China's vehicle-leasing biz booms
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E-mail China Daily, June 22, 2012
Guo Zhong was a dedicated fan of backpack travel for more than 10 years. After leaving highschool, he covered five continents on foot, each time lugging his huge, yellow rucksack. Yet,things changed when he started work as a marketing manager in Shanghai. "Now I prefer to randomly buy a plane ticket to a city for a weekend and then rent a car at theairport and loaf around aimlessly," said the 31-year-old. "I can get a real feel for a place on theroad."
![China's vehicle-leasing biz booms[ Photo / China Daily]](http://images.china.cn/attachement/jpg/site1007/20120622/001372acd0b5114e0b7c01.jpg "China's vehicle-leasing biz booms[ Photo / China Daily]")
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China's vehicle-leasing biz booms[ Photo / China Daily] |
With the emergence of car rental services, he said many of his friends now take similar holidays.
China's vehicle-leasing sector, which advertises itself as offering flexibility and convenience,has enjoyed boom times in recent years, aided in part by rising living standards and curbs onprivate cars in large cities such as Beijing and Shanghai.
The demand has led to fierce competition, with the two market leaders aggressively expandingto grab a greater share.
After receiving venture capital investment in 2010, China Auto Rental Inc and eHi Auto ServicesCo Ltd are continuing their fundraising this year.
In March, the parent company of Enterprise Holdings, the world's largest car rental company interms of revenue and fleet, announced it had reached a global affiliation agreement with eHi.
The deal, which included a 15-percent stake in the Shanghai-based company, gives EnterpriseHoldings representation on the board of directors, marking the United States company's entryinto China.
"At eHi, we focus on meeting customer needs by delivering convenience and reliable services,"said Zhang Ruiping, its founder, chairman and CEO. "We're excited that Enterprise Holdingshas chosen to invest in our future growth, and this partnership is an endorsement of ourcredibility as a leading car rental operator in China."
Greg Stubblefield, executive vice-president and chief strategy officer for Enterprise Holdings,said: "We're excited to invest and partner with a market leader in China like eHi. Under thisagreement, not only are our customers assured of a high level of service when trav-eling inChina, but eHi's customers also will be introduced to our award-winning and friendly serviceglobally."
"Now I prefer to randomly buy a plane ticket to a city for a weekend and then rent a car at theairport and loaf around aimlessly," said the 31-year-old. "I can get a real feel for a place on theroad."
With the emergence of car rental services, he said many of his friends now take similarholidays.
China's vehicle-leasing sector, which advertises itself as offering flexibility and convenience,has enjoyed boom times in recent years, aided in part by rising living standards and curbs onprivate cars in large cities such as Beijing and Shanghai.
The demand has led to fierce competition, with the two market leaders aggressively expandingto grab a greater share.
After receiving venture capital investment in 2010, China Auto Rental Inc and eHi Auto ServicesCo Ltd are continuing their fundraising this year.
In March, the parent company of Enterprise Holdings, the world's largest car rental company interms of revenue and fleet, announced it had reached a global affiliation agreement with eHi.
The deal, which included a 15-percent stake in the Shanghai-based company, gives EnterpriseHoldings representation on the board of directors, marking the United States company's entryinto China.
"At eHi, we focus on meeting customer needs by delivering convenience and reliable services,"said Zhang Ruiping, its founder, chairman and CEO. "We're excited that Enterprise Holdingshas chosen to invest in our future growth, and this partnership is an endorsement of ourcredibility as a leading car rental operator in China."
Greg Stubblefield, executive vice-president and chief strategy officer for Enterprise Holdings,said: "We're excited to invest and partner with a market leader in China like eHi. Under thisagreement, not only are our customers assured of a high level of service when trav-eling inChina, but eHi's customers also will be introduced to our award-winning and friendly serviceglobally."
In exchange, Enterprise Holdings will offer Ehi's services to its business and leisure customersduring their time in China, including in Beijing, Shanghai, Guangzhou and Shenzhen.
The deal could prove a challenge for China Auto Rental, the country's largest vehicle-leasingagency in terms of fleet size, and the only one offering services in every province andautonomous region.
Headquartered in Beijing, the company announced in January that it planned to raise $300million to repay debts and buy vehicles through an initial public offering on the New Work StockExchange. Then, in April, the company revised its application to the US Securities andExchange Commission, saying it had changed the destination to the Nasdaq.
China Auto Rental said it expected to offer 11 million American depositary shares at a price of$10.50 to $12.50 each.
However, the long-awaited IPO was suspended on April 25, on the eve of its planned listingday. According to its statement, the company said the suspension was to "avoid the sharesfalling on their debut", with concerns it might have to slash its price due to market turbulence.
"Under current market conditions, US investors cannot provide a fair and reasonable price forChinese companies attempting to go public," the statement said. "The valuation by investors isnot recognized by the company and its shareholders."
China Auto Rental also said that the 600 million yuan ($94.2 million) it had cash-in-hand wassufficient enough for daily operations, and it was also seeking "other windows of opportunity torestart the IPO".
Auto Rental News reported that China's vehicle-leasing industry is one of the fastest-growingmarkets in the world.
According to Roland Berger Strategy Consultants in Germany, the value of the car-rentalmarket in China is expected to rise to $6.1 billion in 2015 (it was $2.5 billion in 2010), amidrapid urbanization and strong economic growth. Data also show that, since 2005, the value ofthe market has grown by about 30 percent year-on-year.
Although the rate of China's economy and automobile market slowed last year, Shen Jun ofRoland Berger Greater China predicted that the segment will grow by 18 percent year-on-yearuntil 2015, with the total fleet size set to double from 220,000 units last year to 430,000 units in2015.
The potential comes from the fact China's car-rental fleet accounted for just 0.44 percent of thetotal passenger vehicle market last year, Shen said. The figure was 2.2 percent in Japan and1.3 percent in the US in 2010.
"The expansion of China Auto Rental and Ehi will boost competition," Shen added.
By the end of last year, more than 10,000 car rental companies were operating in China, withan average fleet of no more than 50 units. The top five companies occupied 11 percent of themarket.
However, Shen said the industry leaders' rate of growth is much faster than the market growth.
"The industry should be led by several big groups, which operate major business in localmarkets," Shen said. "National regulations are urgently needed for the industry to ensuresound development."
China's car-rental industry experienced takeoff in 2010, when some leading companiesreceived investment, enabling them to expand.
That year, China Auto Rental received 1.2 billion yuan from Legend Holdings, parent companyof PC maker Lenovo Group, which helped the leasing company expand its fleet from 6,000 toabout 26,000 units last year, almost four times the number owned by its biggest rival.
China Auto Rental now owns 25,845 vehicles with a network of 520 service locations in 66cities. Lu Zhengyao, its president, said the company aims to have 100,000 units in 2015.
Also in 2010, Ehi received $70 million from a consortium, led by Goldman Sachs. It also usedthe money to expand its fleet and presence throughout China. Today, the company operates afleet of more than 7,600 vehicles and serves both individual and corporate customers at 383locations in 48 cities.
Another company, Qiangsheng Holding Co Ltd, raised money in 2010 to buy assets from its twolargest shareholders, Shanghai Qiangsheng Group Co Ltd and Shanghai Jiushi Corp.
After selling about 245 million shares in a private placement with a capitalization of 1.72 billionyuan, the Shanghai-listed company bought its investors' taxi operations, car-rental servicesand travel businesses.
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