Driving a hard bargain

Hertz and Avis have kicked off operations in China, but their business prospects are constrained by a host of regulations and impediments that make it particularly difficult for foreign executives to rent vehicles.

An increasing number of Chinese families are deciding to rent cars for the weekend. While car ownership is still out of reach for the vast majority, greater competition in the rental sector and more relaxed regulations are making vehicle hire much simpler and more affordable.

China is said to have 3,000 car rental companies, with some 40,000 cars. In addition to the many local operators, foreign companies are also getting in on the act. Hertz, a wholly owned subsidiary of the Ford Motor Co, signed an agreement earlier this year with China National Automobile Anhua (Tianjin) International Trade, which will act as the licensee for Hertz in China. Operations were launched in Beijing, Shanghai and Guangzhou in January, with 300 cars available in five outlets in the three cities. Hertz is far bigger than any domestic competitor. It operates in more than 7,000 locations covering 143 countries, with more than 600,000 vehicles.

UK-based Avis, the world's second largest car rental company, has signed an agreement with Shanghai Angel Car Rental Co to establish a 50-50 auto-leasing joint venture. Shanghai Angel, a subsidiary of the Shanghai Automotive Industry Corporation, is the largest car rental company in Shanghai, and it has a network of 20 locations countrywide.

Both foreign companies plan to establish rental offices at major airports and key downtown locations in the three major cities, with domestic and imported cars available. They will focus initially on the expatriate market, believing it will be more lucrative than the domestic market, which may not really take off for another five years, or at least until family cars become more popular.

A major roadblock is that China does not recognise foreign or international driving licences. Only resident applicants, with proper work visas, can take the Chinese driving test, which means visitors are prohibited from driving. As a result, car rentals will be limited to expatriates already living in China, many of whom already have company cars. In order to rent a car, foreigners will have to provide a passport, Chinese drivers' license valid for more than two years and a work visa. The only way around this is if one also hires a Chinese chauffer to drive a car. Hertz officials have hinted that this restriction will be lifted sometime soon, but police in China only say that revisions to the regulation are under study. No date has been offered for when this may change.

Another obstacle is likely to be the high deposits required for car rentals. Hertz says members do not have to pay any deposit to rent a car, but that non-members will have to put down Yn10,000-Yn20,000, depending on the car type rented. This deposit applies to Chinese and foreigners alike, although foreigners are allowed to put the amount on their credit card.

In addition, cars rented in a city must be returned in that same city, unlike in the US, for example, where an auto can be rented in one place and returned at one's final destination. However, it seems unlikely at present that foreign drivers unfamiliar with China's chaotic traffic, poor road conditions and limited international road signs, would want to venture far from a major city.

Another potential problem blocking network expansion will be getting licences from the government to expand rental networks beyond the current three cities. Hertz officials have stated that they will focus on expatriates and corporate accounts, later expanding to what many see as a lucrative local market. For local rentals to take off, however, China will have to establish a national credit card system.

Hertz and Avis will offer car rentals at a minimum of Yn380 a day for a basic Volkswagen Santana, up to Yn1,050 a day for a Buick GL and Yn2,620 for a BMW 528. The Santana weekly rental will cost Yn2,100, with the monthly rate set at Yn6,800. The BMW can be rented for Yn14,600 a week, or Yn47,000 a month. The renter must pay for petrol. In Beijing, a Santana-plus-driver can be hired for about Yn400 a day.