War on Weibo
Lu Zhengyao, CEO of China Auto Rental Holdings Inc, caused a stir recently with a series of angry denunciations of rival firms and the announcement of a new price war.
On December 4, Lu said on his Weibo account that his company had been harassed by "negative publicity" from its competitors during the past three years, and that he had decided to fight back.
"That's enough! And I warn you, do not cross the line," he said. Later, in another Weibo post, Lu announced a price cut of nearly 50 percent for the rental of 9,000 brand new cars, saying the cut would last for one year.
Lu's angry posts came with exaggerated drawings and sarcastic captions, telling competitors to "watch his bottom" and "just back off."
Lu did not specify which competitors he was referring to. China Auto Rental said in a statement sent to the Global Times on December 5 that the company had collected evidence of its competitors' slander and will report it to the police when the appropriate time comes.
The angry posts by Lu were forwarded nearly 4,500 times on Sina Weibo, and "angry Lu" even became one of the most discussed topics on the website.
Negative publicity
China Auto Rental said in the statement that it had encountered several attacks after the company announced a massive promotion during the celebration of its fifth anniversary in September.
These included Internet criticism from paid posters as well as negative reports in the media, the company said.
One of China Auto Rental's competitors was found to be paying for a website advertisement slot to post negative reports about China Auto Rental, Beijing Daily reported on December 6, citing an official from China Auto Rental.
This is not the first time that China Auto Rental has suffered such slander, the company said in the statement.
When the company secured investment of 1.2 billion yuan in 2010 from Legend Holding, the investment arm of electronics maker Lenovo, there were similar attacks from its competitors.
Currently there are over 6,000 auto rental companies in China, but only several large ones are dedicated to offering services for individual customers, such as eHi Auto Services and Reocar.
EHi Auto Services could not be reached for comment by press time. Li Chuntian, CEO of Reocar, did not comment directly on the matter but told the Global Times "to accept media supervision is the social responsibility of a company."
China Auto Rental has been under the spotlight recently. A series of reports by Guangdong-based newspaper New Express revealed some irregularities at the company, such as charging unreasonable penalty fees for breach of contract and using low rents to attract consumers, even though none of the cars with the cheap rate is available.
Interviews with the company's customers indicate some loopholes do exist.
Wei Lai, a Beijing-based white-collar worker, had a small accident on November 19 when driving a car he had rented from China Auto Rental. The company promised the damage would be covered by insurance when Wei returned the car.
However, Wei found on December 3 that China Auto Rental had deducted 1,600 yuan from Wei's credit card without giving him any notice.
After Wei launched a complaint, China Auto Rental said they would return the money.
"But I just need an explanation about this loophole in case something similar happens again," Wei told the Global Times.
Experts said similar problems exist in the services of other car rental companies, as the industry is still in its early stages in China.
China Auto Rental admitted in the statement that there is room for improvement of its services, and measures have been taken to deal with customer complaints.
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."
A Weibo show
Some have shown support for Lu's angry posts, but many Internet users said the incident was nothing more than a publicity stunt.
"This is a show rather than a real expression of frustration, and I believe many consumers can tell that," Zheng Xueqin, chief researcher at China Brand Research Institute, told the Global Times.
Zheng noted that such marketing techniques have proved to be an effective way to attract consumers, but sometimes they can also backfire.
"If its competitors react to the challenge and also make accusations, the image of both sides could be tarnished," he noted.