Rental firms sit back and enjoy the ride

Leasing companies say customers are lining up as officials are ordered to get rid of cars

Executives of the car rental company Yongche are rubbing their hands with delight as representatives of state enterprises beat a path to their doors looking to do business after a major change in government policy.

Hu Xulei, its branding director, says the number of corporate customers the company has surged immediately after the government announced on July 16 that most official cars have to be auctioned.

"Before the guidelines were announced, we had more than 100 government customers," Hu says. "After the policy was announced, the number shot up 30 to 50 percent."

Yongche, founded in 2010, is the largest Internet-based car sharing service company in China, cooperating with more than 50,000 vehicles in 74 cities.

The company was in the news recently when, at the beginning of last month, it started offering services in New York, San Francisco and Phoenix, Arizona, targeting Chinese travelers with a poor command of English. It will start with airport transport services, and the company says tariffs will be lower than those of the main local competitor Uber.

"Previously, we had to go out to sell our services to corporate and institutions door-to-door, but now we just sit in the office and representatives from government institutions come knocking on the door," Hu says.

Zhou Hang, founder and CEO of Yongche, says his is not a traditional car rental company.

"We don't own a single car. We sign contracts with car-rental companies that have them. We simply offer an information-sharing platform for partner car-rental companies."

Unlike car-rental companies such as eHi and China Auto Rental that only lease cars, Yongche comes with a chauffeur.

From the start, Zhou has positioned it as a medium to high-end services company for business people. Cars can be obtained with one hour's notice, and the minimum rental time is one hour.

After the changes to rules on cars were announced, central government level institutions chose 51 rental companies to bid to become supply cars to the government. China Auto Rental, eHi and some local taxi companies made it onto the list.

They will face strong rivalry from rental services affiliated to local carmakers, analysts say. These state-owned carmakers are important tax contributors and they are referred to as the "elder son" of city governments.

Beijing Automotive Industry Corporation, for example, has a large fleet designated for government events such as the annual meetings of the National People's Congress and the Chinese People's Political Consultative Conference and other important forums. SAIC in Shanghai and GAC Group in Guangzhou provide similar services.

These companies have direct access to vehicles and close government relations, so they are strong candidates for government car services, analysts say.

BAIC, together with Foton, a commercial vehicle maker in Beijing, just supplied 119 cars and buses for the upcoming meetings of 2014 APEC in the capital, and will provide another 800 later.

Yongche, faced with such stiff competition, says it is confident it can succeed because it has a strong presence nationwide, something the local operators lack.

"After the policy came out, government institutions realized that leasing cars or renting car services from professional companies is a cheaper way of obtaining cars," Hu says.

Yongche has set up accounts for each institutional customer, and they can deposit money in them. Every time employees need car services, Yongche deducts money from the institution's account.

As an incentive to government customers, Yonhche gives 5 to 10 percent credit for every 100,000 yuan ($16,200; 12,120 euros) they deposit in their public account.

Under the new car rules, current government cars will be sold by auction by the end of next year, and Hu reckons car rental companies will buy many of them.

"We can use these cars to serve government customers. By doing this, they save on petrol and maintenance, which makes up 80 to 90 percent of the costs of keeping a government fleet; meanwhile, more people can be served with the limited number of cars; and of course we make a profit."

There are two kinds of cars for public servants and state-companies to choose from: economy models and premium models. The economy models, such as a Sagitar and Lavida, both Volkswagens, are worth 100,000 yuan to 150,000 yuan, while the premium models, such as a Buick GL8, cost between 150,000 yuan and 230,000 yuan.

Government customers can decide the models based on their budget.

Chinese officials traditionally travel in cars that match their rank, Hu says.

"If the boss of a state company travels in an Audi A6, usually the subordinates choose cheaper cars, even if there is enough money around for something that is more expensive. Traveling in the wrong car can result in embarrassment. That's why we offer a choice of chauffeurs and cars."

For bosses or government officials, face is very important.

"For example, if we are receiving a German guest, it is better to dispatch a German Audi than a Japanese Infiniti."

Hu says he hopes the rule changes will increase the proportion of corporate customers his company has to 20 percent.

"At the moment, most of our corporate customers are small to medium-sized enterprises that don't want to fork out huge sums to have their own cars."

The rule changes may trigger a new round of competition between the car rental companies, industry analysts says, as the government can be a difficult customer to serve.

Cai Lihong, vice-president of eHi, says that government car rental has peculiar features: it is often poorly planned, trips are short, and time requirements are extremely strict.

"These requirements put great pressure on car leasing companies."

The China Car-Rental Association says there were more than 1,000 car rental companies in China last year, and the top five companies combined had less than 10 percent of the total market share.

"Government institutions prefer large-scale, well-managed rental companies for their daily business, which in turn will give these companies a higher profile," Cai says. "This will further reduce small rental companies' room for maneuver, and eventually many will be forced to join the big companies."

wangchao@chinadaily.com.cn

(China Daily Africa Weekly 08/08/2014 page15)