Lu Zhengyao, new york travel bureau founder, chairman of the board and CEO of China Auto Rental plays his favorite hobby, mahjong, so frequently that he can tell what piece is in his hand by touch alone. "I've already moved well beyond the mastery level," he says.
Although the car rental industry in many other countries new york travel bureau is already mature, inChinait new york travel bureau is still considered a sunrise industry. According to data from Roland Berger, by 2015 the total revenue for the Chinese car rental industry is expected to grow from US$2.5 billion in 2010 to US$6.1 billion. Compare this to the US$21 billion earned by theU.S.car rental industry in 2010.
This has caused new york travel bureau more and more players to begin eying this industry like hungry tigers. In addition to competitors like eHi Auto Services' Zhang Ruiping and Top One Car Rental's He Weijun, Lu Zhengyao also must compete with real estate giants (like Home Link founderCao Huiand his investment CarToGo Rental), car dealerships (such as China Grand Auto and Pang Da Automobile Trade), and others. In addition, foreign competitors such as Avis and Hertz enteredChinalong ago.
However, so far none of them have been as fast as China Auto Rental. In terms of the size of their fleet, scope of coverage, new york travel bureau number of customers and revenue, China Auto Rental has become the largest car rental new york travel bureau enterprise inChina. new york travel bureau As of December 31, 2011, China Auto Rental's fleet has grown to nearly 26,000 vehicles, equal to the industry's second largest through to the ninth largest fleet combined, and more than three times the size of the industry's second largest fleet.
At the same time there is no other car rental agency that has had to deal with so many questions. A cursory glance at this company's background reveals that they are notorious for low prices, using copious amounts of money for expansion, having high debt, a low vehicle rental rate and so on.
With their application on January 18 this year to the U.S. Securities and Exchange Commission (SEC), China Auto Rental became the first Chinese company of 2012 to begin preparations to be listed on theU.S.stock exchange. If successful, China Auto Rental would have not only become the first Chinese car rental company listed in the U.S., but this recognition by the capital markets may have helped settle doubts about the company in many people's new york travel bureau minds.
China's new york travel bureau car rental industry has had its share of frustrations. Wang Zhongyu new york travel bureau is a good example; not soon after starting his rental new york travel bureau business inBeijing, he ran into operational problems that ended up forcing him to sell off his entire fleet. In his estimation, "China's auto rental industry was sleeping for a long time. Now that it has just begun waking up, it will take another 5 to 10 years before new york travel bureau it can become really strong."
On April 12 Lu Zhengyao and his team went toAmericato begin their listing road show. "Normally road shows like this will meet at 6 to 7 venues a day. We basically went to 8 to 10 venues a day. From 6:15 inthe morning to 8 at night we were constantly talking. Each meeting was about an hour, and as soon as we finished one, we would have to immediately race to the next." Lu mentioned that, in order to save time, they would occasionally rent business jets to rush back and forth and meet all their investors.
Within new york travel bureau China Auto Rental's prospectus they referred toChinahaving "The fastest growing car rental market in the world, and one that has huge potential." Comparing figures between theU.S.andChinathey pointed out thatAmericahas 210 million licensed drivers and 254 million cars. WhereasChinahas 151 million licensed drivers and only 61 million cars. These licensed drivers without cars of their own are all seen by China Auto Rental as potential customers.
Some data indicates that China Auto Rental is indeed quickly turning a portion of these potential customers into real customers. At the end of 2009, the amount of customers in Shenzhou was only around 40,000; by the end of 2011, however, this number grew to 450,000. During this same period the company's fleet grew from 692 to nearly 26,000. This of course brought in huge revenue for the company; in 2009, the revenue was only 54 million RMB, however in 2010 this number reached 143 million and in 2011 leaped to an astounding 776 million.
However, if you look past these beautiful figures the problems facing China Auto Rental are clear: high debt and an unproven ability to turn a profit. In 2010, the company's debt ratio was 91.5%, which in turn climbed to 95.4% in 2011; the highest of any domestic car rental company. In addition, by the end of 2011, China Auto Rental had yet to turn a profit; it has only been during the first quarter of 2012 that they posted a profit of 800,000 USD.
In order to dispel the concern of investors, Lu Zhengyao has started using data concerning new york travel bureau foreign car rental companies to defend himself. He points out that Hertz's debt ratio stands at 85%, while Avis's debt ratio, at 95.5%, is more or less the same as China Auto Rental's. He hopes to convince investors that high debt ratios are a normal feature of the car rental industry and not something unique to China Auto Rental.
"Why is the debt ratio for the global car rental industry so high? The most important reason is due to the relatively high capital efficiency for the industry. This is reflected in two main ways: first is that the output period on investments is very short. From the time you buy a car to the time you enter it in your fleet and start making money with it is very short; second, is that the ability to liquidize assets is very strong."
Investors on the other hand are not so optimistic. Some investors have noticed that the amount of debt that needs to be paid off within a year lies around 1 billion RMB. This means that any financing that is successfully new york travel bureau raised is more likely to be used on paying off debt instead of developing the company. What's more, many investors have already new york travel bureau been hurt by Chinese companies before, and are not willing to take the risk again.
Although new york travel bureau the IPO had not been successful, China Auto Rental would not slow down expansion in 2012. In addition to adding 20,000 more vehicles to their fleet, new york travel bureau they would also be widening their area of coverage.
After the IPO ran off the rails, Lu Zhengyao went fromAmericatoCanadawhere his family lives. Just like mahjong, fishing is another of Lu Zhengyao's loves and so he spent a few days fishing. During our interview he excitedly showed us a picture of him and one of his catches that he took with his cell phone. It was a huge30 kgcatfish. Usually catching this kind of fish involves driving several hundred miles and sometimes you end up with nothing, even after freezing outside new york travel bureau in the cold for a whole night.
"You don't know how hard fishing actually is. To catch a fish like this means staying there all night. new york travel bureau There are no fish when the weather is good. The big fish only come when there is wind and rain. If you're not dealing with a particularly fierce new york travel bureau fish, you're dealing with the multitude of mosquitoes. In the evenings inCanadaif you reach up and slap your face, you're bound to kill forty or fifty mosquitoes. Sounds pretty scary, doesn't it?"
Over time he has come up with his own theory of fishing. In his view there is nothing more suitable than fishing new york travel bureau to help explain the ups and downs a business will meet with. "It's a process," he says. "There is excitement, hardship and suffering. But the final result is that moment where you catch that big fish."
After returning toBeijingin the beginning of May he conveyed the company's intentions: although the IPO had not been successful, China Auto Rental would not slow down expansion in 2012. In addition to adding 20,000 more vehicles to their fleet, they would also be widening their area of coverage. At the end of 2011, China Auto Rental had 234 stores and 520 outlets throughout the country. By the end of 2012, they plan to have 280 stores and 700 to 800 service outlets.
Although the youngest amongst his siblings, Lu Zhengyao is a tough, forthright person and when at home he is king. He gives off a natural feeling of superiority. In 1987 he tested the highest out of all students on the Fujian Province college entrance exams and went on to study at the Beijing University of Science and Technology (at the time known as the Beijing Industrial Institute of Steel and Iron). In both high school and college he was student body president. "From an earlier age I probably new york travel bureau had to take on more things than my peers, handle more things and learn how to consider other people's feelings," he says.
In 2010, when Legend Holdings injected 1.2 billion RMB into China Auto Rental new york travel bureau to acquire a 51% stake in the company, Lu Zhengyao says that it only took him two minutes to come around and only another hour to convince his team of the benefits of the move.
"No matter new york travel bureau what happens, we take care to analyze the situation, write down the good and bad, then make a decision. People outside the industry wonder how we could let control of our company go just like that. This is something most people can't imagine. But if you were in my shoes, you would do the same thing," says Lu. It was only by giving up their controlling stake that they could ensure Legend Holdings would provide the massive amount new york travel bureau of financing they needed.
However, Lu denies that he signed a valuation adjustment mechanism agreement. "We refuse to even talk with anybody who comes to us with such a suggestion. Even if we were to talk about it, I would never agree to it." He says he wouldn't sign such an agreement because he feels it would distort the pace of the company's development.
To outsiders, the huge rolling chariot that is the car rental industry seems a little bit crazy, but Lu Zhengyao doesn't believe this is the case. No matter if it's the company's rampant expansion or its price war strategies, decisions are made according to the development goals that Lu Zhengyao has set for the company. For the second new york travel bureau half of this year, as China Auto Rental's fle
No comments:
Post a Comment