China Auto Rental outlet in Guangzhou. The biggest company nationwide has linked up with local companies as well as global giant Hertz. [Photo/China Daily]

Driven by rising consumer affluence, government policies limiting cars in big cities and the rapid development of tourism, strong demand for rental cars is attracting investment to the top companies.

Shanghai-based eHi Auto Services Co, one of the top three in fleet size, announced on Dec 20 that it received an investment of more than $100 million from the country's largest online travel agency Ctrip.com.

The deal will make Ctrip the second-largest investor in the company.

Enterprise Holdings from the United States bought a 15 percent stake in the company last year, eHi said in a statement.

It did not disclose the size of Ctrip's share.

"Car rental services have increasingly become an indispensable part of travel for individual and corporate clients,"said eHi CEO Ray Zhang.

"We believe the deal will bring more opportunities for both companies.

"It will also enable us to provide more convenient travel packages," he added.

In its statement, the company said its leading market position makes it particularly attractive to investors.

It currently has more than 13,000 vehicles for rent in 80 cities across China.

Rapid growth in tourism also is attracting interest from travel agencies.

China surpassed Japan as Asia's largest travel market last year, and the car rental business has registered the strongest growth in the industry, said eHi's statement, citing a report by travel research firm PhoCusWright.

"We expect the car rental segment to maintain strong growth driven by growing demand from young tourists who prefer self-drive tours," the statement said.

According to a report by the China National Tourism Administration, there was a significant increase in the number of self-driving tourists during the National Day holiday, especially on medium and short-distance trips.

Fast-growing market

Revenues in the car rental market have grown nearly 25 percent annually in the past five years, according to industry data.

The value of the market is expected surge from $2.5 billion in 2010 to $6.1 billion in 2015, according to Roland Berger Strategy Consultants.

As growth in the auto market slows from the previous torrid pace, Shen Jun, a partner at Roland Berger Greater China, predicts the car rental market will grow by 18 percent annually until 2015, with the total fleet size doubling from 220,000 cars in 2012 to 430,000 vehicle in 2015.

He said China's car-rental fleet accounted for just 0.44 percent of total passenger vehicles in 2012.

The figure was 2.2 percent in Japan and 1.3 percent in the US in 2010.

With such large space for growth, as early as 2010 eHi received $70 million from a consortium led by Gold man Sachs.

One of the main reasons top companies are attractive to investors is a growth rate far higher than the overall car rental market, Shen said.

There are more than 10,000 car rental companies in the country, but the average fleet size is no more than 50 cars.

The top five companies have just 11 percent of the market, yet"the industry should be led by several big groups", said Shen.

Analysts also said the industry has great opportunities for further expansion as the rising cost of car maintenance and an aversion to public transport prompts more people to rent cars.

And as rental procedures and services mature to become more streamlined, more consumers are likely to use rented cars to travel, analysts said.

Major players are in big cities, while smaller firms are scattered across the country.

Policies in big cities to curb the number of private cars by limiting car licenses is also likely to give the industry a boost.

"Many medium-sized cities with traffic troubles similar to Beijing and Shanghai will also adopt such measures," said Cui Dongshu, deputy secretary-general of the China Passenger Car Association.

Plan to expand

To seize opportunities in smaller cities, Beijing-based China Auto Rental, the nation's largest in the sector, announced a plan to expand its network by cooperating with local companies.

The plan will allow local partners to set up franchise stores except in the 66 cities where it already has wholly owned chain stores.

"We are trying to partner with local companies because it is very difficult for us alone to establish networks in so many cities," said company CEO Lu Zhengyao.

"We would like to share our resources such as financing, services and technology with our local partners and tap the local market potential together," he added.

China Auto Rental is also a target for investors.

In April, the company signed an agreement to sell global giant Hertz a 20 percent stake.

Under an initial five-year license, China Auto will then run Hertz's car rental operations in China.

The two companies will also become partners in the inbound business.

Mark Frissora, chairman and CEO of Hertz, said "it's a perfect fit for Hertz to partner with the largest and most recognized car rental firm in China". China Auto's 200 percent annual growth rate from 2009 to 2012 was six times higher than the overall market.

It forecasts growth of more than 50 percent annually until 2016.

Lu said the company chose to partner with Hertz because of the US-headquartered company's "extensive industry experience, advanced technology, strong brand influence and rich customer resources".

Hertz entered China in 2002, but suspended most of its rental business in 2006 after it ended cooperation with local partner China National Automotive Anhua (Tianjin) International Trade Co.