– by Liu Linyuan
China’s Legend Capital recently invested ¥1 billion ($147 million) in the China (Shenzhou) Auto Rental (CAR), a joint venture company founded in 2005 with investment from United Automobile Association, KPCB Fund and Cross Country Automotive Services of the U.S. The following is an interview by the author with CAR’s CEO Lu Zhengyao. – Editor
auto.sohu.com: How would CAR spend Legend’s ¥1 billion?”
Lu: Most of it will be spend on adding vehicles to expand our fleets. By the end of the year, our total fleet will exceed 10,000 vehicles. By 2014-2015, our plan is to own more than 100,000 vehicles.
auto.sohu.com: What kind of vehicles are you going to purchase?
Lu: It will depend on customer needs. We have conducted some initial research on customer needs and have purchased 40-50 different kinds of vehicles that come from most of the domestic OEMs. With further research and customer feedback, we will significantly increase the number of vehicles based on customer preference.
auto.sohu.com: Would you cater to the needs of individual consumers, for example mid- to low-level income families, and lower the cost of rentals?
Lu: We will meet the needs of both institutional and individual customers. For individuals, especially those newly graduates under 30 years of age, the cost of owning a car is extremely high and it may be more cost effective to consider renting a car. For companies, we provide both short and long-term rental, which may be suitable for small and medium companies, such as CAR. Employees on trips can rent cars, which is less expensive than taking taxies but more efficient. For long-term rentals or leases, our target is for foreign or public-listed enterprises. The cost will be absolutely lower than purchasing vehicles.
auto.sohu.com: What is market share of individual and institutional customers?
Lu: About half and half.
auto.sohu.com: You have just lowered your rental fees since August 1. What has been the market reaction?
Lu: Very good. Our rental sales in the first week of August went up close to 30 percent.
auto.sohu.com: Your lowest day rate for the cheapest model is ¥69 ($10.15). Can you go any lower?
Lu: We will try every possible way to reduce our overall cost and make sure that our customers get simple, safe and savable services as long as we can maintain a minimal profit margin.
auto.sohu.com: Rental car pricing in China is still higher compared to those overseas.
Lu: After we reduced our price, I believe it is now similar to overseas markets. Rental car pricing depends on both scale of operation and the cost of capital.
auto.sohu.com: What do you see are the problems for China to grow its rental car business?
Lu: First is capital, which determines scale and pricing. Second is government policy support as well as the building of an individual credit system. It will be a long process to build a credit system of individual consumers.
auto.sohu.com: We have seen two major business models for rental cars. In the U.S., investors are mostly multinational companies. But in Japan, most of the rental car companies are organized by OEMs. Which model is better?
Lu: Rental car business has been going on for many years in the overseas markets. But specific business models may be different because of different market environment. I believe the rental car business model must conform to China’s social and market conditions.
auto.sohu.com: Do you see the prospects of OEMs entering into rental car business?
Lu: Opportunities are there for OEMs, which make cars. But I am not sure about market prospects.
auto.sohu.com: Suppose an OEM would like to invest in CAR, would you be interested?
Lu: That is only a hypothesis, not a reality.
auto.sohu.com: The rental car market has a great future. How long would it take for China’s rental car market become mature?
Lu: Depending on how you define maturity. The U.S. has a market size of 5 million rental cars. China’s market size eventually will not be any smaller.
But in terms of service, we should be able to reach international level within a year. But the important point is that more and more people would want to drive a car, or rent a car. I cannot tell you an exact number. But given China’s size of the population, the number will be huge, which is why our business is attractive.
I strongly believe that rental car as a consumption model will be accepted by large number of consumers. You may want to buy a car if you drive it daily. But in big cities such as Beijing and Shanghai, public transportation may be the best choice for most people. And if you do’t drive a car daily, the flexible and inexpensive solution would be to rent a car when needed.
Rewritten by Wayne Xing based on author’s story published on auto.sohu.com