Financials, Automotive, Healthcare Author:Yingwei Fu Apr 21, 2019 05:34 PM (GMT+8)

Turning its back on an asset-light strategy, Chehaoduo is shifting into higher gear with the addition of car rental to its increasingly diversified portfolios.

Green car in garage. Photo: Stephi 2006 on VisualHunt

Chehaoduo (车好多集团), the parent company of Guazi Second-hand Car, officially unveiled its new product Guazi Car Rental (瓜子租车) on April 18th in a move that would further expand the company’s portfolios as a mobility solutions provider.

Chehaoduo received USD 1.5 billion from Softbank China in February 2019 and it soon announced the acquisition of START, which was originally known as PP Car Rental (PP租车).

To date, Chehaoduo’s business is composed of two major parts – auto sales and auto-related financial service. The sales part focuses on selling and leasing new or used vehicles, while the auto financial service aims to provide loans for car buyers.

Unlike ride-hailing operators, the Beijing-based company isn’t in the business of transporting passengers from point A to point B. Rather, its goal is to provide cars to people in need of transport. The company did not disclose the amount it paid for acquisition of START, but it is estimated to be over tens of millions of yuan.

The precursor to Guazi Car Rental, PP Car Rental was founded in 2013 amid the P2P (peer-to-peer) investment craze. Its platform works like Turo, a peer-to-peer car sharing service founded in the US in 2010, where users can rent a car from other registered users. But since the P2P investment fell out of favor, PP Car Rental suffered financially and laid off employees several times to stay afloat. PP Car Rental was renamed START following a brand upgrade in 2017 and was acquired in 2019.

Chehaoduo has a proven track record of attracting investment, raising USD 3.3 billion in total amount of funding over the years. But the loss-making company has yet to turn a profit. Its strategic shift from an asset-light strategy has been questioned by many industry observers, who say it fails to bring profit to its financial backers but splurge money for no return. Indeed, the aggressive expansion will bring severe short-term financial pressure but the management should take a long view.

Challenges arise in distribution and meeting consumer demand for user experience. Cars require drastically different distribution channels than those meant for mundane goods like clothes and books. Moreover, the driving and riding experience is a big factor auto that buyers would take into consideration.

Online shopping might seem cost-effective and convenient, but post-sale delivery proves much more complex for auto vendors.

Besides, customers are more willing to go to a physical showroom for a closer look at their desired models and even better, for a test drive, before actually making their purchase decisions. This is a way to guard against unnecessary troubles resulting from online shopping, especially the post service ring.

An online dealer with no access to offline distribution channels would be in a disadvantageous position compared to competitors.

The role of online dealers is comparable to an information provider and traffic “guide” – in the sense of diverting buyers to offline stores. Chehaoduo’s online virtual showrooms will provide buyers with information and save them the trouble to visit a brick-and-mortar dealership, rendering the obstacles of geographical distance obsolete. But to keep customers within its business ecosystem and generate tangible profits, it must possess its own physical stores to prevent customers from walking into competitors’ showrooms.

- Re-edited on April 22nd, 2019