Driving up demand in China

Hertz is hoping to make greater inroads in the market during 2012

BEIJING - To remain viable in China, the US car rental giant Hertz Global Holdings Inc is diversifying its services instead of relying on multinational companies for business.

"China is a country with a huge population, so foreigners and multinationals comprise a small segment for us," said Susan Xu, marketing director of Hertz China.

Established in 1918, Hertz has more than 8,000 offices in 146 countries. It is the largest car rental company in the United States, owning 30 percent of the market at major US airports.

In Europe, it is the third-largest rental company, with 69 airport locations.

Last year, the company's revenue from its car rental business totaled $6.5 billion worldwide.

Hertz China contributes a very small fraction of global revenue, the company admits, although it entered China in 2002. Like all car rental companies in China, the parent is still supporting Hertz China financially.

"Hopefully in three years, we can change this when we have enough customers," Xu said.

Currently, 80 percent of its revenue comes from multinationals who have signed global contracts with Hertz, said Xu.

"In 2002, the Chinese operations were established mainly to serve customers who needed to rent a car overseas. But in 2009, Hertz realized the potential of the local market and decided to switch the focus," Xu said.

Hertz has made a great leap forward this year. It added three outlets in China, in Tianjin, Chengdu and Shenzhen. Between 2002 and 2010, it had only two offices in China - one in Beijing and the other in Shanghai.

In August, Hertz China partnered with General Electrical Co to sign an agreement with the Shanghai government to roll out rentals of electric cars, sending the message that Hertz is tightening up its relations with local governments.

To better communicate with domestic clients, Hertz has hired Chinese managers and sales personnel to explore the local market. Even the CEO frequently visits China.

At the same time, Hertz is targeting the rising number Chinese middle-class consumers who travel abroad for fun. According to the National Tourism Administration of China, outbound travel increases by 20 percent every year.

"There is huge potential in this segment," Xu said. "As we have nearly 150 locations around the world, we have an advantage in offering global services."

Hertz China plans to work with its travel agent partners to gain more business from travelers heading overseas. It is also promoting its global solutions program by offering special services to attract individual customers.

The company helps Chinese drivers to apply for international licenses and aid foreigners to obtain the correct paperwork to gain Chinese licenses.

Xu agreed with analysts who said the reliance on multinationals is a double-edged sword for Hertz. "In terms of corporate clients, we are already ahead of many competitors, thanks to our multinational ties. But we are not very successful in the consumer market, so this is a major challenge."

Ou Guoli, a professor from Beijing Jiaotong University who specializes in transportation, said Hertz has to move beyond its global network.

"In China, multinationals are a big market segment for car rental companies. But more potential lies in the individual customer," he said.

He added that Hertz is a brand for ordinary consumers in international markets, and it should reinforce that image in China.

"A really dynamic company needs to be recognized by the public, rather than just the elite groups," he said.

However, Hertz's expansion efforts seem conservative when considering its Chinese competitors.

Compared with Hertz's five offices, eHi Car Rental Co has 300 outlets in 50 cities, while Topone Car Rental Co has outlets in 26 cities.

"We want to make sure the business is profitable before we move on," Xu said. "Scale is not our major concern right now."

As a pioneer in car rental, Hertz's practices have been copied by latecomers - from opening offices in airports, providing the opportunity to return cars to different cities and offering GPS devices and mobile phone services.

However, when the system was brought to China in 2002, Hertz found it hard to sustain: Individual customers were scarce. Reports of fraud and car damage occurred frequently and there were no laws or regulations outlawing these types of activities.

Xu joked that she appreciates those Chinese car rental companies that spend a lot of money on advertising, because many people still don't understand how car rental operates.

"We want to be a brand differentiator, rather than a category builder," she said.

Running a car rental business in China is much more costly than in the US, too, Xu said, because the company has fewer channels through which it can dispose of older vehicles.

"In the US, Hertz (typically) signs agreements with car manufacturers who buy back the used cars after one to two years at a good price," she said. "But (here), we are working together with the global headquarters to negotiate the purchase price (with manufacturers)."

Huang Zhibiao, marketing director of Topone Car Rental, said the Chinese market is very different from the US and foreign companies, such as Hertz, will have to adapt in order to survive in the country.

"In China, many customers prefer to hire a driver when renting a car, instead of driving themselves. Besides, long-term rentals to companies contributes much more than individual customers," Huang said.

"Foreign companies have to consider these differences before they expand."

China Daily

(China Daily 12/31/2011 page10)