Auto rental speeding up(2)

The limits on the purchasing of autos by the public in some major cities like Beijing, Shanghai and Guangzhou due to serious traffic jams has also contributed to the boom of the industry.

"I have to take public transportation during work days while I rent cars on holidays, because I have participated in the car plate lottery for two years but still have not received a plate," Liu Yang, a 29-year-old white-collar worker in Beijing, told the Global Times Wednesday.

In the latest round of car license plate lottery in August in Beijing, only around 20,000 of the total 2 million applicants got license plates.

Liu said it is convenient now to rent a car but the cost is still too high during the holidays. "It cost me 450 yuan per day for a Ford car during National Day holidays last year," Liu noted.

Customers need to show their identification card, credit card and driving license at the auto rental service store and it will take no more than one hour to pick up the car, said Liu.

Challenges remain

Despite the desirable business environment, the auto rental sector is still highly fragmented.

By the end of 2013, the actual number of auto rental agencies passed 10,000, with the top five companies accounting for only 14 percent of the country's whole market share, which is much less than the 95 percent share by the five leading market players in the US, according to Roland Berger.

"The Chinese market might face a reshuffle," Zhu Zhengyu, an analyst at Analysys International, a Beijing-based consultancy, told the Global Times.

A lack of clear national regulations in the sector such as rules regarding accidents, which have happened frequently with rental cars, is another obstacle for the industry, Luo noted.

Since China's car rental industry is in its infancy, there is no unified price standard which leads to frequent fierce price competition, especially during the holidays, Luo said.

Another challenge for domestic auto rental companies is high operation costs due to heavy spending on the purchase of autos, Zhu noted

To reduce operation costs, CAR has launched used auto sales, which Zhu said is similar to well-known foreign auto rental companies such as Brazil's largest auto rental company Localiza that earn money both through renting and used auto sales. Currently, most domestic companies rely wholly on rental revenue with some still suffering losses.

For instance, eHi, which started its business in 2006, is still suffering losses. In the second quarter of 2014, it reported a net loss of 2.85 million yuan, 84 percent less compared with the previous quarter.

To expand its business continuously, eHi has received funds from investors such as Qiming Ventures, CDH Fund, and Goldman Sachs. Its most recent investment was 100 million yuan from Ctrip, a leading Chinese online travel agency, in December 2013.

Internet firms join in

However, convinced that a huge market exists for car rentals, more companies are driving into the burgeoning sector, with some leading Internet companies also showing great interest.

On August 4, Baidu Inc announced it would enter the auto rental sector with a reported investment of $300 million in yongche.com.

E-hailing apps such as Tencent-backed Didi Dache and Alibaba-supported Kuaidi Dache also reportedly plan to roll out their own auto rental services.

The competition in the market "will be more serious" if the Internet firms join in, Zhu noted, adding that this might help auto rental services in China become more user-friendly.