Enterprise Rent-A-Car SWOT Analysis and Business Strategy

Company History and Overview

Jack Taylor founded Enterprise Rent-A-Car in 1957 as Executive Leasing Company, beginning with a fleet of seven cars in the St. Louis region. The company was originally a one-man operation that shared basement space with a local body shop (Schlereth). A second location opened four years later, and in 1962 the company launched its short-term car rental program in response to customers' need to rent a vehicle while their own was being repaired. By the end of the decade, the company began expanding outside of St. Louis with the introduction of their Atlanta regional group. Unable to use the Executive Leasing name in all markets, Jack Taylor renamed the company Enterprise in 1969.

The 1970s saw Enterprise expand further into Florida — specifically the Orlando and Tampa markets — as well as Houston, Dallas, Kansas City, Kansas, Colorado, and Indiana. Rental units climbed to 5,000, and the company began offering fuel, maintenance, and insurance products, which laid the groundwork for the company's present-day fleet services operation. Enterprise quickly recognized a profitable niche in serving hometown renters. In 1980, the company opened its national reservation center, complete with a toll-free phone number for customers. By the end of the 1980s, the company had 150,000 units across 1,000 branch offices nationwide.

The 1990s brought continued U.S. expansion as well as entry into Canada, Germany, and the United Kingdom. Rental units more than tripled to 450,000, and locations more than doubled to over 2,500 offices, making Enterprise the largest car rental organization in America. Today, the company employs 64,500 people worldwide, operates more than 600,000 cars across 7,300 offices, and reported revenues of $7.4 billion for the fiscal year ending July 2004.

SWOT Analysis: Strengths and Weaknesses

Enterprise's success has been built on its strengths and its ability to capitalize on emerging opportunities. By understanding its strengths and weaknesses — as well as the opportunities and threats on the horizon — Enterprise can continue to leverage its leadership position and sustain its history of growth.

Strengths

There are four primary strengths that Enterprise holds:

• Robust revenue growth and industry leadership position
• Partnership with credit unions
• A wide variety of service offerings

Enterprise's estimated revenues increased significantly from $4.7 billion in 1999 to $7.4 billion in 2004, representing a compound annual growth rate (CAGR) of 9.4%. During fiscal 2004 alone, revenues grew 7.2% over fiscal 2003. Revenue per employee rose from an estimated $122,222 in 1999 to $129,034 in 2003, a CAGR of 1.1%. For the fiscal year ending July 31, 2006, the company posted a record $9.04 billion in global revenues, up from $8.3 billion in 2005, correlating to a compound annual revenue growth rate of 20% over the preceding 25 years (Conrad & Perlut). This sustained growth reflects Enterprise's increasing market share dominance and improving employee efficiency.

Enterprise also derives strength from its industry leadership position. According to Datamonitor, the company's sheer scale means it maintains an office within 15 miles of approximately 90% of the U.S. population. Its fleet represented approximately 3.5% of all cars and light trucks bought and sold in the United States in 2003. The company has further secured this position by serving air travelers at all of the top 100 airports in the continental U.S., providing a significant competitive advantage.

Enterprise's partnerships with credit unions represent another key strength. Through these partnerships, the company has developed comprehensive car sales marketing and promotional programs for credit union members, with financing handled directly through the credit unions — reducing Enterprise's administrative costs. For example, Enterprise's agreement with the United Airlines Employees Credit Union allows members to choose from more than 75 makes and models of used vehicles at over 100 nationwide Enterprise car sales locations.

A further strength is the company's diverse range of services. Enterprise's operations extend well beyond short-term vehicle rental to include vehicle leasing, fleet management for other organizations, commercial truck rental, California vanpool services, and used car and truck sales. Its fleet services operation helps businesses manage fleets typically comprising 15 to 125 vehicles. Enterprise Rent-A-Truck offers a special delivery service for commercial accounts. The company's used vehicle sales program includes a 12-month/12,000-mile limited warranty and roadside assistance, making Enterprise a virtual one-stop shop for automotive needs.

Weaknesses

Despite its many strengths, Enterprise faces two primary weaknesses:

• Over-dependence on the American market
• Lack of one-way rental service

Although Enterprise began its international expansion in the 1990s, approximately 90% of its outlets remain located within the United States. The company has very little presence in fast-growing Asian economies — a significant gap given Asia's rapidly expanding tourist and business travel industries. By contrast, primary competitors such as Hertz, Avis, and Europcar have a much broader geographic footprint, with both Hertz and Avis having established strong presences in Asian markets. This limited international reach could constrain Enterprise's growth and leave it poorly positioned to exploit lucrative global markets.

Enterprise's second notable weakness is its lack of a one-way rental service. Because its business is centered on local city rentals, most customers live or work near the rental location and return the vehicle to the same branch. Customers requiring the flexibility of different pick-up and drop-off locations must turn to Enterprise's competitors.

SWOT Analysis: Opportunities and Threats

Opportunities

Several significant opportunities exist for Enterprise:

• Growing demand for rented and leased vehicles
• The "Month or More" service program
• Alliance with American Express

Vehicle leasing has become an increasingly attractive option for American consumers. Car rental and leasing companies accounted for more than 21% of vehicle sales in 2004, and the U.S. car rental and leasing market was projected to grow at a CAGR of 4.8% between 2004 and 2008, reaching a value of $22.1 billion. As the largest rental and leasing organization in America, Enterprise is well positioned to benefit from this industry-wide growth.

Enterprise launched its innovative "Month or More" service in February 2004. The program targets business and leisure motorists who need a reliable vehicle for more than 30 consecutive days, offering savings of up to $75 per month on extended rentals. Available at all Enterprise locations in the U.S. and Canada, "Month or More" was developed in direct response to customer demand for long-term rental flexibility — a niche the company is well placed to continue developing.

Enterprise's partnership with American Express is also a significant opportunity. The two companies joined forces to offer cost-saving benefits to businesses that accept the American Express Card, with Enterprise providing up to a 25% discount on rentals at any U.S. branch. Enterprise is one of ten companies participating in the program's Business Savings initiative, giving it a meaningful avenue to expand its customer base.

Threats

Enterprise must also navigate several meaningful threats:

• Competition from used car sales incentives
• The increasing trend of car sharing
• A weakened U.S. tourism industry

Major automakers such as Daimler Chrysler, General Motors, and Ford have been offering substantial incentives and low-interest financing on new vehicle purchases, making car ownership more affordable and weakening used car pricing industry-wide. Enterprise's traditional model of acquiring new vehicles and reselling them through its used car outlets has historically benefited from above-residual resale values, but this margin has narrowed considerably in recent years. The introduction of competitively priced, higher-quality imports from Asian manufacturers has compounded this challenge, encouraging consumers to buy new rather than rent or purchase used.

Car sharing presents another growing threat. Programs offered by companies like Greenwheels allow members to locate and reserve the nearest available car online, with an onboard computer recognizing the driver's personalized key and code. Research has suggested that between 4 and 10 private cars can be replaced by a single shared vehicle. This model has gained significant popularity in Europe as an alternative to renting or leasing, and could erode Enterprise's revenue there and potentially in the U.S. as the concept spreads.

A weak American tourism industry further threatens Enterprise's leisure rental revenues. Despite modest recent improvements, the industry expected approximately 10% fewer international visitors to America in 2004 compared to 2000. Between 2000 and 2003, the U.S. share of travelers from Britain declined by 14%, from Germany by 17%, from Japan by 14%, and from Brazil by 28%. With the bulk of Enterprise's revenues generated domestically, this decline in inbound tourism has a direct negative impact on its leisure car rental business.