Thrifty Car Rental 2010 Annual Report Download - page 8

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Company’s Web site under the heading, “Corporate Governance”. A copy of the code of business
conduct, the corporate governance policy and the charters are available without charge upon request
to the Company’s headquarters as listed on the front of this Form 10-K, attention “Investor Relations”
department.
Industry Overview
The Company competes primarily in the U.S. car rental industry. The U.S. daily car rental industry
has two principal markets: the airport market and the local market. Vehicle rental companies that
focus on the airport market rent primarily to leisure and business travelers. Companies focusing on
the local market rent primarily to persons who need a vehicle periodically for personal or business
use or who require a temporary replacement vehicle. Rental companies also sell used vehicles and
ancillary products such as refueling services, navigation systems and loss damage waivers to
vehicle renters. As a general matter, the car rental industry is significantly dependent on conditions
in the overall leisure and business travel markets.
Vehicle rental companies typically incur substantial debt to finance their fleets which makes them
dependent on access to the fleet financing and capital markets to fund operations, and also has a
direct impact on profitability due to the interest costs associated with the debt and fluctuations in
interest rates. These markets were significantly disrupted during 2009 and 2008 which constrained
access to capital. Although the fleet financing market improved significantly in 2010, new issuances
in these markets, including those undertaken by the Company, have required higher collateral
enhancement rates than the industry has faced historically. This increase in collateral
enhancements will have a direct impact on the capital required to support operations in future
periods.
Vehicle rental companies are also dependent on vehicle manufacturers and overall economic
conditions in the new and used vehicle markets, as these factors directly impact the cost of acquiring
vehicles, and the ultimate disposition value of vehicles, both of which impact operating cost.
Historically, rental companies acquired a large portion of their fleets under residual value programs
(“Residual Value Programs”), under which vehicle manufacturers repurchase or guarantee the resale
value of the vehicle in future periods, thereby allowing the rental companies to fix their holding cost
of the vehicle (“Program Vehicles”). Most vehicle rental companies have in recent periods increased
their vehicle purchases made outside of Residual Value Programs to lower fleet costs and reduce
the risk related to the creditworthiness of the vehicle manufacturers, which has increased their
dependence on the used vehicle market in terms of both determining holding cost, and for ultimate
disposition of the vehicles. Vehicle rental companies bear residual value risk for these vehicles,
which are referred to as “Non-Program Vehicles” or “risk vehicles”.
The U.S. rental car industry has eight top brands which are owned by four companies. Three of the
companies are publicly held: Dollar and Thrifty operated by the Company; Avis and Budget operated
by Avis Budget and the Hertz brand operated by Hertz. The remaining three brands of Alamo,
National and Enterprise are operating subsidiaries of Enterprise Rent-A-Car Company, which is
privately held. The Company also faces competition from local and regional car rental companies in
the United States, some of which have meaningful market share and the ability to impact pricing in
numerous large airports in the United States. There is intense competition in the U.S. car rental
industry on the basis of price, service levels, vehicle quality, vehicle availability and the convenience
and condition of rental locations.
Seasonality
The Company’s business is subject to seasonal variations in customer demand, with the summer
vacation period representing the peak season for vehicle rentals. This general seasonal variation in
demand, along with more localized changes in demand, causes the Company to vary its fleet size
over the course of the year. To accommodate increased demand in the summer vacation periods,
the Company increases its available fleet and staff and as demand declines, the fleet and staff are
decreased accordingly. Certain operating expenses, such as minimum concession fees, rent,
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