Overview: Chinese Fleet Market
China surpassed the U.S. as the world’s largest new-vehicle market every year since 2009. Nationwide sales in China are more than 17 million units per year, which include medium- and heavy-duty commercial vehicles.
One factor contributing to increased automotive sales is the expansion of the dealer network. Also, the Chinese government cut taxes on new-vehicle purchases and implemented subsidies on fuel-efficient vehicles.
“The Chinese car market is still the largest market in the world for the fourth year in a row. However, after years of double-digit growth, the market will likely grow by ‘only’ 3 percent this year. The main reasons are the cuts made by the government in tax incentives, the slower growth of the economy in general, and new restrictions for new-car registrations in such cities as Beijing, which are struggling with traffic congestion and pollution issues,” said Guillaume Bourst, business development manager for ALD in China. The joint venture company is headquartered in Shanghai, with branch offices in eight Chinese cities.
An emerging fleet trend in China is the use of company vehicles as an employee recruitment and sales incentive tool. Many multinationals operating in China report annual employee turnover rates as high as 25 percent, primarily due to the expanding economy and employment opportunities for properly qualified candidates with experience working with multinationals.
“The restriction on new-car registrations can actually be turned into an opportunity for leasing companies, as most of the consumers will not be allowed to register a new car under their own name. They would therefore push their company to lease cars for them, which could be a significant breakthrough into the ownership mindset of the Chinese drivers,” Bourst explained.
Another unique aspect of the Chinese fleet market in the large, densely populated cities is the need for driver services, in which a driver is provided with the leased vehicle. For instance, Avis China reports that 50 percent of its vehicles come with a driver. Avis China employs 2,800 people, of which 2,500 are drivers.
“If China remains a country that foreign companies invest in heavily, these companies are also taking a closer look at how the money is spent. With the emerging trend to provide cars for the sales team or to local managers, fleet sizes are growing and fleet costs are being studied more carefully. U.S. and European headquarters are asking for more transparency and pushing their local colleagues to opt for a reliable and reputable leasing company,” Bourst said.
Emerging concerns are focused on inflation and the lack of liquidity due to tighter lending restrictions.
“With the rise of inflation, the central government is keeping the banking sector on a short leash. Finding liquidity is becoming increasingly challenging for local and international companies. In their quest to find alternative sources of financing, leasing is being considered as an alternative by Chinese groups when it comes to funding their car fleet,” Bourst said. “In the past, with the flow of liquidity in the economy, they would have simply purchased their vehicles.”
Some view the decrease in liquidity as positively affecting the fleet leasing industry in China.
“The lack of liquidity, the growth of the company fleet, and the centralized management of fleets will also lead to more concentration in the car leasing sector where access to funding and the network coverage in the country will become the key success factors,” Bourst said.
Despite growth in the Chinese economy, all fleet leasing companies operating in China still have very small leased-vehicle portfolios relative to the size of the economy. The top fleet management companies and rental companies serving the corporate market are Dazhong, Shouqi, Avis, Hertz, and ALD Fortune Auto Leasing & Renting. Other fleet management companies, such as ORIX, view China as a “green-field” opportunity. The country’s largest fleet lessor is Dazhong, which has a modest portfolio of 4,000 units. One reason, among many, for the small fleet market is that many salespeople in China rely on public transportation.
“All these trends are pushing the Chinese leasing market from a very basic offering toward a more mature business model. This rapid change will allow the fleet market to embrace the coming rise of green mobility in a country that is ready to invest heavily to create a strong and dynamic interior market for new-energy vehicles. The objective of China is to create national leaders in this field that would then be in a position to export this expertise and technology to address the global market,” Bourst said.
China is a very complex market in which to do business. “Every province has its own laws,” said John Carter, managing director for ORIX Australia & New Zealand.
--By Mike Antich