If you’ve ever sent an e-mail to us at AutoSlash, we hope you’ve recognized that we truly have fun doing what we do! We even have internal jokes about the rental car industry!
Each brief walk through rental car history has a (very loose) theme. In this installment, the theme is “advantage”. We’ll get a lot of “mileage” out of the next brief walk.
Did you know . . . Avis has Almost Always been Second
Market leader Hertz once felt competition from the secondary company Avis. Hertz had benefited from the early-mover advantage – the company purchased by transportation magnate Walter Hertz in 1923 was originally founded in 1918. Another 25 years would pass before Warren Avis got into the rental car game (1948).
In fact, the direct competition between Hertz and Avis led to the creation of the Avis “We Try Harder” slogan. Avis grew by marketing the company as friendly, adaptive, and as the upstart to the stodgy, market-dominant Hertz. Avis even taunted Hertz’s most iconic advertisements, asking why customers would want to run through airports like O.J. Simpson in the late 1970s!
Consolidation in the rental car industry has left Hertz as part of Hertz Global Holdings (Dollar, Hertz, and Thrifty) and Avis as part of the AvisBudget Group (Avis, Budget, and Payless). AvisBudget is still the second largest rental car firm.
The largest is now Enterprise Holdings (Alamo, Enterprise, and National). In fact, Enterprise Holdings is larger AvisBudget and Hertz Global Holdings combined. Enterprise also happens to be privately owned, while anyone who trades stocks can own part of AvisBudget or Hertz.
Rental Car Consolidation
The three rental car giants now represent over 93% of the rental car fleet in the U.S. and just under 95% of U.S. rental car revenue. The resources needed to grow a large rental car firm is a distinct competitive advantage over new entrants. Those three companies represent a greater share of the U.S. rental car industry than the top firms do in their respective industries, such as the top four U.S. air carriers (American, Delta, Southwest, and United) and top three U.S. cell phone providers. Yes, the rental car industry is the very definition of an oligopoly.
While the federal government consistently reviews airline mergers and phone company mergers – disapproving some entirely – the rental car companies have been largely unscathed during their period of consolidation. Hertz was required to sell off Advantage Rent A Car in order to buy Dollar/Thrifty Automotive Group (DTAG), then recently shuttered their failing Firefly brand in the U.S.
Any Advantages to Advantage Rent A Car?
Advantage hasn’t always been called Advantage. In an era when motel chains were named after room rates (Motel 6 was $6 per night while Super 8 was $8.88 per night), the founders settled on the name “$3.99 Car Rentals”. Inflation quickly required the company to be renamed, although we occasionally do still find $3.99 car rentals as part of our searches – a rental car that costs less than a cup of coffee has to make the customer happy!
Now a wholly-owned subsidiary of The Capital Catalyst Group, Inc., Advantage is trying to become the fourth major rental car conglomerate in North America. The company purchased E-Z Rent-A-Car in 2015 as the first step in that process.
Is Size Always an Advantage?
In rental cars, size and scope are always seen as a benefit – reaching customers wherever they may be (airports, hotels, or neighborhoods). Yet one of the larger independent providers has just 19 corporate locations. Fox Rent A Car focuses on airports with massive traffic; the low number of locations is offset by sheer volume. The company’s rental fleet averages 1,000 vehicles per location. Only our friends at Advantage Rent-A-Car (with 600 vehicles per site) comes close. Not surprisingly, Fox averages almost $12 million in revenue per location!
Among the providers with smaller sites, AvisBudget Group runs away from everyone in the rental car space when it comes to revenue per vehicle; that’s an advantage that consistently shows up on profit and loss statements. The company averages almost $15,000 per vehicle with an average of 112 vehicles per location.
AvisBudget management has created a lucrative advantage for the firm, as the two major competitors have made strategic shifts. One is renewing the fleet with larger vehicles desired by more customers, while the other is taking actions to leave existing vehicles in the rental fleet for a longer timeframe. As we already know, none of these actions alone will create a durable competitive advantage.
Our Next Brief Walk
The next brief walk through rental car history will be all about “mileage”, a good opportunity to talk about how aged some rental cars were, currently are, and will be in the very near future …