Avis 2010 Annual Report Download - page 22

Table of Contents
You should carefully consider each of the following risks and all of the other information set forth in this Annual Report on Form 10-K. Based
on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting our
Company in each of these categories of risk. Past financial performance may not be a reliable indicator of future performance and historical
trends should not be used to anticipate results or trends in future periods.
Risks related to our business
The high level of competition in the vehicle rental industry may lead to reduced rental volumes and increased pricing pressure, which could
have an adverse impact on our results of operations.
The vehicle rental industry in which we operate is highly competitive. We believe that price is one of the primary competitive factors in the
vehicle rental industry. Our competitors, some of whom may have access to substantial capital, may seek to compete aggressively on the basis of
pricing. To the extent our competitors reduce their pricing, price increases we may seek to implement are not competitive or we do not match or
remain within a reasonable competitive margin of our competitors’ pricing, we may lose rental volume. We could be further impacted if we are
unable to adjust the size of our rental fleet in response to fluctuations in demand.
The risk of competition on the basis of pricing in the truck rental industry can be even more intense than in the car rental industry because it can
be more difficult to reduce the size of our truck rental fleet in response to reduced demand. The Internet has increased pricing transparency
among vehicle rental companies by enabling cost-conscious customers to more easily obtain and compare the rates available from various
vehicle rental companies for any given rental. This transparency may increase the prevalence and intensity of price competition in the future.
We face risks of increased fleet costs, both generally and due to the possibility that manufacturers could change or cease their repurchase or
guaranteed depreciation programs.
Fleet costs, which represent our largest single expense, represented approximately 25% of our aggregate expenses for 2010 and can vary from
year to year based on the prices at which we are able to purchase and dispose of rental vehicles. In 2010, on average approximately 47% of our
domestic rental car fleet was comprised of vehicles subject to agreements requiring automobile manufacturers to repurchase them or guarantee
the depreciation rate for a specified period of time. We refer to such agreements as “programs” and to cars subject to such agreements as
“program cars”. Under these programs, automobile manufacturers agree to repurchase cars at a specified price during a specified time period or
guarantee the rate of depreciation for a specified period of time, typically subject to certain car condition and mileage requirements. These
programs therefore enable us to determine, in advance, our depreciation expense, which is a significant component of our fleet costs. Programs
also limit the risk to us that the market value of a car, at the time of its disposition, will be less than its estimated residual (or depreciated) value;
however, such programs result in additional exposure to the manufacturers with whom we have such agreements. See “We face risks related to
the financial condition of automobile manufacturers and the used vehicle marketplace”.
Automobile manufacturers may not continue to sell program cars to us at all or on terms consistent with past practice. The overall cost of
program cars could also increase if the manufacturers were to make changes to such programs, particularly if such changes were to result in an
adverse impact in the repurchase price or guaranteed depreciation without a corresponding decrease to the original purchase price. Programs also
generally provide us with flexibility to reduce the size of our fleet rapidly in response to an economic slowdown or changes in demand by
disposing of cars sooner than originally expected. This flexibility may be reduced in the future to the extent we reduce the percentage of program
cars in our car rental fleet or this feature of the programs is altered.
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ITEM 1A.
RISK FACTORS