China’s Pre­mium Chauf­feured Car Mar­ket Has Po­ten­tial

China's Foreign Trade (English) - - Contents - By Jenny Hu

Ac­cord­ing to Roland Berger’s re­cently re­leased “Anal­y­sis o f Ch in a ’ s p r emi um chauf­feured car mar­ket”, it shows that pre­mium chauf­feured cars ac­counted for only a small share of China’s over­all trans­porta­tion mar­ket in 2015. The ac­tual mar­ket was mea­sured at RMB 7.7 bil­lion and is pro­jected to main­tain rapid growth in the mid term.

Pre­mium chauf­feured cars help meet de­mand for up­graded ur­ban trans­porta­tion ser­vices cur­rently un­met by ex­ist­ing modes of trans­porta­tion, such as tax­ies, pri­vate cars, rental cars and un­li­censed ve­hi­cles.

Roland Berger es­ti­mates that, by 2020, the size of pre­mium-chauf­feured­car mar­ket will reach about RMB 500 bil­lion, ris­ing at com­pound an­nual growth rate of up to 129.3% be­tween 2015 and 2020. An­a­lysts be­lieve that, by 2020, there will be po­ten­tial de­mand for 22.1 mil­lion rides in pre­mium chauf­feured cars per day, which would rep­re­sent a mar­ket value of ap­prox­i­mately RMB 1.1 tril­lion.

The pre­mium chauf­feured car mar­ket grew rapidly

The re­port di­vides the current car-rental and car-hail­ing mar­ket into pre­mium chauf­feured cars and non­premium chauf­feured cars, based on ve­hi­cle classification and pric­ing, which is at least 20% higher than tra­di­tional taxi ser­vices in pre­mium chauf­feured cars. In 2015, the pre­mium chauf­feured car mar­ket grew rapidly, as daily or­ders in­creased from an av­er­age of 90,000 in Jan­uary to 630,000 in De­cem­ber.

Three pri­mary driv­ers have been iden­ti­fied to ex­plain this almost overnight growth: firstly, at­trac­tive sub­si­dies of­fered by var­i­ous, mar­ket play­ers fos­tered early mar­ket de­vel­op­ment; se­condly, cor­re­spond­ing sub­si­dies for driv­ers stim­u­lated a rapid in­flux of ac­tive ve­hi­cles into the pre­mium-chauf­feured­car mar­ket, lead­ing to a four-fold in­crease in ve­hi­cle sup­ply; thirdly, com­pet­ing plat­forms made am­bi­tious for­ays into new mar­kets, rec­og­niz­ing that 3rd- and 4thtier cities pos­sess greater growth po­ten­tial for pre­mium chauf­feured cars.

Af­ter the ini­tial surge in mar­ket growth, plat­forms be­gan re­duc­ing sub­si­dies to pas­sen­gers and driv­ers in re­sponse to the in­evitable pres­sure from cash- f low con­cerns. The

Af­ter the ini­tial surge in mar­ket growth, plat­forms be­gan re­duc­ing sub­si­dies to pas­sen­gers and driv­ers in re­sponse to the in­evitable pres­sure from cash-flow con­cerns.

sub­stan­tial sub­si­dies of­fered in the ini­tial phases of growth were seen by the gov­ern­ment as an in­fringe­ment on the in­ter­ests of taxi in­dus­try, spark­ing an­nounce­ments by var­i­ous gov­ern­ment bod­ies that new rules to reg­u­late the mar­ket would be forth­com­ing. The sub­sidy cuts and po­ten­tial le­gal risks de­cel­er­ated growth in the ranks of driv­ers to a more sus­tain­able rate.

Roland Berger pre­dicts that pre­mium-chauf­feured-car ser­vices will grad­u­ally ex­pand into other modes of travel, sup­ported by in­creased driver and ve­hi­cle sup­ply, cov­er­age of more cities, the grad­ual de­vel­op­ment of con­sumer habits, im­proved pub­lic trans­porta­tion sys­tems in ur­ban ar­eas and fu­ture pol­icy sup­port from the gov­ern­ment.

The re­place­ment of de­mand for pri­vate cars due to fac­tors such as the im­ple­men­ta­tion of li­cense­plate-based traf­fic re­stric­tion poli­cies and the scarcity of park­ing spa­ces is ex­pected to ac­count for around 43% of the over­all de­mand for pre­mium chauf­feured cars; re­place­ment of de­mand for tra­di­tional taxis due to higher re­quire­ments for the in- car en­vi­ron­ment and qual­ity of ser­vice is pre­dicted to ac­count for 29%; an ad­di­tional 19% is ex­pected to come from gov­ern­ment cus­tomers, which are sub­stan­tially cut­ting back their ve­hi­cle fleets; re­place­ment of de­mand for non-pre­mium cars could ac­count for 5%; and mar­ket share snatched f rom unl icensed ve­hic les and rental- car com­pa­nies is ex­pected to con­trib­ute the re­main­ing 4%.

New reg­u­la­tions will have a far-reach­ing im­pact

New reg­u­la­tions is­sued in 2015 in­tro­duced re­stric­tions on ve­hi­cle classes, driver qual­i­fi­ca­tions, op­er­a­tors and the scope of oper­a­tions al­lowed for pre­mium-chauf­feured-car ser­vices. The new rules pushed op­er­a­tors to po­si­tion pre­mium chauf­feured cars as a mid-to­high-end ser­vice, to dif­fer­en­ti­ate their ser­vices from those of tra­di­tional taxis more clearly and to es­tab­lish or ex­pand fleets of self-owned ve­hi­cles. Al­though painful for some, these di­rec­tives are help­ing to pro­gres­sively stan­dard­ize the do­mes­tic pre­mium-chauf­feured-car in­dus­try.

Roland Berger ex­pects the im­ple­men­ta­tion of these re­stric­tions to have a far-reach­ing im­pact: 1. most of the pri­vate car own­ers cur­rently par­tic­i­pat­ing in the in­dus­try as driv­ers, es­pe­cially part-time driv­ers, will pull out of the busi­ness, cre­at­ing a sub­stan­tial sup­ply deficit; 2. the new reg­u­la­tions re­quire that a sin­gle le­gal en­tity must man­age the ve­hi­cles, driv­ers and plat­form, which strongly fa­vors self-op­er­ated plat­forms; 3. dif­fer­en­ti­ated mod­els of man­age­ment will ac­cel­er­ate the de­vel­op­ment of the pre­mium-chauf­feured-car mar­ket; and 4. con­tin­ued changes in ex­press bus ser­vices will cause more peo­ple to turn to pre­mium chauf­feured cars.

Af­ter an­a­lyz­ing the op­er­a­tional mod­els of China’s current on­line car­rental and car- hail­ing com­pa­nies, Roland Berger be­lieves that UCAR Inc., which op­er­ates a fully- owned fleet to pro­vide pre­mium-chauf­feured­car ser­vices and ranks high in mar­ket share, growth rate and cus­tomer re­ten­tion, is ex­posed to the least risk from pol­icy and reg­u­la­tions. Didi Kuaidi, which of­fers a full line of ser­vices and has ac­cu­mu­lated the largest user base, faces greater reg­u­la­tory risks be­cause its ve­hi­cles are sourced from a com­mu­nity of pri­vate own­ers, with a smaller share con­trib­uted by car-leas­ing com­pa­nies. Uber is pro­gress­ing in the mar­ket steadily, but it faces the high­est pol­icy and reg­u­la­tory risks: its ve­hi­cles mainly com­prise pri­vate cars, and it fo­cuses pri­mar­ily on the non-pre­mium- car busi­ness. Yongche Inc. is also catch­ing up as a new mar­ket en­trant, but the new­comer also faces sig­nif­i­cant risks, as most of its ve­hi­cles are pri­vate cars, and half of its busi­ness comes from non-pre­mium-car ser­vices.

These di­rec­tives are help­ing to pro­gres­sively stan­dard­ize the do­mes­tic pre­mium-chauf­feured-car in­dus­try.

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