Hertz 2007 Annual Report Download - page 49

ITEM 1A. RISK FACTORS
Our business is subject to a number of important risks and uncertainties, some of which are described
below. The risks described below, however, are not the only risks that we face. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial may also impair our
business operations. Any of these risks may have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Risks Related to Our Business
An economic downturn could result in a decline in business and leisure travel and non-residential
capital investment, which could harm our business.
Our results of operations are affected by many economic factors, including the level of economic activity
in the markets in which we operate. A decline in economic activity either in the United States or in
international markets may have a material adverse effect on our business. In the car rental business, a
decline in economic activity typically results in a decline in both business and leisure travel and,
accordingly, a decline in the volume of car rental transactions. In the equipment rental business, a
decline in economic activity typically results in a decline in activity in non-residential construction and
other businesses in which our equipment rental customers operate and, therefore, results in a decline in
the volume of equipment rental transactions. In the case of a decline in car or equipment rental activity,
we may reduce rental rates to meet competitive pressures, which could have a material adverse effect on
our results of operations. A decline in economic activity also may have a material adverse effect on
residual values realized on the disposition of our revenue earning cars and/or equipment.
We face intense competition that may lead to downward pricing, or an inability to increase prices,
which could have a material adverse impact on our results of operations.
The markets in which we operate are highly competitive. See ‘‘Item 1—Business—Worldwide Car
Rental—Competition’’ and ‘‘Item 1—Business—Equipment Rental—Competition.’’ We believe that price
is one of the primary competitive factors in the car and equipment rental markets. Our competitors, some
of whom may have access to substantial capital, may seek to compete aggressively on the basis of
pricing. To the extent that we match competitors’ downward pricing, it could have a material adverse
impact on our results of operations. To the extent that we do not match or remain within a reasonable
competitive distance from our competitors’ pricing, it could also have a material adverse impact on our
results of operations, as we may lose rental volume. The Internet has increased pricing transparency
among car rental companies by enabling cost-conscious customers, including business travelers, to
more easily obtain the lowest rates available from car rental companies for any given trip. This
transparency may increase the prevalence and intensity of price competition in the future.
Our car rental business is dependent on the air travel industry, and disruptions in air travel patterns
could harm our business.
We estimate that approximately 69% of our worldwide car rental revenues during the year ended
December 31, 2007 were generated at our airport rental locations. Significant capacity reductions or
airfare increases (e.g., due to an increase in fuel costs) could result in reduced air travel and have a
material adverse effect on our results of operations. In addition, any event that disrupts or reduces
business or leisure air travel could have a material adverse effect on our results of operations. In
particular, deterioration in the economic condition of U.S. and international airlines could exacerbate
reductions in air travel. Other events that impact air travel could include work stoppages, military
conflicts, terrorist incidents, natural disasters, epidemic diseases, or the response of governments to any
of these events. For example, shortly before the September 11, 2001 terrorist attacks, we estimated that
we would earn a pre-tax profit of approximately $250 million in 2001; by contrast, our actual pre-tax profit
for 2001 was only approximately $3 million, and we continued to feel the adverse effects of the attacks
29