Leveling the Playing Field with Replacement Rentals

In 2006, the rental industry is more aware than ever of the strength of the growing insurance replacement and local marketplace. For the first time, the local rental segment is outperforming the airport segment. According to Auto Rental News’ 2004 industry statistics, the local market had $9.5 billion of a $17.6 billion total rental market. The market grew to $18.91 billion in 2005, and while airport revenue growth is slow, the local market continues to expand.

Official statistics peg local market growth at 5% to 10% per year, but some industry sources claim that the insurance replacement end of the business has been growing at an average of 15% per year over the last 10 years. This market growth, along with the emergence of new players in the marketplace and new technology demands and developments, has characterized the rental industry’s history for the past 20 years.

In the 1980s and 1990s, local rentals were a much smaller business, and the landscape was dotted with names like Agency Rent-a-Car, Snappy Rent a Car, Ugly Duckling, Spirit Rent a Car, Super Star Rent a Car and Premier Car Rental, among others. Locally, there were just one or two rental companies with little competition for business. By the end of the ’80s, Enterprise Rent-A-Car had 500 locations and 50,000 vehicles, not one of which was on-airport. Hertz, typically an airport presence, began focusing on their Local Edition stores in the ’90s.

During the ’90s, however, insurance replacement began to grow exponentially, and larger players such as Enterprise and Hertz Local Edition began to expand aggressively. In 1991, the local market produced just $2.52 billion in revenue. Since then, local rental’s $7 billion growth spurt has been largely responsible for the growth of the rental industry, an encouraging statistic for those rental operators who do not want to be dependent on the health of the travel industry.

Today, Hertz has more than 1,300 locations serving the local market with a goal of opening at least 300 new locations each year. Enterprise currently has 6,500 offices and over half a million vehicles in service. Enterprise focuses on the local market—generating about 90% of its business there—but Hertz, as well as independent and franchise rental operations still have an excellent opportunity to their participation in the local rental market.

Accidents Happen
Understanding the source of growth is essential to strategic success in the insurance replacement industry. An increase in local rentals can be attributed to the same consumer mentality that has put a cell phone in everyone’s pocket: convenience. In 2006, Americans are used to getting what they want when they want it. With the wealth of information available, they have also become smarter consumers, aware of what benefits their insurance policies offer.

When a person gets into an accident, they no longer rearrange their schedules to accommodate their car being in the shop for a week. Instead, consumers rely on insurance to provide them with a vehicle. Thanks to the average American’s rapidly rising expectations for service and convenience, insurance replacement continues to be a booming market.

TSD has experience outfitting thousands of rental operators at the independent, franchise, and corporate level with management and reservation technology. And those who are successful in the insurance replacement business have a few things in common: they build relationships, they are consistent in their customer follow-up and they demonstrate a great amount of perseverance and persistence. It is possible to be successful without a national call center and a million-dollar advertising campaign, but what is the trophy for duking it out with the big names on a daily basis?

How about a higher utilization rate and maximized revenue per car? While rates are sometimes lower for insurance replacement rentals, the higher number of rental days per contract allows rental operators to make a smaller fleet investment while still selling the same number of days, resulting in an average of 15% higher revenue per unit.

The insurance replacement and local rental segment also provides greater stability than the airport market, which rises and falls with the travel industry and national security issues. Growth is steady, and the local and insurance replacement market is forecasted to expand due to the growing car rental replacement rider coverage and consumer demand for convenience, according to industry experts. While people choose to travel based on unpredictable variables, when an accident happens many people must rent a car.

Secret of Success?
If the landscape still looks impossible for a small fish in a big pond, consider the story of Subway, the number one fast food franchise in the U.S. (by number of locations). Subway opened its first storefront in 1965, the same year that McDonald’s went public. They did not even consider franchising for another eight years, by which time McDonald’s was a household name. Despite their late start and typically higher prices, Subway overtook McDonald’s as the fast food chain with the most sites in North America in 2002.

CONTINUED:  Leveling the Playing Field with Replacement Rentals
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