Risky price war
After his angry posts, Lu promised that over the next year, 9,000 new cars in Shanghai, Guangzhou and Shenzhen would be available for rent at a price as low as 50 yuan per day.
Reocar mainly focuses on the market in southern areas of China, and the three cities have been a very important market for the company. Li from Reocar did not say whether the company will follow suit and cut prices, but said the company will focus on its own business and will "avoid self-inflicted setbacks."
"It is impossible to rent out a car for just 50 yuan per day," Zeng Zhiling, general manager at Shanghai-based LMC Automotive, told the Global Times.
Most car rental companies in China, especially those targeting individual clients, still do not make any profit, and "given the current price level and growth, it will be difficult for them to make a profit any time soon," said Zeng.
Zhang Yu, managing director at Shanghai-based industry consultancy Automotive Foresight Co, noted that the car rental industry demands very high initial investment but investment returns in the sector are very slow.
On November 30, reocar.com announced that it had completed a new round of financing, gaining over $100 million to pursue its development. And in July, China Auto Rental secured investment of $200 million.
"Low prices are still the main way for companies to gain market share at the moment," Zhang said.
But Zeng noted that China Auto Rental might have launched a price war too early. "If the industry does not grow as fast as expected in the next few years, the capital chain of companies that adopt a low-price strategy may soon break."
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