Problem indicators of Avis Budget Group - Assignment Example

Problem indicators of Avis Budget Group Introduction Avis Budget group is a company that deals with car hire and rentals in all countries of the world. The company deals with exchange of cars to people for an affordable price as compared to other car rental companies. This company is available in many countries, which includes Europe, North America and Australia. The Avis Budget group also licenses companies other countries, which operate as its subsidiary companies. The company’s mission is to offer opportunities to travel by a car in any part of the country at a lower price than other companies do. Though the company avails transport services at low cost, it is committed to all dimensions of service quality and customer satisfaction (King 3). The company’s financial statements show a consistent improvement in performance and profitability. Regardless of this, there are symptoms of future problems that may affect the company negatively. These indicators include increased costs of operations, reduced market coverage, and decline in number of cars available for hire. Increase in costs of operation by 3% The costs of operation of Avis Budget group rose by 3% as compared to set standards. Currently, the company is planning to acquire Zipcar , Inc. Corporation. On January 2, the management announced that the company has entered into an agreement to acquire Zipcar, Inc., the world's leading car sharing network. Final transactions are expected to be completed in March or April 2013. These acquisitions are expensive and risky to undertake. Further, the company requires additional finances to promptly and effectively integrate the businesses of Zipcar and Avis Budget Group. This has increased the costs of managing such risks and hiring professionals to effect the acquisition. Avis Budget Group participated in the introduction and assembly of electric vehicle in the horn of Africa, and the enlightening to people about the importance of solar power than fuel power. They have rolled out a program that teaches the people of the efficiency factors in relation to climatic change and conditions. The company has also seen the introduction of electrical cars that use solar power instead of diesel or petrol (Myers 3). The company has joined hands with other companies that fight for healthier, green environment (Avis 2). This movement requires heavy capital investment, which further shoots up costs of operation. Though costs of production are expected to increase, the company is promising to lower prices charged for transport services. If prices are lowered, income from investment activities will not cover the costs. Under normal business operations, increase in production costs is expected to be directly proportional to increase in prices. In contrast, the Avis Budget is planning to reduce charges. This may lead to the company incurring losses that may be irrecoverable in the short-run. Reduced market coverage by 4% Competition has increased consistently in the vehicle rental industry. The car renting companies are coming up every day. More investors are realizing that car rental business is a profitable business. Examples of competitors are Buick Enclaves, Chevrolet Cobalts. These investors have created unfair competition, which has negatively affected Avis Budget Group. Competition has also risen because the car rental industry is a free competitive market stucture. In order to curb this competition, Avis Budget Group will be forced to incur extra costs in advertising and other forms of promotional activities. Prevalent of stiff competition has caused the company lose some of its potential customers. Increased competition has caused this company to increase expenditures on after-sale services and enhancing the quality of its vehicles. Competition will also come from other forms of transport such as sea and air transport, which attract more customers. This will lead to reduced profits, reduced share price and increased losses (Kings 9). Therefore, competition in the vehicle rental industry is a problem indicator to Avis Budget Group. Reduced Number of Cars Available for Renting The economic crisis has led to increased costs of manufacturing vehicles (King 11). Manufacturers have not been able to withstand these costs. They have stopped mass production of vehicles. This has resulted to reduced supply of motor vehicles. According to the law of supply, if quantity of cars supplied decrease, prices increase. The prices of motor vehicles have increased considerably, and Avis Budget group may not be able to afford new cars. Poor economic conditions have also affected demand for transport services. During periods of economic recession, businesses do not perform well. Businesspeople are not travelling to other countries to carry out cross-border trade. Therefore, there is reduced airline passenger traffic. Likewise, internal movement is also affected. This has reduced the number of customers hiring cars, hence leading to reduced profits. Avis Budget Group has decided to reduce the number of cars with the aim of reducing average costs. Conclusion Avis Budget group specializes in car rentals in many parts of the world. The company is currently the best performing in the car rental industry. This company is carrying out ambitious projects, such as that of acquiring Zipcar, Inc. Corporation. Regardless of this exclusive performance, the company may experience problems in the future. These problems indicators include increased costs of operations, reduced market coverage, and decline in number of cars available for hire. References Avis Budget Group Inc. New York, NY: Datamonitor, 2000. Internet resource. King, Danny. "Hertz, Dollar Thrifty Net Incomes Up, Avis Budget Down in Q3." Travel Weekly. 70.45 (2011). Print. Myers, David C. "Pursuing Performance Excellence at Avis Budget - Highly-Skilled and Strategically-Placed Performance Excellence Leaders Create Huge Savings for the Avis Budget Group." Quality Digest. (2009): 30. Print. Read More