Rolling into new terrain
Updated: 2011-12-30 07:41
By Wang Chao (China Daily)
Avis Car Rental, another major rental company in the US that opened its first shop in China in 2002, has grown to 105 service outlets in 35 cities across China with 6,000 cars in service.
Lu Zhengyao, chairman and CEO of China Auto Rental, says in the industy, the most important thing is taking control of market share and the scale of your business.
"Profit margin is secondary for car rental companies for the time being. If you have only several thousand cars, you can never win in the future," he adds.
Aside from investors, what has also helped the auto rental industry are rising taxi rates across China. It's a simple parallel relationship: a rising rate pushes more people to rent a car (The taxi rate in China has risen 5 percent annually in recent years).
Another boost to the industry: the increasing number of travelers in China.
Every year 200 million to 300 million trips are made by plane. "All we need is 200,000 customers to keep us very profitable, which is just a small fraction of the full market potential," says Huang Zhibiao, marketing director of Topone.
Leo Cai, executive vice-president of eHi, says more State-owned entities are renting.
"Renting cars can cut (government agencies') cost by 30 percent compared with maintaining these cars by themselves," says Cai, adding that eHi has 10,000 government and State-owned company contracts.
But, like many budding industries in China, the problem is a lack of individual consumer spending.
Most Chinese rental car companies are buoyed by long-term contracts (sometimes as long as three years) with corporations that need rental cars day in and day out.
Experts and company officials say they must focus more on the individual market.
"People need time to accept this new consumption," says John Shen, a partner at Roland Berger.
Another embarrassing fact is that the profits have not been high for the top Chinese auto rental companies, Shen says. EHi, China Auto Rental and Topone all say they will be in the black in at least two to three years if the number of customers keeps growing but right now they are dependent on venture capital funds.
Fraud and theft are two more headaches for Chinese auto rental companies. Many laws and regulations have not been outlined by the government so companies need to spend a great deal of time and money to retrieve cars when theft or fraud occurs.
Nonetheless, the outlook is bright for the industry. In the near future, car rental agencies say they are looking to secure contracts with Chinese airlines and offer exclusive rental services.
Since 2007, Topone has been leading the way in this respect, having signed deals with Air China, Southern Airlines and Hainan Airlines.