rooms, restaurant bills and tours are lower than the prices paid at home, it may appear strange that car rental should be more costly.

There are two simple reasons for this high cost:

All vehicles in Costa Rica are imported and a tax is imposed. Due to this heavy taxation, the cost of purchasing a vehicle is higher than it would be in other industrialized countries. There are some car rental operators who rent older vehicles in order to reduce their costs.

The cost of mandatory insurance (see below).
Factors that Affect Car Rental Costs

• Mandatory Insurance

Third-party insurance, which may be known as TPI, PDW (Partial Damage Waiver), SLI (Supplementary Liability Insurance) and other acronyms, is a legal requirement. Car rental operators must charge the customer for this coverage which may or may not be clear in the quotation received by the customer.

The insurance itself is not the issue. After all, many other countries require car renters to pay a mandatory insurance; including: New Zealand, Italy and Mexico, as well as a number of the U.S. states, like California. The issue that causes contention in Costa Rica is that this cost is not always displayed clearly on the car rental operator’s website or in a quote. Customers then discover the additional cost of their rental upon arrival.

The cost of mandatory insurance varies from company to company and will depend on the car category that is being rented as well. The cost for a small sedan may be as little as $12 per day, whereas a premium 4×4 vehicle could be as much as $25 for insurance per day. This is in addition to the rental cost.

Credit cards in North America usually offer car insurance as an additional perk to the credit card holder and so North Americans in particular, are unused to having to pay for insurance on top of rental costs. However, no credit card will cover this insurance requirement.

Do ask if the given quote includes third-party insurance and check the prices on the car rental operator’s website.

• Collision Damage Waiver

This is not insurance, but a waiver. The basic level will come with a deductible that varies, but could be as much as $1,500. For a higher daily rate, a zero deductible CDW may be purchased to relieve the renter of any financial responsibility in case of damage to, or theft thereof, the vehicle.

Many renters will obtain their CDW through their credit card. However, it is worth noting that the responsibility for making any insurance claim is on the customer and not with the car rental operator. Some renters may choose to purchase additional in-house coverage to avoid having this responsibility.

There will be car rental agencies which hard sell their own coverage plans through guaranteeing peace of mind, but ultimately, this is the renter’s decision. It is worth remembering that car rental company employees, like in other parts of the world, will sometimes earn commission for insurance sales.

If the customer’s credit card does not provide CDW, the customer will be required to purchase this in-house coverage.

Car rental operators require written proof that the customer’s credit card provides CDW. Ask the car rental operator for the exact details of what they require and in what form. Some may accept a forwarded email from the credit card company, but others may ask for a printed copy to be presented at the time of rental.

• Deposit

The deposit amount required will depend on whether the customer chooses to use the car rental operator’s in-house CDW or takes this coverage through a credit card. Expect to pay a much higher deposit if the in-house CDW is declined. The deposit may also depend on car model rented. This amount, which will be held on the renter’s credit card until the end of the rental period, can be from $750 up to as much as $3,500. The deposit should take no more than five days to be refunded to the credit card on the vehicle’s return. Some car rental agencies will accept debit cards for deposit hold, but the return time for this amount can take weeks.

Do ensure that the deposit is calculated in the vacation budget as an unexpected hold of a few thousand dollars on a credit card could otherwise severely cut into vacation spending.

• Airport Taxes

Customers that rent from a car rental operator’s counter within an airport building are obliged to pay the airport tax.

Those car rental operators with a counter at San Jose’s Juan Santamaria International Airport (SJO) are: Alamo/National, Budget, Dollar, Economy and Hertz. These companies will add an additional 12% tax to the rental cost.

Those car rental operators with a counter at Daniel Oduber Quiros International Airport (LIR) are: Avis, Budget and Economy. These companies will add an additional 3% tax to the rental cost.

To avoid this tax, take an airport shuttle with the car rental operator to an office located outside of the airport grounds.

• Surcharges and Other Taxes

There are a number of other obligatory fees that car rental operators may add into the rental cost, display on-screen or show in the quote, or leave undisclosed until the customer’s arrival. These potentially hidden costs may seem small when viewed individually, but these are typically daily rates, so they will add up fast!

These may include:

• License Plate Fee: Less than $2 daily, but differs from company to company.

• Environmental Tax: Less than $1 daily.

• Sales Tax: All sales transactions in Costa Rica are subjected to a 12% government-imposed sales tax.

• Car Washing Fee: Bring back an exceptionally dirty car and the cleaning fee may be added onto the final payment. One car rental operator charges $20 for this additional service.

• Fuel Charges: If the fuel tank is not filled to the same level as it was at the start of the rental period, then the car rental company will charge (usually to the nearest eighth of a tank). This charge is dictated by the car rental operator and it is not subject to the governmentally set fuel price that would be found at any gas station.

Where Should I Reserve the Vehicle?

A common confusion for travelers booking a rental car is the discrepancy between international websites for car rental operators and the Costa Rican website for the same brand. Frequently the international websites are unaware of, or fail to disclose, insurances, taxes and surcharges that will be charged at the counter. This may be due to the fact that many recognized car rental operator brands in Costa Rica are not a foreign branch of the branded car rental operator, but instead are a franchise operation. This factor is also worth considering in terms of expectations concerning customer service and other finer details. The Costa Rican franchise office may have their own style of operating, apart from the same policies and guidelines that the customer may have experienced in other parts of the world.

Understandably then, an online reservation is best made through the local website and not the international site, wherever possible. A number of companies do not have a local website. In this case, do check the details with a local staff member via the telephone and ask for written confirmation of the quote. Experience with live chat on the international websites suggests that whereas staff is trained on terms and conditions governing the main office (usually U.S.A.); they understand little of the policies that must be adhered to in Costa Rica.

Car Rental Comparisons

In May/June of 2013, I compared the pricing and services of a number of car rental operators in Costa Rica and published the findings. To my surprise, the article is still being plagiarized regularly across the Internet which suggests that it is still useful and so an update was required. The prices for this comparison were obtained in December 2014 and January 2015.

The ICT (Costa Rican Institute of Tourism) states that there are thirty registered car rental operators with eight others pending approval. However, there are many more agencies that rent cars to visitors. The car rental operators selected are those which are most frequently used by travelers:

Adobe

Alamo

Avis

Budget

Dollar

Economy

Fox

Hertz

National

Payless

Service

Thrifty

Toyota

USave

Vamos

Wild Rider

Exclusion of Companies from Final Comparison

Budget, Economy, Payless, and Toyota were contacted, but these four companies did not provide accurate online rates. Economy and Budget’s websites have one price, regardless of the dates entered and customers need to reserve a vehicle in order for them to honor the price shown. Toyota’s website was unfortunately only working up until March. Beyond that, the pricing displayed $0 for the remainder of the year. Payless has this disclaimer on their website: “Taxes and surcharges are not within our control and may change without notice.”

Sending individual inquiries for each time period resulted in inconsistent results: Budget offered the same price for all three investigated time periods when receiving an email request, which is highly unlikely; Economy responded with different quotes for the same dates from different members of staff; and Toyota’s emailed quotes for time periods past March’s prices indicated online did not correspond to the March rates quoted (perhaps the emailed quotes contained taxes that were not shown online). Payless can provide quotes via email and telephone, but were not consistent with pricing for different seasons.

Avis is only excluded from the price comparison, as they do not have an intermediate SUV category in their fleet.

Comparison Information

Car rental rate, all taxes and surcharges, and third-party insurance costs are (supposedly) calculated and ranked accordingly below based on the week’s rental of a BeGo or similar intermediate 4×4 from a San Jose/Alajuela location (not from the airport).

Rates are calculated on a weekly basis and divided by seven to provide a daily cost which is more easily comparable. As not all pricing is completely transparent, the prices are as accurate as possible based on the information provided from the car rental operators’ websites, phone calls, and/or emails. Airport taxes are not included in these figures.

Shoulder Season (Quote for July 13 through 20)

1. USave $43.37

2. Service $54.92

3. Fox $55.64

4. Hertz $58.17

5. Adobe $60.13

6. Alamo $60.99

7. Wild Rider $62.86

8. Dollar $63.35

9. Vamos $64.15

10. National $67.04

11. Thrifty $74.39

Low Season (Quote for May 13 through 20)

1. National $37.04

2. USave $43.37

3. Dollar $46.49

4. Adobe $52.57

5. Vamos $53.15

6. Service $53.49

7. Hertz $54.59

8. Fox $55.64

9. Wild Rider $55.71

10. Alamo $60.99

11. Thrifty $74.39

High Season (Quote for March 13 through 20)

1. Dollar $55.92

2. USave $56.22

3. Hertz $56.37

4. Fox $59.36

5. Thrifty $64.69

6. Service $66.63

7. Vamos $67.14

8. Alamo $69.56

9. Wild Rider $70.00

10. Adobe $70.63

11. National $73.90

Summary of Comparison

Interestingly, there is not one clear expensive or cheap company from those compared. The variation in ranking between seasons is marked and customers should consider their vacation dates when choosing the car rental operator. For example, Thrifty appears as the most costly for both low and shoulder season, but are only in fourth position in the rankings for High Season.

It is also significant that pricing is not consistent with ranking with car rental operators in other car categories. For example, Vamos’ pricing is the cheapest for a premium vehicle in the shoulder season; although they are not first in any rankings for the intermediate category and Adobe which appears competitive are the most expensive for this time period and car category.

Information on Car Rental Operators

Adobe Rent-A-Car is a local car rental operator that has eleven offices across the country. The website is simple and easy to use with no apparent hidden costs. The mandatory insurance cost is displayed as part of the online quote. The company receives mixed reviews online, but more positive than negative comments are made. Emails receive a reply within 24 hours, but may not fully answer the questions asked.

Toll-Free Phone Number: 1-855-861-1250

Child Seat: $3/day

Booster: $1/day

Additional Driver: $3/day

GPS System: $9/day

Alamo works in partnership with National and has thirteen offices across the country. As with many big names, Alamo Costa Rica is a franchise and not a branch of Alamo itself. Third-party insurance and basic CDW are included in the online quotation, although the CDW may be refused upon presentation of proof of coverage through the customer’s credit card. This makes the pricing seem high on first glance, especially when, unlike other car rental operators, Alamo includes airport taxes in their online quotation and so their pricing is honest, but appears much higher than other companies as a result. Pricing is different on the international website of the company, although the terms and conditions do state the fees that will be paid on arrival. This pricing discrepancy is the lead cause of negative reviews for this company. Emails are responded to within 24 hours.

Toll-Free Phone Number: 1-855-533-1196

Child Seat: $3/day

Additional Driver: $6/day

GPS System: $12/day

Avis’ website obliges one to select a car protection option, but it fails to display a final quotation total or price for the coverage selected online until an emailed quote is sent. Coverage costs may be obtained by clicking on the option ‘Protections Explained’ at the bottom of the screen.

No Toll-Free Phone Number

Child Seat: $5/day

Additional Driver: $5/day

GPS System: $9.99/day

Budget has a website that is easy to use, but the pricing given is as the same for all seasons, suggesting that it is not correct. Email responses were normally fast, but some were left unanswered. Emailed quotes showed the same pricing for all seasons as the website did. Mandatory insurance is not included on the online quote, but the small print states that this is payable at the counter. Budget receives mixed online reviews.

No Toll-Free Phone Number, but Live Chat is offered

Child Seat: $5/day

Additional Driver: $5/day

GPS System: $14.99/day

Dollar appears to have very competitive rates, but airport taxes will be applied if the vehicle is being collected from the airport’s counters. One may find this in their terms and conditions, but not in their online quotes. Car washing charge is enforced for very dirty vehicles. There are four offices in Liberia and San Jose. Email response is within 24 hours. Dollar receives mixed reviews from online travel forums.

Toll-Free Phone Number: 1-877-767-8651

Child Seat: $5/day

Additional Driver: $5/day

GPS System: $9/day

Economy has twelve offices around the country. They have no Costa Rican website. Scroll down on their page to find and click on insurance costs. Airport taxes are not included in the quote. Emails receive either a quick response or no response at all. Economy has the worst online reputation of any big name car rental operator in Costa Rica.

Toll-Free Phone Number: 1-877-326-7368

Child Seat: $10/day

Additional Driver: $10/day

GPS System: $15/day

Fox works in partnership with USave. Offices are located at both international airports. Emails receive a response within 24 hours. Online reviews are generally poor.

Toll-Free Phone Number: 1-800-225-4369

Child Seat: $5/day

Additional Driver: $10/day (unless spouse)

GPS System: $9.99/day

Hertz has six offices in the country. Reservations may be made through a Costa Rican website. Initial online quote does not include sales taxes, but it does include the CDW — although CDW may be waived with proof of credit card coverage. Emails receive a response within 24 hours. Mediocre reviews on travel forums.

No Toll-Free Phone Number

Child Seat: $5/day

Additional Driver: $13/day

GPS System: $12/day

National works in partnership with Alamo and has thirty offices in operation across the country. The company has a Central American website, as well as the international site, which clearly shows the breakdown of pricing. CDW is included in the online quote, but it may be unchecked to get a quote with just the mandatory insurance. Note that the airport tax is included in the online quote as well. Instant responses to questions are available through Live Chat on their website. Reviews are mixed, but there are more positive than negative.

Free Phone Call Option Via Website

Child Seat: $6/day

Booster: $6/day

Additional Driver: $5/day

GPS System: $12/day

Payless is part of the international car rental company and has no Costa Rican website. Online quotes do not include third-party insurance, although the information on this may be found by reading the policies for the San Jose location. Emails receive a response in less than 24 hours, but tend to refer back to the website, rather than new information. Reviews are more negative than positive.

Toll-Free Phone Number: 1-800-PAYLESS

Child Seat: $5/day

Booster: $5/day

Additional Driver: $10/day

GPS System: $9.95/day

Service is a local company with five offices in the country. On an otherwise clear website, click on ‘Reserve Now’ and not ‘Get a Quote’ for an online price check. Rember is the staff member mentioned in reviews on travel forum for his helpful customer service and the company generally gets good reviews. Emails are answered within 24 hours and normally provide requested information.

U.S. Phone Number: 1-305-897-3718

Child Seat: $3.50/day

Additional Driver: $3/day

GPS System: $7.50/day

Thrifty does not have a local website, thus information is through the international website. Coverage options or information regarding third-party insurance is not provided on the reservation webpage until one clicks ‘Protection Information’. Emails receive a response within 24 hours, but may not answer location-specific questions. Reviews are frequently negative due to pricing complaints.

Toll-Free Phone Number: 1-800-344-1705

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The Car Rental Industry

March 8th, 2021

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