The text presents the German Car Rental Industry in a structured manner. It includes various sections such as an executive summary, introduction, industry landscape, future outlook, PESTEL analysis, Porter’s 5 Forces analysis, references, bibliography, and appendices. The executive summary provides a summary of the report’s contents and aims to give an overview of the German car rental market from both national and global perspectives.
The text examines how the industry is addressing current challenges and working to secure its future post-global financial crisis (GFC). It analyzes various factors such as legal, political, technological, economic, social, and environmental aspects to comprehend the industry’s intricate connections and performance indicators. Moreover, a Porter’s 5 Forces analysis is conducted to evaluate the competitive environment and potential economic prospects while managing risks.
This report predicts the future prospects of the car rental industry in Germany, including steady growth and a strong recovery system after the global impact of the GFC. The report discusses several key findings, such as the effects of the GFC on buyers and consumers in the industry, causing them to adapt and purchase instead of short-term leasing. It also highlights the threat of low quality substitutes, leading consumers to prioritize cost-cutting measures and environmental consciousness. Additionally, the report mentions the EU and German Governments’ push towards electric vehicle fleets as a dominant force in the industry. The report also emphasizes the importance of other business partners, particularly in tourism and trade, in providing crucial support networks. Overall, the car rental industry in Germany primarily involves passenger vehicles for commercial and leisure purposes on a short-term basis (less than one year).
The analysis excludes car rental for periods exceeding one year or commercial vehicle rental (such as trucks and vans). The car rental market in Germany has an estimated value of USD $11,740 million. Berlin is ranked 14th globally in terms of profitability (see Appendix 3.4). The industry experienced a slowdown in overall growth due to the Global Financial Crisis in 2009. However, since 2010 there has been a significant increase in global travel which has helped the industry regain momentum. This growth is particularly important considering the future challenges posed by climate change and related policies and laws (see Appendix 5).
The success of the car rental industry heavily relies on the success of travel and tourism as it serves as a supporting industry. It also plays a vital role in enhancing transportation convenience for tourists, thereby complementing the travel/tourism industry (Erdogan and Bavik, 2008). Germany is well-known for being a popular tourist destination with its positive reputation and affordability. Over one third of Germans prefer to spend their vacations within the country.
According to Parker (2010) and illustrated in Appendix 4.2, the German car rental industry holds approximately 4% of total global earnings and is considered the leading market potential in Europe. Following the global financial crisis (GFC), the car rental industry has experienced positive growth since 2011. Agnew (2011) states that there has been a 7% increase in car rental transaction days, while the Air Transport Association reports a decline of 1.1% in domestic passenger bookings. This shift in consumer behavior towards thriftiness and alternative modes of travel, rather than flying, may contribute to the car rental industry’s growth.
The non-airport located leisure and business sites have been the most profitable sectors of the German car rental industry, as indicated by Appendix 3.2. However, during the Global Financial Crisis (GFC), competitors focusing on the business sector have shown greater resilience (Euromonitor International 2010). According to Cho and Rust’s study (2010), many car rental companies in the industry are not operating optimally and lack competitiveness because they do not keep their rental cars for long enough. Their research suggests that companies could increase profits by offering older cars at discounted rates, a concept that major operators are beginning to understand in order to survive.
Instead of leasing cars short term from auto manufacturers, car rental companies are now required to purchase them outright. This change prompts them to adopt more effective strategies and maximize the rental lifespan of their vehicles (refer Appendix 2. 3).
In addition, traditional car rental companies are venturing into the short-term car rental business to compete with car sharing companies. Some examples include Enterprise Rent-A-Car’s WeCar, Hertz’s Connect By Hertz, U-Haul’s U Car Share, Avis’s Okigo, and Sixt’s SixtiCar Club.
Looking ahead, the future outlook for the industry is becoming more competitive and dynamic.
German car rental companies in the competitive landscape are adopting a pricing strategy that involves matching the price moves of their competitors (Zhu 2006), which has proven advantageous for consumers. According to Boehmer (2011), this market trend benefits buyers who can take advantage of rental companies competing fiercely for corporate accounts, resulting in lower business rental rates compared to those in 2010. Overall, the German car rental industry shows positive signs of growth.
The German Government is proposing a new law that would exempt environmentally friendly cars (emitting 100 or fewer grams of carbon dioxide per kilometer) from road tax for two years. Cars that do not meet this criterion would be subjected to a higher tax rate, which would vary based on a sliding scale. The government’s objective is for new cars to emit only 120 grams of CO2 per kilometer by 2012, compared to the current rate of 170 grams. Moreover, the German government has set a target of having one million electric cars on the road by 2020.
Germany’s competitiveness ranking in 2011 rose to a 10 according to the World Competitiveness Center. However, its overall economic performance dropped to a 6 as reported by the World Economic Forum. This decline in performance can be attributed to the global decrease in demand caused by the GFC. The reduction in demand has resulted in smaller fleet sizes and a shortage of available cars for hire, leading to increased prices across multiple markets. These higher prices were not well-received by budget-conscious consumers, causing them to shorten their rental times. Consequently, there was a greater decline in value sales compared to volume sales.
In 2009, Budget Rent-a-Car exited the German market, posing challenges for the industry (Euromonitor International 2010). Germans are increasingly unconcerned with owning cars as a status symbol, as one in three now envision a car-free life. In 2010, Bavaria became a popular choice for domestic vacations lasting at least five days among German tourists. The preference for electric cars over conventional ones was minimal in Germany, only reaching 1%, reflecting the global trend towards green consumerism and cost-consciousness. Oktoberfest, the world’s largest beer festival, attracts hundreds of thousands of visitors. Operators in Germany continue to invest in technology, mobile apps, and eco-friendly solutions to increase flexibility and reduce costs (Wu and Hartman 2010). German companies have gained international recognition for their innovation and focus on research and development (World Economic Forum 2011). By 2012, approximately 6% of Germans under thirty years old were online (Euromonitor International 2012). Furthermore, the eruption of Iceland’s Eyjafjallajokull volcano in March 2010 significantly disrupted European air travel services. During this time, Sixt – a German car rental company – had to supply an additional fleet of two thousand cars to meet increased customer demand (Euromonitor International 2011). Legal issues may arise from support by both the European Union (EU) and national Member States for industry policies on Electric Vehicles.Corporate taxes and Value Added Tax (VAT) have an impact on car rental companies in Germany. VAT, which is a general tax on the consumption of goods and services in Germany with a rate of 19%, applies to all car rental customers. The bargaining power of buyers in the country’s car rental industry is typically low to medium. However, as car rental companies strive to recover from the global financial crisis and capitalize on increased online usage, buyers’ power is increasing due to their price sensitivity. These buyers mainly come from the Travel and Tourism industry and often view car rental as a viable alternative to travel. For further details about Porter’s Five Forces analysis for Germany’s Car Rental Industry, please refer to Appendix 2.
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-High
High concentration of suppliers to car rental companies| Suppliers: Car manufacturers
There is a further threat from these suppliers with the possibility of forward vertical integration.
Moreover, car rental companies rely heavily on modifications made by car manufacturers. The German car rental sector is mainly provided by these manufacturers. There exists a significant risk of alternative options, like carpooling or sharing, which witnessed a 20% increase in user count to 190,000 in 2010. The “mitfahrzentrale.de” agency links drivers seeking companions with people interested in booking a ride, and this service is also available through two smartphone apps. Germany’s public transportation system is renowned as one of the finest globally.
In winter, the presence of snow can lead to challenging road conditions, which may inconvenience drivers and motivate them to opt for public transportation. It is important to note that Germany holds a global ranking of 10th in terms of road quality (World Economic Forum 2011). Many individuals choose domestic flights over train journeys or driving during unfavorable weather conditions. Moreover, establishing oneself in the car rental industry necessitates substantial capital investment and access to distribution networks. The subsequent list presents potential contenders in this sector.
Companies should have existing brand equity or the capital requirements and access to distribution. 1. Airlines: They can broaden their existing market by offering combined flight and car rental offers or providing an alternative means of travel. 2. Car Dealerships: They pose a threat to the car rental industry through forward vertical integration and already have existing car fleets. 3. Long Distance or International Train companies: Companies like Eurostar, which already have an established brand and are recognized as a means of travel.
Competitive Rivalry: Medium
The industry in Germany is dominated by three companies which have a combined market share of 72%. The remaining players consist of smaller domestic and multinational companies (Euromonitor International 2011).
Due to the recession, the number of independent car rental companies is decreasing as the industry consolidates.
Main competitors in Germany, listed by market share:
- Sixt AG (32%) – covers over 70% of the European rental market (Agnew 2011).
- Europcar Deutschland GmhH (27%)
Avis Autovermietung GmbH &Co KG (13%) relaunched the operations of ex-competitor Budget, who filed for insolvency in 2009 due to the GFC. They are also the main drivers of the electric rental cars from Renault in Germany. The sources related to car rental services include:
1. ACRISS 2012, Industry Standard Car Classification Code, viewed 15 Apr 2012,
A case study on solving a rental fleet sizing model with a large time-space network was conducted by Wu and Hartman in 2010 [25]. Zhu’s article in 2006 discusses using turndowns to estimate latent demand in car rental unconstrained demand forecasts [24].
To rent a car in Germany, refer to Amondson’s guide on About.com [1]. Binggeli and Pompeo’s article from 2005 provides insights into the battle for Europe’s low-fare flyers [2]. Boehmer’s article from Business Travel News offers information on working with car rental firms [3]. MarketLine reports an increase in Sixt Q3 profit for reference [4]. The China Market Research Report 2011 provides information specifically about car rental in Germany [5]. Guyett explores how the retail industry is attempting to boost vehicle choices and convenience [6]. TACSnet offers a “Point of View” on the car rental industry [7].
In terms of political factors, Germany operates as a parliamentary democracy with federal structure and stability. It consists of 16 federal states responsible for education and property matters, while national issues are handled by the federal parliament (UHL 2010). The German government is proactive in climate and energy policies, aiming to achieve ambitious emission-reduction goals. As part of this effort, they propose exempting new environment-friendly cars emitting less than or equal to 100 grams of carbon dioxide per km from road tax for two years. Cars failing to meet these criteria will be subject to a higher tax rate based on a sliding scale [source].China Market Research Report 2011, Car Rental in Germany, viewed 13 March 2012,
7.TACSnet
2012,
Car Rental Industry “Point of View”,
viewed
15 April
2012,
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 from Euromonitor International (2012) supports the government’s plans for new cars to emit
120 grams of CO2 per km by
2012.The current emissions stand at 170 grams. Germany, a prominent member of the EU, aims to achieve one million electric cars by 2020 with the help of its National Electric Mobility Platform (NEMP). The Bundesrat, representing federal states, is responsible for passing federal legislation and must evaluate each law. Germany encounters challenges in its business environment due to strict labor and tax regulations. Nonetheless, it is globally recognized for its political and business stability according to the World Economic Forum (2011).
Germany is a founding member of the EU and is also part of several other groups such as the United Nations (UN), OECD, G8 & G20, NATO, and the European Monetary Union (EMU).
Furthermore, as the economy recovers from the recession, the German car rental industry is also seeing growth. Frankfurt am Main (Frankfurt Flughafen) is Europe’s second largest airport, followed by Munich, Dusseldorf, Hamburg, Cologne, and Stuttgart.
Germany is a popular holiday destination for tourists from The Netherlands, USA, and Great Britain. Additionally, many Germans choose to have vacations within their own country, often visiting popular attractions like Bavaria.
One area of concern for Germany is its high public debt, which stands at 80% of GDP. This debt can impact competitiveness and future long-term growth of the economy according to the World Economic Forum in 2011.
Currently, increasing oil prices pose a low threat to the car rental industry as consumers become more financially conscious. However, if oil prices continue to rise, car rental consumers may opt for alternative transportation methods to save money on petrol expenses.
(Source: Euromonitor International 2010) The travel industry is affected by increasing oil prices.
The car rental industry is closely tied to flight numbers. As oil prices increase, airlines pass on costs to consumers, leading to a decrease in consumption. Rising petrol prices also discourage travelers from choosing car hire, pushing them towards alternative modes of transport like fast trains. 1. 2. 1 – Germany’s Economic Landscape (2010) (Source: World Economic Forum 2011) 1. 3 – SOCIAL Germany has a population of approximately 82 million, making it the largest country in terms of numbers within the EU. The country has a high population density, ranking 4th overall in Europe.
HIGH| Automobile Psyche
Germans 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 Cup. Almost 90% of the population lives in urban areas. The official language is German; however, there are various dialects. German is related to several languages such as Scandinavian languages, Dutch, Flemish, and English (which is beneficial for tourists from these places). In the city of Schleswig, the Danish population does not speak German, and there are also Frisians who speak their own language. Germany has one of the lowest birth rates globally, contributing to an aging population. Due to significant immigration, there are nearly 7.5 million foreigners in Germany, with many originating from Turkey. The German government sees diversity as an opportunity and continues to support integration efforts. Traditional gender roles have changed, with females having a greater influence on social and economic life. This expansion of the consumer market for car rental is one of many outcomes of these changes.
Increased life expectancy is prevalent in all affluent countries worldwide. This leads to older individuals who are more active and independent, engaging in work and travel, consequently benefiting the car rental industry. Furthermore, advancements in transportation technology, such as energy-efficient engines and cleaner exhaust systems for vehicles, contribute to the industry’s growth. In line with this, major players in the market consistently invest in technology, mobile applications, and eco-friendly solutions. These strategic decisions enhance flexibility and reduce overall expenses (Wu and Hartman 2010).
German companies are highly innovative and have a strong emphasis on research and development (World Economic Forum 2011). Additionally, the majority of Germans under the age of 30 are connected to the internet (Euromonitor International 2012). Despite this, there are limited incentives or charging stations for electric vehicles in Germany, as the government focuses more on supporting R&D, particularly in battery technology (Desai 2010) (Source: Nusca 2010).
Furthermore, there is a growing trend of budget-conscious consumers using the internet to find the best deals (Euromonitor International 2011). Germany is a major player in the automobile industry, being one of the top four manufacturers globally and considered the birthplace of the automobile. The dominant companies in the German automotive industry include Volkswagen AG (which owns Porsche SE, Audi, Bentley, Bugatti, Lamborghini, Scania, SEAT, and Skoda), BMW AG (which owns MINI, Rolls-Royce, and BMW 3), and…
Daimler-Benz AG (Maybach, Mercedes-Benz, Mercedes-AMG, Smart) 4. Opel AG 5. Ford-Werke GmbH| 1. 5 – LEGAL German legislation is based on the ancient Roman system and does not resemble the Anglo-Saxon legal system (UHL 2010). Germany’s legal system is governed by the Basic Law, which establishes Germany as a constitutional state. The Basic Law establishes representative democracy as the form of government and all state authorities are subject to judicial oversight. HIGH| TaxesEU automotive industry policy directive| Car rental companies are obligated to comply with the following:1. Corporate taxes 2.
Value Added Tax (VAT) is a general tax on the consumption of goods and services in Germany, with a rate of 19%. It should be noted that all consumers of car rental will incur this tax. Legal issues arise from EU and national Member State support for industry policies of Electric Vehicles, which includes managing market outcomes and determining who pays for what (Desai, 2011). This presents both a political and legal challenge to be faced.
Legalities with insurance agencies are regulated by the Bundestag, the German parliament which represents the German people. The goal is to ensure that full coverage is provided. The Bundestag is also involved in EU decision-making, as the Federal Constitutional Court has stated that European law must meet the criteria of the Basic Law if Germany wants to transfer its law-making rights to the EU.
German road laws require car rental companies to not rent cars to those under the age of 18. However, typically drivers have to be over 21 years old to rent a car.
1.5 – ENVIRONMENT
HIGH| Force Majeure – “Acts of God”| The eruption of the Icelandic volcano Eyjafjallajokull in March 2010 disrupted much of Europe’s airspace, leading to grounded flights. However, this unexpected event proved to be beneficial for car rental companies. Sixt, in particular, experienced a surge in demand and had to provide an additional 2,000 cars to meet the increased requirements (Euromonitor International 2011).
MEDIUM| Environment, climate, energy| The atmosphere and climate have undergone significant changes primarily due to human activities. As a result, there has been a worldwide effort to mitigate the damage caused by these actions.
The car rental industry and all automobile-related industries are experiencing the consequences of this, and there will be more to come. Germany’s greenhouse gas emissions have been decreasing since 1999 primarily because catalytic converters have been installed in all vehicles. Additionally, Germany’s location in the center of Europe, surrounded by neighboring countries such as the Czech Republic, Austria, Poland, Switzerland, Luxembourg, France, the Netherlands, Belgium, and Denmark contributes to its decreased emissions.
The proximity to other countries can pose both a threat and an advantage to German car rental companies. As a feeder industry from Travel and Tourism, consumers may choose to rent cars and drive across borders in Europe. The market is influenced equally by various factors, except for the high threat of substitutes due to consumer preference for environmentally friendly options and increased internet usage. Regarding buyer power, it is currently low-medium but trending towards medium. Buyers include business and leisure consumers, insurance companies, and mechanic workshops. Price sensitivity is generally elastic among all buyers, but as car rental companies try to recover from the Global Financial Crisis (GFC), the increased use of online services and alternative rental options like bikes are strengthening the bargaining power of buyers. Buyers often come from the Travel and Tourism industry and may view car rental as an alternative to travel.
In the German car rental market, consumers (both business and leisure) hold a significant amount of bargaining power, with German consumers showing a growing trend of thriftiness. Business consumers contribute a substantial portion to overall sales. Insurance agencies and mechanics also rely on car rental companies to provide additional services to their customers. Suppliers in the industry include leading car manufacturers and automotive insurance providers, with a medium-high level of power. Car rental companies either purchase (“risk cars”) or lease (“program cars”) from manufacturers.
When car manufacturers stopped or reduced car production and shifted from “program cars” to “risk cars” for rental companies, it caused a global increase in rental prices. In the past, car manufacturers and rental companies benefited from “program cars” by boosting sales for manufacturers and reducing the risk for rental companies in selling used cars. However, after the global financial crisis, car manufacturers adopted a strict and profitable strategy to survive, leaving rental companies to deal with the consequences.
The primary fleet suppliers in Germany are Volkswagen, BMW, Peugeot, Citroen, Mercedes, and Volvo. According to the World Economic Forum, Germany’s local supplier quality ranks 4th globally, while supplier quantity ranks 3rd. In the German car rental industry, automotive insurance providers have limited influence due to their abundance and intense competition.| 2. 3 – RIVALRY: Medium| The independent car rental companies are decreasing due to industry consolidation resulting from the recession.
The main competitors in the German market, ranked by market share, are as follows:
1. Sixt AG (32%) – This company 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, who filed for insolvency in 2009 due to the Global Financial Crisis (GFC). Avis is also the main distributor of electric rental cars from Renault in Germany.
Germany’s competitive advantage is ranked 4th globally (World Economic Forum 2011), providing a favorable market for car rental companies.
There is a correlation in pricing between the top competitors in the German car rental industry. The data from Avis, Sixt, and National companies show this relationship. On average, Avis and Sixt offer slightly better value.
