Hertz 2008 Annual Report Download - page 53

ITEM 1A. RISK FACTORS (Continued)
Risks Related to Our Business
A further or continued economic downturn could result in even greater declines in business and
leisure travel and non-residential capital investment.
Our results of operations are affected by many economic factors, including the level of economic activity
in the markets in which we operate. 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.
Declines in the volume of car and equipment rental could have a material adverse effect on our results of
operations. In addition, 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.
The car and equipment rental industries are significantly influenced by general economic conditions. In
the final three months of 2008, both the car and equipment rental markets experienced unprecedented
declines due to the precipitous slowdown in consumer spending as well as significantly reduced
demand for industrial and construction equipment. The car rental industry is also significantly influenced
by developments in the travel industry, and, particularly, in airline passenger traffic while the equipment
rental segment, is being impacted by the difficult economic and business environment as investment in
commercial construction and the industrial markets slow. The United States and international markets
are currently experiencing a significant decline in economic activities, including a tightening of the credit
markets, reduced airline passenger traffic, reduced consumer spending and volatile fuel prices. During
2008, this resulted in a rapid decline in the volume of car rental and equipment rental transactions, an
increase in depreciation and fleet related costs as a percentage of revenue, lower industry pricing and
lower residual values for the non-program cars and equipment that we sold.
We face intense competition that may lead to downward pricing, or an inability to increase prices.
The markets in which we operate are highly competitive. See ‘‘Item 1—Business—Worldwide Car
Rental—Competition’’ and ‘‘Item 1—Business—Worldwide Equipment Rental—Competition.’’ We
believe that price is one of the primary competitive factors in the car and equipment rental markets.
Although we have recently increased our pricing, 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 have
to match any of our competitors downward pricing and are not able to reduce our operating costs, 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 margin of 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.
We estimate that approximately 69% of our worldwide car rental revenues during the year ended
December 31, 2008 were generated at our airport rental locations. Significant capacity reductions or
airfare increases (e.g., due to capacity reduction or an increase in fuel costs) could result in reduced air
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