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An Inside Look at Car Rental in China

A trip to a new car rental convention in Guangzhou reveals a booming market, yet one facing unique challenges.

The ribbon was cut and the confetti cannons exploded, showering the stage in a metallic haze for a moment, and the 1st Guangzhou International Car Rental Trade Fair and Festival was underway.
Last week’s exhibition drew some 500 attendees and had new car displays, beauty queen emcees and escorts, Hollywood lights, and a John Williams soundtrack. I wonder how “Go Big or Go Home” translates in Cantonese.

This event was produced by the Guangzhou Car Rental Association, which didn’t exist 13 months ago, and was held at the world’s largest convention center, in a city that more than doubled in population in a generation. Like the electronic hues that twist up the Canton Tower — opened in 2009 and momentarily claimed as the largest building in the world — the Guangzhou Car Rental “Festival” exclaimed, “We have arrived.”

Chris Brown presents a gift to the Chairman Huang of the Guangzhou Car Rental Association.
Chris Brown presents a gift to the Chairman Huang of the Guangzhou Car Rental Association.

The participating car rental companies and vendors have been riding a wave of growth that parallels the wealth-building of a nation, which saw its auto industry grow from a mere 4 million vehicles sold a decade ago to 28 million last year. However, the Chinese transportation industry is in a state of flux, as it assimilates the global trend to new mobility solutions that minimize car use.

“First-tier” cities such as Beijing, Shanghai, and Guangzhou are limiting the number of vehicle registrations. So today, ironically, many newly middle class Chinese consumers can’t buy a car — though with parking costs tripling in the last five years, owning one in large cities is prohibitive anyway.
In trying to minimize congestion and pollution, the national government is keen to educate the public on electric vehicle (EV) carsharing and facilitate its growth. Meanwhile, bike sharing is exploding and replacing traditional bicycle ownership.

This is in contrast with second-tier markets and “everywhere else,” where infrastructure is still expanding and car sales will continue to grow along with more traditional service types.

While the domestic self-drive model grows, overseas renters will continue to choose a car with a driver for the foreseeable future, if only because navigating China’s large cities remains daunting. The Chinese now represent the world’s largest outbound market, and international players are looking for a piece of the pie. Europcar has partnered with Shouqi Car Rental and Enterprise Holdings has a stake in eHi Car Services.

How the nascent Chinese car rental industry is processing these changes depends on company size and market. It’s hard to nail down the exact number of car rental companies in China — maybe 100,000? The great majority are regional and local companies providing short- and long-term business and leisure rentals. The three largest companies — China Auto Rental, Shouqi, and eHi — control about 50% of the market. They’re evolving into holistic service providers.

Shouqi, a subsidiary of behemoth Beijing Tourism Group, provides long-term corporate and short-term rentals (both chauffeur and self-drive), as well as EV carsharing. “The Chinese market is upgrading to a service market,” said Jack Wei, COO of Shouqi Car Rental & Leasing. Shouqi sees an on-demand future, not physical stores.

Wei explained how Shouqi integrates with its parent companies’ many travel verticals, from hotels and airlines to shopping malls and tourist attractions. Flexible service offerings are essential in China, particularly during seasonal events such as Chinese New Year. “This is when we move cars from carsharing to our rental fleets, and self-drive becomes most popular,” Wei said. “Even the chauffeurs want to go home.”

At eHi Car Services, renters can book a car by manufacturer and model type. Some 85% of eHi’s bookings are direct to eHi’s website, eschewing expensive aggregators. “For us, branding and service network are more important than fleet size,” said Leo Cai, eHi’s chief strategy officer.

Chinese millennials epitomize the term digital natives. At eHi, an incredible 90% of short-term rentals are booked via mobile, with about a third of those transactions paid through the phone. The eHi app connects rentals to bike sharing and high-speed rail.

Cai said some auto manufacturers provide eHi with fleet vehicles — for free — to introduce new models. He sees a future in which Chinese manufacturers could remain vehicle owners and “rent them out” to service providers.

While new business models can grow quicker in China than Western markets, they come with unique challenges. Rental companies must wait in line with consumers where license plates are restricted, putting a curb on the ability to fleet rapidly.

Traffic cameras abound in China, and tickets are mailed for violations, but there is no digital system to help car rental companies pass infraction payments along to renters.

Guangzhou’s modern international airport, like others in China, has no car rental counters, no signs to direct renters, no consolidated facilities, and no coordinated shuttle options. (However, unlike in the U.S., all subways connect to airports.)

In the light of the resources and initiatives of the large players, where does this leave the smaller companies?

Richard Siu runs a fleet of only 40 vehicles, but he does well by catering to Japanese banks needing transportation for their overseas workers. The banks trust him and will pay more for better service. His business is word of mouth, so his overhead is low — no need for a website or even a shingle outside his office.

Contrast Siu’s business with that of the operator running a leisure rental business on Hainan Island, the “Oahu of China.” This operator showed me his slick mobile website and a photo of his billboard, in a prime location on the island. He only has 20 vehicles in a highly competitive market of 100 car rental companies. Those metrics don’t seem to add up — but how do you deny a young (he couldn’t have been more than 25), tech-savvy entrepreneur in a market that hasn’t fully formed?

After my presentation, in the scrum of name card exchanges, an independent operator asked me for advice on how he might survive against the national companies. I paused for a moment. Indeed, many of the same challenges exist in Western markets. Find a niche and own your customers by constantly touching them and treating them well, I said. He thanked me, though he may have expected a more satisfying answer. As he grabbed a call on his iPhone, I recognized a familiar ringtone. These days, it’s technology that binds us.

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Author Bio

Chris Brown

Executive Editor

Chris is the executive editor of Business Fleet Magazine and Auto Rental News. He covers all aspects of the fleet world.

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