Fragmented leasing market struggles to define itself
Leasing is such a new concept that Chinese doesn't have a separate word for it; they use the word for 'renting'. This is emblematic for the lack of definition that the industry still suffers from.
Leasing is still very small in China. As much as 77% of vehicle acquisitions in China are by cash payment – the most prestigious option in a culture that still prizes ownership. About 20% is taken up by vehicle financing. Leasing mops up the remaining 3%. The most common leasing product in China is operating lease. Customer expectation is for full service leasing, including driver service, maintenance and replacement vehicle.
Multinationals typically take out 2-3-year rental agreements that include a chauffeur for each vehicle, with monthly rental expenses booked as cost. Smaller businesses avoiding the capital outlay of outright purchase often secure a 3-year vehicle financing scheme packaged as a lease, and can also use the cost of such leases to offset corporate tax. When the scheme ends, ownership is transferred to the company. In general, transport allowances are more popular than company cars. Only top management is provided with company cars.
Howewer, car leasing penetration is predicted to double over the next 5 year. Non-private new car sales in China are set to increase from 1.2 million in 2010 to 2.2 million by 2018, the leasing share of which is set to go from 0.1 to 1.1 million (direct purchase remaining stable at 0.6 million). This is bound to have a transformative impact on a sector that at present is still very fragmented. The Top 10 lease companies (CAR, eHi, Shouqi, to name but a few) currently control only 30% of the market. Only a handful of players have real nationwide coverage, most focus on a single city or region.
Western companies with a significant presence on the Chinese lease market include Avis and Arval (both via local joint ventures), ALD Automotive and Volkswagen Financial Services. Among the notable local lease companies are Car Inc, eHi, Shouqi, Zhizun, Dazhong, Shanghai Jinjiang and Shanghai Yongda. A significant part of the action is taken up by local rental companies, transportation groups or dealer associations, often in joint venture with foreign operators. One example is Pangda-Orix, offering 'lease-then-own' packages on top of regular long-term rentals.
Lack of regulation
The fragmentation problem is exacerbated by the lack of nationwide regulation. The leasing industry is subject to different rules and dependent on various local governments. Licensing restrictions and concentration of large international companies means that 90% of the Chinese leasing volume can be found in no more than 10 of the country's biggest cities. As currently five of these big cities have license plate-based restrictions in place, this can prove a big drawback for the leasing companies: acquiring missing plates requires extremely high acquisition costs.