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Car Rental Industry Germany Essays

German Car Rental Industry| 21510 – Global Context of Management (Due: 07 May 2012)| Melissa Townsend 11245216| TABLE OF CONTENTS Executive Summary| 2| Introduction| 3| Industry Landscape| 3-4| Future Outlook| 4| PESTEL Analysis| 4| Porter’s 5 Forces Analysis| 5| References| 6-7| Bibliography| 8| Appendices| 9-24| ————————————————- ————————————————- Executive Summary ————————————————- This report provides an overview of the German car rental market from a national and global perspective.
It also addresses current challenges facing the industry, and what measures are being implemented for its survival in a harsh operating environment, post GFC. By analysing legal and political, technological and economic, not excluding social and environmental variables, the reader will gain insight into the industry’s intricate relationships and top ranking performance measures. A further analysis using Porter’s 5 Forces, details the competitive landscape, increasing the buyers and suppliers markets with a view into examining economic opportunities versus risk management and liabilities.
This report also anticipates future prospects of the industry whilst forecasting steady continuous growth, and a sound recovery system, following GFC’s recent world-wide impact. The major findings in this report include: * The GFC aftermath, its effects on the industry’s buyers and consumers and their forced adaption to purchase than short-team leasing * The threat of low quality substitutes determining consumers to shift towards severe cost cutting and consciousness environment concerns. High internet usage and availability encouraging increased consumer confidence in Buying Power * The EU and German Governments inevitable push towards electric vehicle fleets, in dominating the industry as a whole. * Other functioning business partners, especially in tourism and trade and their vital role in assisting major support networks. CAR RENTAL INDUSTRY – GERMANY ————————————————- Introduction The car rental industry mainly consists of passenger vehicles through commercial and leisure realms based on a short-term basis (less than one year).
For the purpose of this analysis, long term car rental (over one year) and commercial vehicle rental (such as trucks and vans) are excluded. The car rental market in Germany averages of USD $11,740 million (refer Appendix 3. 4) and its capital city Berlin ranks at 14 globally in terms of profits. As a result of the Global Financial Crisis (GFC) in 2009, the industry’s overall growth was stagnated, however a significant increase in global travel from 2010 saw the industry regain steady momentum, in time for the future challenges that climate change and its resulting policies and laws will bring (refer to Appendix 5). ———————————————— Industry Landscape In direct correlation between travel/tourism and car rental industries, the latter was often referred as a feeder industry – having a strong dependency on the success of travel and tourism. Albeit, the car rental industry is also deemed as a complement to the travel/tourism industry, playing a vital role in increasing the ease of transportation for tourists (Erdogan and Bavik, 2008). Germany is a popular tourism destination due to its positive image and value for money, with more than one third of Germans preferring to spend their holidays in their own country.
As a result of this, the German car rental industry is hovering around 4% in total global earnings and ranks at 1 for market potential in Europe. (Parker 2010) (Refer to Appendix 4. 2) Post GFC, the car rental industry has seen positive movements since 2011, with Agnew (2011) reporting that car-rental transaction days have increased by 7% whereas the Air Transport Association reported a 1. 1% decline in domestic passenger bookings which could account for the general shift of consumers to be thriftier and use alternate means of travel as opposed to flying.
The German car rental industry is most lucrative in the non-airport located leisure, and then business sites (Appendix 3. 2), although competitors with a business focus have proven to be more resilient since the GFC. (Source: Euromonitor International 2010) A study conducted by Cho and Rust (2010) reveals that many companies in the car rental industry are behaving sub optimally and are not fully competitive due to not keeping rental cars long enough. Their studies suggested that companies could maximise profits by renting older cars at a discount, a concept of which key operators are beginning to grasp in order to stay afloat.
Instead of leasing cars short term from auto manufacturers, car rental companies are having to purchase them outright, encouraging them to implement more optimal strategies and get more rental life out of their vehicles (refer Appendix 2. 3). Traditional car rental companies have also begun to implement their own short car rental business, to compete against car sharing companies: i. Enterprise Rent-A-Car’s WeCar ii. Hertz’s Connect By Hertz iii. U-Haul’s U Car Share iv. Avis’s Okigo and v. Sixt’s SixtiCar Club Future Outlook ————————————————-
This competitive landscape has seen German car rental companies implement their future pricing strategies following the same pricing strategy of matching competitors’ price moves (Zhu 2006) which has proven beneficial to the consumer. Boehmer (2011) affirms this in stating that buyers should be taking advantage of the current market, with rental companies competing aggressively for corporate accounts and business rental rates remaining mostly lower than those charged in 2010. The general outlook for the German car rental industry is positive, with continued signs of growth.
PESTEL Analysis – key influencing factors (refer to Appendix 1 for expanded version) Political The German Government is proposing legislation to exempt new, environment-friendly cars (emitting 100 or fewer grams of carbon dioxide per km) from road tax for two years. Cars which don’t meet these criteria will pay the tax at a higher rate based on a sliding scale. The proposal supports government plans for new cars to emit 120 grams of CO2 per km by 2012 (Euromonitor International 2012). The figure is currently 170grams. The German government aims at a total of one million electro cars by 2020. Economic
In 2011, Germany increased its competitiveness ranking to a 10 (World Competitiveness Center 2011), albeit dropped to a 6 for overall economic performance (World Economic Forum 2011). The GFC initiated a global decrease in demand. This has caused a reduction in fleet sizes – which annual costs run into the hundreds of millions of dollars (Pachon and Eleftherios 2006), further causing a shortage of cars available for hire and prices to increase in many market, which didn’t go down well with budget-conscious consumers whom shortened rental times, which caused value sales to decline more than volume sales.
The German market suffered, with a key-player Budget Rent-a-Car exiting the market in 2009 (Euromonitor International 2010). Social Ownership of a car is becoming less of a status symbol with now 1 in 3 Germans envisioning life without a car. Holidays are important with 52% of all consumers taking a holiday at least five days long in 2010, and more than one third of Germans like to spend their holidays in their own country, especially in the southern country of Bavaria. 1% Germans prefer an electric car to a conventional one, indicative of the green shift of consumers, complementing the budget conscious mind set which is ever increasing not only in Germany, but on a global scale. Oktoberfest brings hundreds of thousands, worlds biggest beer festival. World Cup Technological Leading operators continue to invest in technology, mobile apps and environmental friendly solutions – such decisions increase flexibility and lower overall costs (Wu and Hartman 2010). With German companies being among the most innovative in the world (World Economic Forum 2011), there is a high concentration on R&D. 6% Germans under 30 are connective (Euromonitor International 2012) Environment The eruption of the Icelandic volcano Eyjafjallajokull in March 2010 saw much of Europe’s airspace disrupted with grounding of flights. This however worked in favour for car rental companies, in particular Sixt – the German car rental company, who reported an increase in demand having to supply an extra 2,000 cars to cope with the demand (Euromonitor International 2011) Legal Legal issues arising from EU and national Member State support for industry policies of Electric Vehicles. Car rental companies are further subject to the following: 1. Corporate taxes . Value Added Tax (VAT) – a general tax on the consumption of goods and services in Germany, with the rate of 19% of which it should be noted that all consumers of car rental will incur this tax. Porter’s Five Forces – Germany’s Car Rental Industry (refer to Appendix 2 for an expanded version) 1. Bargaining Power of Buyers: Low-MedPrice sensitivity is generally elastic amongst all Buyers, however as car rental companies attempt to recover post GFC and increased online use, the bargaining power of Buyers is increasing| Buyers generally stem from the Travel and Tourism industry and can often view car rental as an alternative to travel.
Buyers defined in order of profitability:(i) Consumers (both business and leisure) have high bargaining power in the German car rental market, with an increasing trend of thriftiness amongst German consumers. The business consumer takes a large portion of overall sales(ii) Insurance Agencies and Mechanics – rely on car rental companies as a provision of additional services to their customers. | 2. Bargaining Power of Suppliers: Med-HighHigh concentration of suppliers to car rental companies| Suppliers: Car manufacturersThere is a further threat from these suppliers with the possibility of forward vertical integration.
Further to this, changes made from car manufacturers heavily impacts car rental companies whom are very dependant. The main suppliers of the German car rental | 3. Threats of Substitutes: High| Car Pooling/Sharing: The number of car-sharing users in Germany grew by 20% to 190,000 in 2010. The agency “mitfahrzentrale. de” connects lone drivers in search of company in touch with people who want to book a ride, which is also available via 2 Smartphone apps. Public Transport: Germany’s public transport system is among the best in the world.
In winter, snowfall conditions can create inhospitable roads, perturbing drivers and encouraging the use of public transport. In saying this, Germany is ranked 10 globally for quality of roads (World Economic Forum 2011). Internal flights are often favoured due to travellers wanting to avoid the uncertainties of rail travel or road difficulty if hiring a car. | 4. Threats of New Entrants: MediumTo consider entry into the car rental industry, high capital requirements and access to distribution networks are necessary| The following are possible entrants identified.
Companies should have existing brand equity or the capital requirements and access to distribution:1. Airlines – Looking to broaden their existing market can offer combined flight and car rental offers, or just an alternative means to travel. 2. Car Dealerships – threatening the car rental industry with forward vertical integration. They also have a further advantage of existing car fleets at hand. 3. Long Distance or International Train companies – Such as Eurostar whom have an established brand and are already seen as a means to travel. | 5.
Competitive Rivalry: MediumThe industry in Germany is dominated by three companies which take a total market share of 72%, with the remaining players consisting of smaller domestic and multinational companies (Euromonitor International 2011)| The number of independent car rental companies is on the decline due to consolidation of the industry as a result of the recession. Main competitors defined in order of market share in Germany (%): 1. Sixt AG (32%) – covers more than 70% of the European rental market (Agnew 2011). 2. Europcar Deutschland GmhH (27%) 3.
Avis Autovermietung GmbH & Co KG (13%) – Avis re-launched the operations of ex-competitor Budget of whom filed for insolvency in 2009 as a result of the GFC. They are also the main drivers of the electric rental cars from Renault in Germany. | References: 1. ACRISS 2012, Industry Standard Car Classification Code, viewed 15 Apr 2012, <http://www. acriss. org/car-guide2. asp> 2. Agnew, C. 2011, Auto Rentals Driven by Strong Trends, viewed 27 March 2012, <http://online. barrons. com/article/SB50001424052748703308104577074343151620400. html> 3. Biagi, P. , Bucyte, J. Mills, J. , Pividori, M. , Santino, M. , Bottai, E. 2009, Preview: European Car Leasing and Rental Report, viewed 27 March 2012, <http://www. leaseurope. org/uploads/documents/Publications/Preview. pdf> 4. BOEFFGEN, B. , Kartach, K. 2004, Realising Profit Potentials in the Car Rental Industry, viewed 20 March 2012, <http://www2. simon-kucher. com/whitepapers/bebo_kaka_profit_potential_i n_the_car_rental_industry_15. 03. pdf> 5. Cho, S. , Rust, J. 2010, ‘The Flat Rental Puzzle’, Review of Economic Studies, Vol. 77, No. 2, p560-594 6. Close-Up Media, Inc. 011, ‘Research and Markets Adds Report: Global Car Rental Market Report: 2011 Edition’, Travel & Leisure Close – Up, http://search. proquest. com. ezproxy. lib. uts. edu. au/abitrade/docprintview/899045940/Record/13605F6D01D64BBC495/4? accountid=17095 7. DataMonitor 2006, Car Rental in Germany, viewed 13 March 2012, <http://360. datamonitor. com. ezproxy. lib. uts. edu. au/Product? pid=340DDAA7-B230-402A-9C96-8F49152BF732> 8. Dean, D. H. , 2010, ‘Rental experience and likelihood to purchase rental car insurance among young adults’, Young Consumers, Vol. 11, No. , pp215-225 9. Ekiz, E. H. , Bavik, A. 2008, ‘Scale Development Process: Service Quality in Car Rental Services’, Electronic Journal of Business Research Methods, Vol. 6 Issue 2, pp133-145 <http://content. ebscohost. com. ezproxy. lib. uts. edu. au/pdf10/pdf/2008/RPC/01Oct08/37221643. pdf? T=P&P=AN&K=37221643&S=R&D=bth&EbscoContent=dGJyMNHr7ESepq84v%2BbwOLCmr0qeprJSsKe4S66WxWXS&ContentCustomer=dGJyMPGqtlCvqbJLuePfgeyx44Dt6fIA> 10. Desai, K. S. 2011, ‘Electric Vehicles – EU Legal Issues’, viewed 15 April 2012, <http://www. mayerbrown. om/publications/Electric-VehiclesEU-Legal-Issues-05-10-2011/> 11. Euromonitor International 2010, Global Car Rental Market – Weathering the Storm, viewed 11 Apr 2012, <http://www. portal. euromonitor. com. ezproxy. lib. uts. edu. au/Portal/Pages/Search/SearchResultsList. aspx> 12. Euromonitor International 2011, Car Rental in Germany, viewed 20 March 2012, <http://www. portal. euromonitor. com. ezproxy. lib. uts. edu. au/Portal/Pages/Search/SearchResultsList. aspx> 13. Euromonitor International 2011, Travel and Tourism in Germany, viewed 11 Apr 2012, <http://www. ortal. euromonitor. com. ezproxy. lib. uts. edu. au/Portal/Pages/Search/SearchResultsList. aspx> 14. Euromonitor International 2012, Germany: Country Pulse, viewed 11 Apr 2012, <http://www. portal. euromonitor. com. ezproxy. lib. uts. edu. au/Portal/Pages/Search/SearchResultsList. aspx> 15. Nusca, A. 2010, Transportation surges past smart grid in Q3 2010 cleantech investment, viewed 20 March 2012, <http://www. smartplanet. com/blog/smart-takes/transportation-surges-past-smart-grid-in-q3-2010-cleantech-investment/11217> 16. Pachon, J. , Eleftherios, I. , Ip, C. 006, ‘Vehicle fleet planning in the car rental industry’, Journal of Revenue and Pricing Management, Vol. 5, No. 3, pp221-236 17. Parker, P. M. 2008, The 2009 Report on Passenger Car Rental and Leasing: World Market Segmentation by City, viewed 27 March 2012, <http://web. ebscohost. com. ezproxy. lib. uts. edu. au/ehost/pdfviewer/pdfviewer? vid=6&hid=107&sid=5b2f1ee7-849f-4da5-9355-713803cfe456%40sessionmgr111> 18. Parker, P. M. 2010, The 2011-2016 World Outlook for Passenger Car Rental and Leasing, viewed 27 March 2012, <http://web. ebscohost. com. ezproxy. lib. uts. du. au/ehost/pdfviewer/pdfviewer? vid=3&hid=107&sid=5b2f1ee7-849f-4da5-9355-713803cfe456%40sessionmgr111> 19. Snyder-Bulik, B. 2011, ‘Customer service playing bigger role as marketing tool: National brands find value in meeting their consumers’ needs down to local level’, Advertising Age, vol. 82, no. 40 http://search. proquest. com. ezproxy. lib. uts. edu. au/abitrade/docview/902874769/13605F6D01D64BBC495/2? accountid=17095 20. UHY 2010, Doing Business in Germany, viewed 15 April 2012, <http://www. uhy. com/media/PDFs/doing_business_guides/Doing%20Business%20in%20Germany. df> 21. Wach, K. , Epping, M. , Zinsmeister, U. , Bonacker, E. 2004, Germany, viewed 15 April 2012, <http://www. google. com. au/url? sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=8&ved=0CJkBEBYwBw&url=http%3A%2F%2Fec. europa. eu%2Fcompetition%2Fantitrust%2Factionsdamages%2Fnational_reports%2Fgermany_en. pdf&ei=a1iKT_eEK4ObmQX7kN3vCQ&usg=AFQjCNE2ReVDdgHV5ws710lfj80-1WN5iw&sig2=aL2pVcJWFjG16tRAVAqiOA> 22. World Competitiveness Center 2011, IMD World Competitiveness Yearbook 2011, viewed 14 March 2012, <http://www. imd. rg/research/publications/wcy/upload/Overall_ranking_5_years. pdf> 23. World Economic Forum 2011, The Global Competitiveness Report 2011-2012, viewed 14 March 2012, <http://www3. weforum. org/docs/WEF_GCR_Report_2011-12. pdf> 24. Wu, P. , Hartman, J. C. 2010, ‘Case Study: Solving A Rental Fleet Sizing Model With A Large Time-Space Network’, Engineering Economist, Vol. 55 Issue 1, pp71-104 25. Zhu, J. 2006, ‘Using turndowns to estimate the latent demand in a car rental unconstrained demand forecast’, Journal of Revenue and Pricing Management, Vol. 4, No. 4, pp344-353 Bibliography: 1. Amondson, B. 2010, Renting a Car in Germany, viewed 19 April 2012, <http://gogermany. about. com/od/planyourtrip/a/rentcargermany. htm> 2. Binggeli, U. , Pompeo, L. 2005, The battle for Europe’s low-fare flyers, viewed 27 March 2012, <https://www. mckinseyquarterly. com/PDFDownload. aspx? ar=1656> 3. Boehmer, J. 2011, ‘Working With Car Rental Firms’, Business Travel News, vol. 28, no. 10 <http://search. proquest. com. ezproxy. lib. uts. edu. au/abitrade/docprintview/883390944/Record/13605F6D01D64BBC495/5? accountid=17095> 4. MarketLine 2011, Sixt Q3 profit increases, viewed 14 March 2012, <http://360. atamonitor. com. ezproxy. lib. uts. edu. au/Product? pid=9534E627-23A3-4EEC-A186-ED5FAE373805> 5. China Market Research Report 2011, Car Rental in Germany, viewed 13 March 2012, <http://files. askchinareport. com/2011/07/221155205921. pdf> 6. Guyett, J. E. 2012, ‘Retail industry trying harder to boost vehicle choices, convenience’, Aftermarket Business World, p14 <http://search. proquest. com. ezproxy. lib. uts. edu. au/abitrade/docview/927654227/fulltextPDF? accountid=17095> 7. TACSnet 2012, Car Rental Industry “Point of View”, viewed 15 April 2012, <http://www. tacsnet. om/scripts/car_rental. cfm> APPENDIX 1 – PESTEL ANALYSIS 1. 1 – POLITICAL Germany is a parliamentary democracy with a very pronounced federal structure and stability. There are 16 federal states. The federal parliament has responsibility for national matters, whereas the 16 federal states are responsible for issues such as education and property (UHL 2010). In the international arena, Germany is a forerunner in climate and energy policies and seeks to achieve ambitious emission-reduction goals. HIGH| Climate change – changes in the atmosphere and climate system poses great political challenges. The German Government is proposing legislation to exempt new, environment-friendly cars (emitting 100 or fewer grams of carbon dioxide per km) from road tax for two years. Cars which don’t meet these criteria will pay the tax at a higher rate based on a sliding scale. The proposal supports government plans for new cars to emit 120 grams of CO2 per km by 2012 (Euromonitor International 2012). The figure is currently 170grams. The German government aims at a total of one million electro cars by 2020 through its National Electric Mobility Platform (NEMP). | MEDIUM| Germany and Europe – major player in the EU. Germany is a prominent member of the European Union (EU), which requires intergovernmental negotiated decisions by the member states. | LOW| The BundesratGermany’s Business Environment: Problematic Factors| The Bundesrat plays a part in the passing of federal legislation and represents the federal states. It is obliged to deliberate on each federal law. Restrictive labour and tax regulations are the most problematic factors for business in Germany, however on a global scale, Germany ranks quite well in regards to having a stable political and business environment. (Source: World Economic Forum 2011)| 1. 2 – ECONOMIC
Germany is a founding member of the EU and part of the following groups: * United Nations (UN) – OECD – G8 & G20 – NATO – European Monetary Union (EMU) HIGH| The GFCAirports & Tourism| As the economy recovers from the recession, so does the German car rental industry. Frankfurt am Main (Frankfurt Flughafen) is Europe’s second largest airport (after London-Heathrow). Following in size are Munich, Dusseldorf, Hamburg, Colgogne and Stuttgart. Germany is a popular holiday destination, with tourists mainly comprising of those from The Netherlands, USA and Great Britain. Germans also like to holiday in their own country, with a vast ajority opting to holiday in popular attractions such as Bavaria. | MEDIUM| German public debt| Public debt rates as 80% of GDP. High public debt can impact competitiveness and the long term future growth of an economy (World Economic Forum 2011)| LOW| Increasing oil prices – Currently a low threat to the industry with a shift in consumers to be thriftier in their purchases. Increased oil prices could see car rental consumers veer towards alternative transportation as a way of saving money in petrol associated in the car hire. | (Source: Euromonitor International 2010)The travel industry is affected by increasing oil prices.
The car rental industry in particular is also closely related to flight numbers. The more oil increases, the more airline companies will on pass costs to consumers, decreasing their consumption. Increased petrol prices is also a deterrent for travellers opting for car hire, persuading them to other means of transport such as fast trains. | 1. 2. 1 – Germany’s Economic Landscape (2010) (Source: World Economic Forum 2011) 1. 3 – SOCIAL Germany has a population of around 82 million, making it the largest country in the EU in terms of numbers. Its population density is very high placing it as 4th overall in Europe.
HIGH| Automobile PsycheGermans like to holiday in GermanyGreen is coolEventsUrban Living| Ownership of a car is becoming less of a status symbol with now 1 in 3 Germans envisioning life without a car. Holidays are important with 52% of all consumers taking a holiday at least five days long in 2010 (Euromonitor 2011), and more than one third of Germans like to spend their holidays in their own country, especially in the southern country of Bavaria. 71% Germans prefer an electric car to a conventional one (Euromonitor International 2012), stemming from an overall green shift from the population.
Oktoberfest (the world’s biggest beer fest), World CupAlmost 90% lives in urban areas| MEDIUM| LanguagesLow birth rate| The official language is German; however there is a variety of dialects. German is related to a number of languages, like the Scandinavian languages, Dutch, Flemish and English (which is encouraging for tourists from these places). The Danish population in the city of Schleswig do not speak German and there are also a number of Frisians who have continued to speak their own language. Germany has one of the lowest birth rates in the world, contributing to a global ageing population. LOW| Immigration: A large portion of societyGender equalityIncreasing life expectancy| Due to the considerable rate of immigration, there are just under 7. 5 million foreigners residing in Germany, with a vast number originating from Turkey. The German government views diversity as an opportunity and continues to fund integration efforts. The traditional male and female roles have since evolved with females having greater influence in all aspects of social and economic life. Amongst many other things, for the purpose of this analysis, this broadens the consumer market for car rental.
Increased life expectancy is predominant in all wealthy countries globally. With increased life expectancy comes active and independent elderly people with increased years working and travelling – both of which feed into the car rental industry. | 1. 4 – TECHNOLOGY HIGH| Electric vehiclesInvestment in transportation – This includes energy efficient engines, and cleaner exhaust systems for motor vehicles. | Leading operators continue to invest in technology, mobile apps and environmental friendly solutions, such decisions increase flexibility and lower overall costs (Wu and Hartman 2010).
With German companies being among the most innovative in the world (World Economic Forum 2011), there is a high concentration on R&D. Domestic market – 96% Germans under 30 are connective (Euromonitor International 2012)In Germany, there are apparently few and non-material incentives or planned charging stations for electric vehicles. The government seems to focus more on supporting R&D, such as improving battery technology (Desai 2010). (Source: Nusca 2010)| MEDIUM| Increase of internet usage: Trend of budget-conscious consumers using the internet to find the best deal. (Source: Euromonitor International 2011)| LOW| Automobile industry| The German car rental industry is abundant in suppliers with Germany not only being one of the top four automobile manufacturers in the world, but also considered to be the birthplace of the automobile since the four-stroke internal combustion engines were developed there. The following companies dominate the German automotive industry: 1. Volkswagen AG (Porsche SE, Audi, Bentley, Bugatti, Lamborghini, Scania, SEAT, Skoda) 2. BMW AG (MINI, Rolls-Royce, BMW 3) 3.
Daimler-Benz AG (Maybach, Mercedes-Benz, Mercedes-AMG, Smart) 4. Opel AG 5. Ford-Werke GmbH| 1. 5 – LEGAL German legislation is modelled on the old Roman system and has no resemblance to the Anglo-Saxon legal system (UHL 2010). Germany’s legal system is governed by Basic Law, which determines that Germany is a constitutional state. The Basic Law lays down representative democracy as the form of rulership and all state authorities are subject to judicial control. HIGH| TaxesEU automotive industry policy directive| Car rental companies are subject to the following:1. Corporate taxes 2.
Value Added Tax (VAT) – a general tax on the consumption of goods and services in Germany, with the rate of 19% of which it should be noted that all consumers of car rental will incur this tax. Legal issues arising from EU and national Member State support for industry policies of Electric Vehicles. Such issues include managing market outcomes and who pays for what (Desai, 2011), a political and legal challenge to be faced. | MEDIUM| Legalities with insurance agenciesBundestag| Ensuring that full coverage is providedThe Bundestag is the German parliament – an elected representation of the German people. LOW| Basic Law and the EUGerman Road Laws| The Federal Constitutional Court has stipulated that European law must satisfy the criteria of the Basic Law if Germany is to relinquish to the EU the rights to draw up its own laws. It has also stated that the Bundestag must also be involved in EU decision-making. Car rental companies must ensure that they do not rent cars to those under the age of 18, however usually drivers have to be over 21 to rent a car. | 1. 5 – ENVIRONMENT
HIGH| Force Majeure – “Acts of God”| The eruption of the Icelandic volcano Eyjafjallajokull in March 2010 saw much of Europe’s airspace disrupted with grounding of flights. This however worked in favour for car rental companies, in particular Sixt who reported an increase in demand having to supply an extra 2,000 cars to cope with the demand (Euromonitor International 2011)| MEDIUM| Environment, climate, energy| Changes in the atmosphere and climate largely due to human activity have caused a global shift slow down the damage that we are causing.
The car rental industry and all automobile related industries are starting to see the affects of this, with more to come. Germany’s greenhouse gas emissions have been decreasing since 1999 largely due to the installation of catalytic converters in all vehicles. | LOW| Proximity of neighbouring countries| Germany is one of the largest countries in Europe, located in the centre of Europe surrounded by the Czech Republic, Austria, Poland, Switzerland, Luxembourg, France, the Netherlands, Belgium and Denmark.
The proximity to other countries could not only pose a threat to German car rental companies, but also be to its advantage. Since this industry is a feeder from the Travel and Tourism industry, consumers could opt to rent cars and drive through borders across Europe. | APPENDIX 2 – PORTER’S 5 FORCES ANALYSIS The overall the market is influenced equally by all factors except for the threat of substitutes which is high, mostly due to a green shift of consumers and increased internet usage. FORCE| CONSIDERATIONS| 2. – BUYER POWER: Low-Medium (however trends are shifting this towards medium)Buyers defined: Business and Leisure consumers, Insurance companies and mechanic workshops| Price sensitivity is generally elastic amongst all Buyers, however as car rental companies attempt to recover post GFC, increased online usage and trends of alternate rental such as bikes is increasing the bargaining power of Buyers. Buyers generally stem from the Travel and Tourism industry and can often view car rental as an alternative to travel.
Buyers defined in order of profitability:(i) Consumers (both business and leisure) have high bargaining power in the German car rental market, with an increasing trend of thriftiness amongst German consumers. The business consumer takes a large portion of overall sales(ii) Insurance Agencies and Mechanics as a means of replacement – rely on car rental companies as a provision of additional services to their customers| 2. 2 – SUPPLIER POWER: Medium-HighSuppliers: Leading car manufacturersAutomotive insurance providers (low)| Car rental companies either purchase (“risk cars”) or lease (“program cars”) from car manufacturers.
When car manufacturers ceased or slowed the production of cars and shifted from dealing “program cars” to “risk cars” with car rental companies, this drove up the rental prices globally. Historically, car manufacturers and car rental companies enjoyed the benefits of “program cars”, as it boosted the car manufacturer’s sales and it mitigated the risk for car rental companies having to resale used cars. Post GFC has seen car manufacturer’s change to a strict lean and profitable strategy to survive, with car rental companies bearing the brunt of the change.
The main suppliers of fleets in Germany are as follows: Volkswagen BMW Peugeot Citroen Mercedes Volvo The World Economic Forum rated Germany’s overall local supplier quality as 4th in the world, with supplier quantity ranking at 3rd. Automotive insurance providers wield relatively low power in the German car rental industry, as they are abundant and highly competitive. | 2. 3 – RIVALRY: Medium| The number of independent car rental companies is on the decline due to consolidation of the industry as a result of the recession.
Main competitors defined in order of market share in Germany (%): 1. Sixt AG (32%) – covers more than 70% of the European rental market (Agnew 2011). 2. Europcar Deutschland GmhH (27%) 3. Avis Autovermietung GmbH & Co KG (13%) – Avis re-launched the operations of ex-competitor Budget of whom filed for insolvency in 2009 as a result of the GFC. They are also the main drivers of the electric rental cars from Renault in Germany. Germany’s overall nature of competitive advantage ranked at 4th globally (World Economic Forum 2011) which presents a good playing field for car rental companies.
There is correlation in pricing amongst the top competitors in the German car rental industry. The figure below depicts this relationship using data from 3 different companies (Avis, Sixt and National). On average, Avis and Sixt offer slightly better value for money, although all three charge the most expensive price at some point over the rental period. (Source: Boeffgen & Kartach 2010) * Since the GFC the German car rental industry has seen no further brand launches, alliances or M&A activity other than the takeover of Budget by Avis (Euromonitor 2011)| 2. – SUBSTITUTES: High| Car Pooling/Sharing: The number of car-sharing users in Germany grew by 20% to 190,000 in 2010. The agency “mitfahrzentrale. de” connects lone drivers in search of company in touch with people who want to book a ride, which is also available via 2 Smartphone apps. Bike rental are increasingly widely available across urban areas, with various schemes surrounded around train stations in Germany. Public Transport: Germany’s public transport system is among the best in the world. In winter, snowfall conditions can create inhospitable roads, perturbing drivers and encouraging the use of public transport.
In saying this, Germany is ranked 10 globally for quality of roads (World Economic Forum 2011). | 2. 4 – NEW ENTRANTS: Medium| The following are possible entrants identified. Companies should have existing brand equity or the capital requirements and access to distribution:1. Airlines – Looking to broaden their existing market can offer combined flight and car rental offers, or just an alternative means to travel. 2. Car Dealerships – threatening the car rental industry with forward vertical integration.
They also have a further advantage of existing car fleets at hand. 3. Long Distance or International Train companies – Such as Eurostar whom have an established brand and are already seen as a means to travel. 4. Auto liability insurers. A classic example of this is back in 1998 where it was found that an auto liability insurer cooperated with other insurers to create their own car rental agency “Carpartner”, effectively running a cartel and dumping prices in the German car rental market (Wach et al 2004)| APPENDIX 3 – CAR RENTAL MARKET IN GERMANY 3. – In 2010, there were approximately 507 operators; however this number has since further declined due to the harsh operating environment following the GFC. (Source: Euromonitor International 2010) 3. 2 – Location of sales is dominated by non-airport leisure followed by non-airport business. (Source: Euromonitor International 2010) (Source: Euromonitor International 2011) 3. 3 – Sixt AG followed by Europcar Deutschland GmbH and Avis dominate the car rental market in Germany. (Source: Euromonitor International 2011) 3. 4 – The average value of the German car rental industry USD $11,739. 3 million which is based on historic and future forecasts from the table below: 3. 5 – There has been a steady increase in the number of cars and transactions in the German car rental market, albeit the number of operators has dropped significantly post GFC. Tourism numbers and expenditure has increased overall from 2006 to 2011, peaking in 2008 although it sharply declined 11. 5% once the GFC hit. (Source: Euromonitor International 2011) 3. 6 – 2009 Forecast of car rental sales in Germany: Business to drive profits and topple leisure in sales (Source: Euromonitor 2009)
APPENDIX 4 – GLOBAL COMPETITIVE LANDSCAPE 4. 1 – In 2009 the German car rental industry ranks at 14 in the world (Parker 2010) 4. 2 – Germany ranks as No. 1 for market potential (2011) 4. 3 – Germany ranks as 6 in The Global Competitiveness Index 2011-2012 (Source: World Economic Forum 2011) 4. 4 – New Pricing Structure introduced by German Auto Rental companies in comparison to UK car rental * Proving to yield greater returns as the packages are more attractive to consumers (Source: Boeffgen & Kartach 2010) APPENDIX 5 – INDUSTRY TRENDS 5. 1 – GERMANY: INTERNET SALES DOMINATE A key indication of Buyers purchasing power increasing (Source: Euromonitor 2010) 5. 2. 1 – GLOBAL CAR RENTAL INTERNET SALES FORECAST * Western Europe is expected to see substantial growth in internet sales in 2014 (Source: Euromonitor International 2010) 6. 2. 2 – GERMAN CAR RENTAL INTERNET SALES FORECAST * A 5. 5% increase from 2010 to 2015 in internet transaction sales is forecasted for the German car rental industry (Source: Euromonitor International 2011) 6. 2 – GLOBAL: MAIN TRENDS IN THE AUTOMOTIVE MARKET… AND IMPLICATIONS FOR THE CAR RENTAL MARKET (Source: BIAGI et al 2009)

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