While China Auto Rental (CAR), the largest car rental company in China, is preparing for the IPO in the United States, Enterprise Holdings, the largest car rental group in the world, bought 15 percent shares from eHi Auto Services Co. Ltd., and took a seat in the Board of Directors of eHi. As the cooperative partner of CAR, why did Enterprise Holdings abandon its partner at this time? In an email to China.com.cn, CAR said they could not comment on anything. Experts have now said that Enterprise may abandon CAR, due to its operational and management model and its background as a state-owned company.
Enterprise bought shares of CAR's competitor
On March 30, 2011, CAR announced that it had signed a strategic cooperation agreement with Enterprise Holdings, launching an international car rental booking service in order to provide car rental service for Chinese visitors in abroad. Media said that it would strongly influence the global car rental market. However, one year later, Enterprise Holdings hold 15 percent shares of eHi and have taken a seat in the Board of Directors.
Although CAR has mentioned nothing about its agreement with Enterprise Holdings, insiders claim it has been terminated, because it has passed its expiration date. Why did Enterprise Holdings give up renewing the agreement? Insiders guess that the operational management of CAR is experiencing problems. Aside from that, as Lenovo Group is the holding company of CAR, the state-owned background of CAR makes Enterprise Holdings scruple.
Reporters have heard one complaint after another about CAR, ranging from vehicle examination to insurance claims. Aside from its service quality, it is accused of containing much inconspicuous consumption. Insiders say that as CAR is facing such a mess regarding its operational and management model, it is not difficult to understand why Enterprise Holdings has abandoned it.
Senior managers exaggerate the car numbers
Car numbers are very important data for car rental companies. However, senior managers in CAR knew their limitations and exaggerated the car numbers by many times.
In the 7th edition of Business Watch Magazine in 2009, a vice-president of CAR said that the number of cars had increased from 100 to more than 1000. Then, in the 23rd edition, Qian Zhiya, senior vice-president of CAR, said the number had increased to more than 4000. However, in the current prospectus of CAR, the number of cars by the end of 2009, was only 692 units.
CAR also said, during its 2011 car purchasing meeting, it would invest 3 billion yuan (US$475.6 million) to purchase 25,000 unit cars based on the original 13,000, in order to make the total number come to nearly 40,000 units. However, the prospectus one year later, gave us the final answer: 25,845 units.
Insiders said that it explains why CAR didn't put emphasis on operation and future planning, but on creating a stir. This is ironic as the car rental industry needs to put its services at the core of its competitiveness.
CAR has been suspected of giving false perfomance numbers
CAR has earned 366 million yuan (US$58.2 million) over the first quarter, up by 211.4 percent compared to the same period of last year, and 27.9 percent on a month-on-month basis, according to the first quarter's operating performance, in the latest file submitted to SEC (Securities and Exchange Commission), in 2012 . Net profits reached 5.3 million yuan (US$ 800,000). The EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) came to 197.8 million yuan (US$31.4 million), increasing by 349.5 percent compared to the same period last year, and 57.7 percent on a month-on-month basis. But, in the previous prospectus, the company said that it could not make profits in the near future. Faced with the contradiction, it has been suspected of filing false performance numbers.
Aside from the above, according to Economic Information, the car rental market is very disperse. The first five car rental companies include CAR, Warren Avis, Dazhong Leasing Car, eHi Auto Services and Shouqi. Car Rental only accounted for 11 percent of the market. However, on the US market, the first five companies accounted for 95 percent. As an industry leader, most analysts believe that CAR will continue its fast expansion development strategy. However, if the profits issue is not resolved, it will continue to suffer losses in the future.