Investing in China car rental market premature

The China Post (Taipei) - China's rental car market may look promising for Taiwanese contenders, but it will take a long time for the country to build up unified regulations for the industry, according to Taiwan's companies interested in investing in the sector.

There's growing interest in starting rental car businesses in China because of the need for people to get around in the vast country and the still large number of people without cars.

That interest was shown on June 28 when global car rental company Avis Budget Group launched its Taiwan operations with the aim of renting cars to the 500,000 Taiwanese business people working in China who are believed to prefer short-term car rental services rather than keeping cars of their own, to save costs.

With approximately 500,000 rental cars and 5,200 locations in more than 175 countries, the New Jersey-based company said it will be the sole car rental company in Taiwan with a global reach.

It hopes to become one of the country's top three players within five years, through partnerships with premium car brands and local parking lot chains.

For Taiwanese car rental companies, however, it is not expected to be easy to cash in on China's great car-leasing opportunities unless the Chinese government removes regulatory obstacles, said Hsu Chi-mu, president of Taiwan's Carplus Auto Leasing Corp.

"The biggest problem is a lack of unified regulation for rental cars across Chinese cities and provinces," Hsu told CNA in a recent interview.

"Some Chinese cities will charge entrance tolls for cars registered in other cities, limiting car circulation and the convenience of leasing services because you have to pay more when you want to rent a car in one place and return it in another," he said.

Carplus set up its first Chinese office in Suzhou Industrial Park in 2007 and then branched out into Shanghai, Kunshan, Hangzhou and Dongguan to increase the coverage of its leasing services.

The second-largest car-leasing company in Taiwan operates 26 leasing and rental offices islandwide, including six counters in Taiwan's High Speed Rail stations.

Hsu said Carplus has maintained 30- to 40-percent sales growth per year for corporate leasing businesses in China, where new car sales are also growing rapidly.

Given the slower pace of the Chinese government authorities, however, it will likely take 10 years or longer to unify car leasing regulations across the country, Hsu added.

"We will continue to focus on the long-term rental business while keeping an eye on the short-term rental market," Hsu said.

"The tier-one Chinese cities, such as Beijing and Guangzhou, may have become saturated. But the tier two and tier-three cities remain potential markets for the corporate car-leasing business, since the Chinese government is planning to narrow the rural-urban divide by promoting trade and investment in smaller cities," he said.

An executive of Hotai Leasing Corp., Taiwan's biggest car rental company capturing 22 to 23 percent of the market, echoed Hsu's opinions and pointed out that China is a too big of a market to manage.

"We have complete regulations and systems in Taiwan. But in China, each province has its own regulations, leading to difficult management of short-term car-leasing services," said the executive, who asked for anonymity because of company policy.

Chinese local governments also limit the total volume of car licenses issued in each city or province, and it usually takes a long time to apply for a new license, the executive added.

Hotai entered China's car-leasing market in 2007 and has set up 10 operational spots, mainly in eastern and southern Chinese cities. For the past five years, the company has enjoyed sales growth of about 30 percent each year, according to the executive.

"China is a big country and it is hard to know where our cars are going to," the executive noted. "In Taiwan, on the other hand, you can never drive out of the island."

Given these hurdles for leasing cars to individual customers in China, Hotai will stick to its long-term car-leasing business and surrogate driving service for corporate clients, especially Taiwanese businessmen in China, the executive said.