Hertz 2008 Annual Report Download - page 35

ITEM 1. BUSINESS (Continued)
Fleet
We believe we are one of the largest private sector purchasers of new cars in the world. During the year
ended December 31, 2008, we operated a peak rental fleet in the United States of approximately 317,100
cars and a combined peak rental fleet in our international operations of approximately 181,000 cars, in
each case exclusive of our licensees’ fleet. During the year ended December 31, 2008, our approximate
average holding period for a rental car was twelve months in the United States and nine months in our
international operations.
Over the five years ended December 31, 2008, we have acquired, subject to availability, approximately
63% of our cars as program cars. Program cars as a percentage of all cars purchased by our U.S.
operations, increased from 42% for the year ended December 31, 2007 to 55% for the year ended
December 31, 2008. Program cars as a percentage of all cars purchased by our international operations
decreased from 65% for the year ended December 31, 2007 to 59% for the year ended December 31,
2008. Although our overall strategy is to increase the proportion of non-program cars we have in our
worldwide fleet, taking our U.S. operations and international operations together, program cars as a
percentage of all cars purchased increased from 50% for the year ended December 31, 2007 to 57% for
the year ended December 31, 2008. This increase is partially attributable to the requirements in our
agreements with car manufacturers to purchase specified minimum numbers of program cars during the
year, together with a reduction in the overall number of cars purchased. Under these programs, the
manufacturers agree to repurchase cars at a specified price or guarantee the depreciation rate on the
cars during established repurchase or auction periods, subject to, among other things, certain car
condition, mileage and holding period requirements. Repurchase prices under repurchase programs
are based on either a predetermined percentage of original car cost and the month in which the car is
returned or the original capitalized cost less a set daily depreciation amount. Guaranteed depreciation
programs guarantee on an aggregate basis the residual value of the cars covered by the programs upon
sale according to certain parameters which include the holding period, mileage and condition of the
cars. These repurchase and guaranteed depreciation programs limit our residual risk with respect to
cars purchased under the programs and allow us to determine depreciation expense in advance. For
this reason, cars purchased by car rental companies under repurchase and guaranteed depreciation
programs are sometimes referred to by industry participants as ‘‘program’’ cars. Conversely, those cars
not purchased under repurchase or guaranteed depreciation programs for which the car rental
company is exposed to residual risk are sometimes referred to as ‘‘non-program’’ cars.
Over the past five years, the percentage of our car rental fleet subject to repurchase or guaranteed
depreciation programs has substantially decreased due primarily to changes in the overall terms offered
by automobile manufacturers under repurchase programs. Accordingly, we bear increased risk relating
to the residual market value and the related depreciation on our car rental fleet and must use different
rotational techniques to accommodate our seasonal peak demand for cars.
Over the five years ended December 31, 2008, approximately 36% of the cars acquired by us for our U.S.
car rental fleet, and approximately 28% of the cars acquired by us for our international fleet, were
manufactured by Ford and its subsidiaries. During the year ended December 31, 2008, approximately
30% of the cars acquired by us domestically were manufactured by Ford and its subsidiaries and
approximately 19% of the cars acquired by us for our international fleet were manufactured by Ford and
its subsidiaries. The percentage of the fleet which we purchase from Ford has declined during the past
five years as we try to further diversify our fleet to meet customer demands and minimize overall costs.
See ‘‘—Relationship with Ford’’ and Note 14 to the Notes to our consolidated financial statements
included in this Annual Report under the caption ‘‘Item 8—Financial Statements and Supplementary
Data.’’ Historically, we have also purchased a significant percentage of our car rental fleet from General
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