Dollar Rent A Car 2011 Annual Report Download - page 20

Adverse economic conditions also affect our customers and franchisees, and some of our franchisees have experienced financial challenges. These
circumstances result in reduced fee revenue to the Company and a potential for increased bad debt exposure. Depending on the continued strength of the
economy, we may lose customers or our franchisees may become unable to meet their payment obligations to us.
Exposure to Used Vehicle Market Conditions
We retained the residual value risk on approximately 96% of our vehicles at December 31, 2011 and expect that risk vehicles will account for
approximately the same percentage of our fleet in 2012. The depreciation costs for these vehicles are highly dependent on wholesale used vehicle prices at the
time of sale, requiring us to make assumptions regarding the age and mileage of the vehicles at the time of disposal, as well as the general used vehicle auction
market. The costs of our risk vehicles may be materially affected by the relative strength of the used car market, particularly the market for one to two year
old used cars. The strength of the used car market and its impact on residual values is driven by a number of factors, including macroeconomic factors
impacting supply and demand for used vehicles, the volume of new vehicles produced by automotive manufacturers and the applicable level of discounts or
incentives offered to stimulate sales, the availability of consumer credit to purchase new or used vehicles, and finally, changes in gasoline prices that may
impact consumer demand for certain types of vehicles. Additionally, residual values fluctuate seasonally with the lowest values typically in the fourth quarter.
While the market has experienced favorable trends during 2011, whether these trends will continue in 2012 remains uncertain. In the event of
renewed pricing pressure in the used vehicle market, or if recent events in the Middle East result in significant increases in gasoline prices in the near term,
residual values could decrease and our results could be materially and adversely affected. Operating a fleet comprised predominantly of risk vehicles could
also have a negative impact on vehicle utilization levels and profitability if we are unable to, or elect not to, sell those vehicles in periods of weaker rental
demand.
Highly Competitive Nature of the Vehicle Rental Industry
In addition to local and regional vehicle rental companies, the vehicle rental industry primarily consists of nine major brands, all of which compete
intensely for rental customers based on price and service. The Internet has increased brand exposure and gives more details on rental prices to consumers and
increases price competition, requiring companies to be highly competitive in pricing in order to attract consumers. In addition to consumer demand, pricing in
the industry is significantly impacted by the size of the rental fleets and the supply of vehicles available to consumers in the market. While we have achieved
improvements in our pricing as part of our strategic focus on return on assets in addition to the overall fleeting actions taken by the industry to balance supply
with demand, we cannot provide assurance that we will continue to realize improved pricing or whether our attempts to do so will adversely affect rental
days. A significant increase in the supply of rental vehicles available in the market due to fleet actions taken by our competitors, or actions by our competitors
to significantly reduce their prices in order to increase market share or utilization could negatively affect our pricing and other operating plans in material ways
and adversely affect our results of operations and prospects.
Dependence on Domestic Automotive Manufacturers
We remain highly dependent on the domestic automotive manufacturers with approximately 75% of our 2012 orders attributable to Chrysler, Ford
and General Motors. We have exposure to these manufacturers in three primary areas: their ability to manufacture and deliver vehicles to us in a timely
manner and at a competitive price for use in our operations; the level of residual values of their vehicles in the overall used vehicle market, which could be
adversely impacted by negative public perception regarding their products or financial prospects and in turn affect our vehicle depreciation costs and collateral
requirements; and their ability to meet financial obligations to us for Residual Value Programs and other purchase-related incentives. If any of these companies
experience significant financial difficulties and fails to meet its financial or supply obligations to us, our results, financial position, cash flow and prospects
could be materially adversely affected.
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