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Tuesday, June 27, 2005                                             Section: Technology / Page: 1

Dotcom builds on driving ambition: Chinacars takes the best of both worlds.

Michael Logan, Technology Editor

In advanced economies such as the United States, internet business is about upsetting the established order, taking revenue from the bricks-and-mortar incumbent, or - to call up a phrase seldom used since the dotcom bust - 'disintermediating the middleman'.

On the mainland, however, there are few paradigms to overturn. The free market economy is still young and the internet is growing up alongside it. For developed markets, the internet has meant upheaval to old ways of doing business. But for emerging economies, the Web is a chance to build efficiencies into new industrial infrastructures from the outset.

This is how Chinacars.com views the mainland car market. Private car ownership in China is just 2 per cent of the population. The internet penetration rate is not much higher at 7.3 per cent.

The business that positions itself well in both sectors stands to benefit enormously.

'In China, you have to keep in mind that [the car revolution] is just happening, and it's happening along with the internet. You have a chance to combine two revolutions in one and create a real powerhouse,' chief financial officer Eric Wen said.

Car culture in the US has been developing since 1908, when the first Model T rolled off Henry Ford's assembly line. Since then, a number of businesses have established themselves in that culture, such as roadside assistance service AAA, magazines Motor Trend and National Motorist, the Kelley Blue Book of used car values and, more recently, e-commerce platforms eBay Motors and Autobytel.com.

'Our goal is to duplicate the automobile information economy that has existed in the United States,' Mr Wen said.

'We are a Chinese equivalent of four or five pieces in the US. We are the equivalent of eBay Motors, plus AAA, plus Motor Trend, plus Progressive Insurance and plus Yahoo! Map.'

Chinacars has big ambitions for the sector. It aims to list on the Nasdaq Stock Market by the second half of next year and wants to raise as much as US$10 million from venture capitalists in the interim.

It is not the cash that Chinacars necessarily needs - the company is owned by Wanxiang Group, the largest car parts maker in China with US$2 billion in annual sales - but it sees outside foreign investment as validation of it business model ahead of any listing.

Chinacars believes it can grow earnings nearly 300 per cent to US$5.87 million by 2007, pointing to figures from investment house UBS, which estimated there would be 250 million private sedans on the mainland by 2025. This figure would give China a car penetration rate of just 16 per cent, far below the 75 per cent the US enjoys today.

The company's primary revenue stream has been content and services delivered to mobile phones. Photos of women posing next to new cars at exhibitions such as the Shanghai Auto Show accounted for about 20 per cent of the company's wireless revenue.

Other business opportunities include advertising: Chinacars is the No1 car portal on the mainland and it hopes ad revenue will eventually account for 10 per cent of sales.

Logistics and GPS services for the commercial sector are important, accounting for 44 per of sales.

Mr Wen said, however, that Chinacars would emphasise two areas going forward. The first is used car sales via an e-commerce platform.

'There isn't really a second-hand trading market today,' he said. 'Right
now, the second-hand trading car market is you just going around asking
your friends, 'Who wants to buy a car?''

Chinacars plans to differentiate itself from eBay and Alibaba.com by offering a car evaluation service similar to the Kelley Blue Book.

The second growth area is an offline business - the China Car Club - which will provide roadside assistance and discounts at restaurants and petrol stations.

Offline contact was important because Chinacars' customers preferred to be behind the wheels of their cars than at their computers.

'In order to reach the consumer, we have to provide all touch points ... not only when they are facing a PC but also when they are in a car,' Mr Wen said.

Ymer Venture Capital, a Shanghai based early stage venture capital fund, is both financial advisor and investor in Chinacars.

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