CAR drives up H1 net earn­ings

But road to prof­its could prove tougher go­ing as Didi gears up launch of on­line auto rental ser­vice

China Daily (USA) - - BUSINESS - By MENGJING mengjing@chi­

De­spite post­ing a roar­ing 161 per­cent year-on-year profit growth in its half year fi­nan­cial re­port on Tues­day, China’s biggest auto rental com­pany CAR Inc­may not in the mood to pop the Cham­pagne and cel­e­brate just yet over its boom­ing busi­ness.

That’s be­cause Hong Kong-listed CAR is ex­pected to see much fiercer com­pe­ti­tion go­ing for­ward over mar­ket share as China’s ride­hail­ing heavy­weight Didi Chux­ing con­firmed it will launch an on­line car-rental ser­vice, said an­a­lysts.

Bei­jing-based Didi said on Mon­day it will use a so-called as­set-light model— by co­op­er­at­ing with other car-rental com­pa­nies and leas­ing com­pa­nies — to of­fer on­line car­rental ser­vices in re­sponse to the boom in the short-term and tourist car-rental­mar­ket as the pop­u­la­tion goes through a life­style rev­o­lu­tion.

The ini­tia­tive is Didi’s lat­est strate­gic ma­neu­ver, af­ter wrap­ping up its cash-burn­ing com­pe­ti­tion with Uber Tech­nolo­gies Inc in China.

Ac­cord­ing to me­dia re­ports, Didi is in talks to team up with eHi Car Ser­vice, one of CAR’s ma­jor com­peti­tors in China, in the new ser­vice. Didi didn’t con­firm the pos­si­ble tie-up on Wed­nes­day, say­ing it is seek­ing to dis­cuss co­op­er­a­tion models with car-rental com­pa­nies.

Wang Xiaofeng, an an­a­lyst at con­sul­tancy For­rester Inc, said that Didi is a very strong com­peti­tor for CAR as it in­te­grated its car-rental ser­vice in its ex­ist­ing app, which boasts more than 300 mil­lion reg­is­tered users.

“Many of the smartphone users in China are re­luc­tant to down­load an app for just one pur­pose, es­pe­cially for a car-rental ser­vice that they are not go­ing to use ev­ery day. Even if Didi only trans­fers a small part of its ex­ist­ing users to the new car­rental ser­vice, it could win a big share of the mar­ket from CAR,” she said.

Un­like Didi, CAR runs its car-rental busi­ness via an as­set-heavy model. Ac­cord­ing to its fi­nan­cial re­port, it had a fleet of 99,727 cars by end-June. The model has proved ef­fec­tive for CAR to date, al­low­ing it to con­trol the qual­ity of its cars and its ser­vices, in the process boost­ing profit growth.

Ac­cord­ing to the Bei­jing­based CAR, net profit in the first half of the year soared to 1.06 bil­lion yuan ($159 mil­lion), a rise of 161 per­cent com­pared with the same pe­riod last year.

Zhang Xu, an an­a­lyst with the Bei­jing-based in­ter­net con­sul­tancy Analysys, said that Di di may make CAR feel the pinch from the com­pe­ti­tion, but it­may not be able to shake CAR’s No 1 po­si­tion.

“The as­set-light model makes it chal­leng­ing for Didi to con­trol the qual­ity of the cars for rent as they will be pro­vided by other com­pa­nies. Once a car ac­ci­dent hap­pens, it will be very com­pli­cated for Didi to split the re­spon­si­bil­ity from the car­rental firm,” he said.

But Zhang ex­pected Didi to make a big ef­fort to boost the new ser­vice, be­cause it was ea­ger to find a new pow­er­house to spur growth.


A pedes­trian walks past an ad for CAR Inc in Shang­hai.

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