Rental firms sit back and enjoy the ride after policy change

Yongche's number of corporate customers surged immediately after the government announced on July 16 that most official cars have to be auctioned off. Provided to China Daily

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, operating with more than 50,000 vehicles in 74 cities.

The company made 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 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 carrental companies and simply offer an information-sharing platform for partner car-rental companies."

Unlike car-rental companies such as eHi and China Auto Rental, which only lease cars, Yongche provides 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 sons" 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 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 800 more.

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.

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."

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.

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."

The rule changes may trigger a new round of competition between the car rental companies, industry analysts say.

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."