INDUSTRY ANALYSIS
OPERATIONAL CASE STUDYINDUSTRY ANALYSISACELLERATE
CHAPTER 1HOW TO USE THIS ANALYSIS1. What to expect from this analysisCHAPTER 2INTRODUCTION TO THE CAR RENTAL INDUSTRY1. History2. ServicesCHAPTER 3CUSTOMERS AND MARKETING1. Customers2. MarketingCHAPTER 4SUPPLY AND TECHNOLOGY1. Suppliers2. Distribution3. TechnologyCHAPTER 5STAKEHOLDERS AND CSR1. Staffing and human resources2. Key stakeholders3. Ethical and environmental issuesCHAPTER 6COMPETITORS1. Competitor analysis: SIXT2. Other key competitorsCHAPTER 7INDUSTRY ISSUES1. Political and legal issues2. Economic & Industry stats/ trends/ 50505052
Astranti Industry AnalysisAcellerateCHAPTER 8INDUSTRY EXAMPLES55551. Lyft partners with SIXT in the US2. Hertz uses new software for fairer repair pricing3. Europcar acquires Fox Rent A Car4. SIXT launches US subscription service5. Europcar franchisee fined in Australia6. Avis offers Avis Access7. Use of ride-hailing instead of traditional car rental8. Key trainer receives Professional of the Year Award9. Enterprise streamlines used car selling10. Europcar creates Nordic Cluster11. Virtuo aims for 50% electric fleet12. UK rental car damage survey13. MirrorTrip offers cheaper one way rental14. Expense of insurance from rental companies15. Theft of fleet vehicles16. Uber starts UK car rental service17. Airline partners to offer car rental18. The Carbon Disclosure Project (CDP)19. Big data20. Europcar receives gold ESG rating21. Utility companies plan electric vehicle charging network22. Europcar enters into electric van partnership23. Localiza takes over Unidas, Movida objects24. Enterprise gift card scheme benefits local economy25. Move Mee sees early 77787980
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Astranti Industry AnalysisAcellerateCHAPTER 1HOW TO USE THISANALYSIS1. What to expect from this analysis“An awareness of the industry that the business is in will help you to think ofthe wider issues that might impact on decisions that you could be asked tocomment on.”Recent Examiner's ReportThe examiners expect you to have excellent knowledge of the pre-seen industry andto demonstrate this in the exam. As the examiner says – the case study is designed totest your application in the real world, and not to test your theoretical knowledge.This industry guide is designed to help you to meet that expectation and maximiseyour marks in the exam!This requirement links directly into your role. In the pre-seen, you are told:“You are a Finance Officer for Acellerate, a car rental company. Your main role is tosupport Ethan Tennant, the Finance Manager. Your tasks include preparation of theannual budget, producing the monthly management accounts and providinginformation to management as required. You also assist with the preparation of thefinancial statements and deal with any queries regarding financial reporting.”You are expected to provide logical business advice as if you were an employeeworking in this industry, and as if you know this industry inside out. If you know thetypes of issues in the real world and the types of decisions that real world companies5
Astranti Industry AnalysisAcellerateare making, the chances are that your own logic in the exam will be better andproducing a logical, well rounded report is key to passing this exam.In fact, its been interesting to note that in student feedback after the real exams, thata number of people have commented that they felt that the exam was extremelypractical and they wished they had spent more time focusing on the case studyand the industry and less on revising theoretical knowledge as they felt thatwould have helped them provide the practical answers they needed.One key way of maximising your marks in the OCS exam is to have sound knowledgeof the relevant industry and to demonstrate that knowledge throughout. However,the industry is large, and there is a lot of information. You have to make sure youhave the right information about the industry.That's where we come in. In this industry analysis, we've scoured the web,journals and magazines for the most relevant information relevant to yourexam. We do the difficult job of collecting the right information for you, so allyou have to do is read this report, learn the key points and then use them in theexam.6
Astranti Industry AnalysisAcellerateCHAPTER 2INTRODUCTION TO THECAR RENTAL INDUSTRY1. HistoryIntroductionAs car ownership as risen dramatically around the world, so too has car rental. Thelink between the car rental industry and the travel industry has proven important,with the majority of car rentals being taken out by people arriving in new locations.History of car rentalEarly historyThe modern car was invented in 1886 by Karl Benz. However, it wasnʼt until the early20th century that the first car rental services was established. However, as time wenton, more and more car rental companies started popping up around the world.Here is a brief timeline of the early history of car rental companies: 1908 – Ford Model T, the first affordable car, available in the USA 1912 - SIXT is founded in Germany, with a three car fleet. It is still operationaltoday! 1916 – Joe Saunders creates the “Saunders Drive-It-Yourself System”, rentingFord Model T cars in Omaha, Nebraska. The price? 10 cents per mile7
Astranti Industry AnalysisAcellerate 1918 – Walter Jacobs started a rental company that became Hertz in the USA 1920 – Godfrey Davis, the UKʼs first car rental company, is founded 1923 – Saunders now has a major competitor in Walter Jacobs, whose rentalbusiness generates over 1 million in gross annual sales 1930s – Joe Saunders goes bankrupt due to the Great Depression in the USA 1932 – Hertz establishes the first airport-based car rental service in ChicagoAir travel and post-World War II growthAfter World War II, the demand for travel, especially the demand for air and railwaytravel, began to rise. This was good news for the car rental companies, who began tomarket their services to travellers arriving in new cities.For instance, in 1946, Avis Airlines Rent a Car System was founded at the Willow RunAirport in Detroit, targeting airline travellers, and went on to significant success.Other companies followed a similar strategy by working with railways operators tooffer their services at train stations.Peopleʼs disposable income rose in many countries around the world at this time,which led to car rental becoming more commonplace. This meant that there werehigh levels of competition. This prompted 24 US-based independent car rentalcompanies teamed up to found the National Car Rental System in 1947.Other major companies founded around this time included Europcar in Paris (1949),Enterprise Rent-A-Car in the USA (1957) and Arnold Clark Car and Van rental in theUK (1963).Additionally, during this period, some large car manufacturers such as Ford sought toenter the market by acquiring controlling interest in larger car rental companies.Competition in the industry remained high in the 1980s, during which timecompanies fought on the basis of their discount and pricing schemes. Pricingcontinues to be a key factor for competitiveness in the market to this day.Recent developmentsThe car rental industry relies, in part, on the strength of the travel industry, due topeopleʼs need to hire a car when arriving somewhere new for business or for aholiday. As such, the car rental industry was affected by the fall in demand for air8
Astranti Industry AnalysisAcelleratetravel following the September 11 attacks, and also by the Great Recession from2007-2009. For instance, the net income of Hertz fell by an enormous 94% as a resultof this recession, and Advantage Rent a Car filed for bankruptcy.Nonetheless, the industry remains large, with most of the activity occurring in theUSA and Europe. 2014 analysis from Nedrelid put the value of the industry worldwideat 51 billion, with the USA making up the majority, at just over 50%, and Europe andthe Rest of the World having roughly equal shares of the remainder.The industry is expected to continue to grow, with an estimated compound annualgrowth rate of 6.1% between 2020 and 2025, and a projected industry valuation of 120 billion by 2025.Application to the pre-seenWe know from the pre-seen that Acellerate also earns significant income frompeople who are travelling – in fact, its peak seasons are in the spring and summervacation periods.Acellerate, like many real-world car rental companies, capitalises on this by havingmany locations close to airports. It seems that Acellerate considers these airportlocations to be its most important, as it was chiefly the non-airport sites it chose toclose in response to the 2020 recession. It also has locations at train stations.We can assume from the pre-seen that that the car rental market in Everland, as inthe real world, is highly competitive, including on price.However, the pre-seen states that Acellerate charges relatively high rental fees.So, it is vital that the company justifies these higher fees by continuing todifferentiate itself from its competition by targeting business and premiumtravel and providing excellent customer service. This will allow it to retain itscompetitive edge.Further, weʼve seen in the pre-seen that the performance of Acellerate, like its realworld counterparts, is dependent on the prevailing economic conditions. That is,circumstances like recessions that mean people travel less (for business or forleisure) mean that a key source of demand for car rentals drops.9
Astranti Industry AnalysisAcellerate2. ServicesTypes of car rental servicesTypeDescriptionVehicle rentalStandard hire car service. The duration of rental, type ofvehicle and pick up and drop off location can vary.Car subscriptionPaying a monthly flat fee to rent a car. Can often swapvehicles as part of the deal.Chauffeured rentalA driver will take the person to their destination - usually apremium service for a short trip.Vehicle equipmentrentalRenting equipment for use in the car, like sat navs or babyseats.Car insuranceInsurance to cover the rental car for the rental period.Car sharingVery short-term car rentals that can be offered by a companywith its own fleet. Normally booked through an app.Fleet managementManaging a fleet of cars on behalf of another company.Fleet leasingLeasing a whole fleet of cars at once to a business forcompany cars.CompetitorsTop companies#CompanyCountry1HertzUSA2Avis Car RentalUSA3SIXTGermany4Enterprise Rent-A-CarUSA5EuropcarFrance10
Astranti Industry AnalysisAcellerate#CompanyCountry6Record goSpain7UCARFrance8LocautoItaly9ADAFrance10 EasirentUKCar rental trendsMarket controlThe real-world car rental market tends to be dominated by the same five companies(Avis, Enterprise, Europcar Hertz and SIXT) throughout Europe and the USA. Keyexceptions are France and Spain, where independent companies have adoptedstronger market positions.In any case, there is no clear winner between the five major players in every country.This has meant that no individual company has been able to exert significant controlover the industry, or indeed over car rental prices, despite the market share beingdivided between so few parties.However, the fact that the market is largely split between a few large companiesmeans that the key avenue for growth for these companies is likely to be viaconsolidation – i.e. through mergers or acquiring smaller, independent companies.Comparison sitesThe growth of intermediaries such as car rental brokers has had a significant impacton the industry. Most of these brokers (e.g. kayak.co.uk or travelsupermarket.com)allow the customer to compare the available prices for a variety of rental cars at agiven location in a given date range.However, when using the services of these car rental brokers, the customer is lookingat the brokerʼs website, rather than that of the rental companiesʼ. This makes it moredifficult for them to get a feel for brand and the service provided by the differentrental companied. This makes it much harder for the rental companies to promoteand develop their brand, and instead fosters a focus of price.11
Astranti Industry AnalysisAcellerateCommoditisationThe car rental industry is highly commoditised. This means that it is difficult for thecustomer to distinguish between the offerings of the major industry players. So, fromthe customerʼs perspective, companies like Avis, Hertz or SIXT are more or less thesame!A key contributor to this trend is the fight over pricing, in part driven by the rise ofprice comparison sites. This has meant that the large companies have focussed onoffering lower prices for similar services, which has meant that there has beencomparatively less attention on finding ways to offer a superior customer experience.Hourly rentalsPeer to peer rideshare services such as Uber and Lyft have grown in popularitysignificantly in recent years. Whilst these services donʼt represent direct competitionto car rental services, some rental companies have sought to gain ground by offeringa substitute service in the form of hourly rentals. Examples are Enterprise CarShareand Hertz 24/7.These services are normally offered on a membership basis, with a relatively low costhourly hire fee. They are targeted towards people in cities.Approaches to operationsThe largest and most successful car rental companies use a mixture of differentoperating models, depending on their location. These include standard franchising,acquiring a franchisee company, adding new corporate locations, and franchising viaagreements with another company.For instance, Enterprise Rent-A-Car expanded into Europe in the 2010s using bothcorporate and franchise locations. This indicates that there is no consistently perfectapproach to expansion in the car rental industry, and the most appropriate optionwill depend on the market in question.Rental companies also target different locations to different extents. For instance,59% of Hertzʼs revenue comes from its airport locations, compared to just 42% forEuropcar.Application to the pre-seen12
Astranti Industry AnalysisAcellerateMarket controlWe can see from the pre-seen that Acellerate generated E 275,000,000 in revenue in2019. Assuming that the E is similar in value to the Euro, this would mean that iswas larger than the main independent car rental companies in Europe (Goldcar,for instance, was at the large end of the scale, generated 190.4 million in 2014 whenit was independent).However, it remains smaller than the five largest real-world players, who each hadrevenues exceeding 1 billion in 2014, which suggests that it is far from one of thelargest organisations in the world of the pre-seen.From this, we can see that Acellerate could stand to gain ground in the market byacquiring a smaller, independent rental operator.Comparison sitesWe know from the pre-seen that Acellerate receives booking through third-partybrokers, which presumably include price comparison websites. We also know thatAcellerate pays commission on these bookings, reducing its margins.Therefore, it is vital the Acellerate continues to market it brand through otherchannels, such as social media, its website and its app. This, alongside itscommitment to customer service, will help it to give customers a reason to selectAcellerateʼs service.CommoditisationWe know from the pre-seen that Acellerate is charging rental fees above those ofvalue companies in the same industry. So, this indicates that Acellerate is aware ofthe commoditisation in the car rental industry, and is seeking to offer a premiumservice to mark itself out from its competition. The success of this approach willdepend on its ability to do so.One way it could improve on this is by taking a suggestion from a 2019 Forbes articleby charging lower fees to customers returning cars without a full tank of petrol.Filling the car up before returning it is inconvenient, and, whilst the pre-seen isnʼtclear on the fee Acellerate charges, the charge in the real world is often significantlymore than the normal fuel price.13
Astranti Industry AnalysisAcellerateSo, this would help Acellerate to distinguish itself from its competitors by providingmore convenience to the customer, which is a key part of offering a premium service.This could be very beneficial in a commoditised market.Hourly rentalsAs far as we can tell from the pre-seen, Acellerate does not offer an hourly rentalservice. Therefore, it is currently missing out on a potentially growing marketsegment that real-world rental services are already capitalising on.Given that, as weʼve seen, competition on price is fierce and, thanks to third-partybrokers, it is difficult to differentiate from the competition, it is important thatAcellerate investigates new opportunities for growth such as offering thesevery short-term rentals.Approaches to operationsWe know from the pre-seen that Acellerate currently generates 68% of its revenuefrom on-airport locations. This makes it more reliant on airport locations thansome larger real-world companies like Hertz and Europcar.This, however, represents a potential opportunity. Acellerate could seek to make adeal with a less airport-centred company (e.g. to open franchise off-airportlocations), and thereby diversify its revenue streams. This would make it moreresistant to factors affecting the air travel industry.14
Air travel and post-World War II growth After World War II, the demand for travel, especially the demand for air and railway travel, began to rise. This was good news for the car rental companies, who began to market their services to travellers arriving in new cities. For instance, in 194
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