Club hitches ride on fast-growing car ownership

Business Section / Technology / Page 9

Tuesday, 3 April, 2007

Sherman So in Hong Kong

Charles Lu, a mainland veteran of start-ups in telecommunications equipment and internet protocol services, is linking his technology and entrepreneurial skills to one of China’s biggest growth industries – car ownership.

Mr Lu, backed by investors that include the venture capital arm of computer-maker Lenovo, US based Cross Country Automotive Services, and Shanghai venture capital fund Ymer Venture Capital is building up his Beijing-based United Automobile Association (UAA) to be the country’s answer to the American Automobile Association as the number of cars on China’s roads surges.

The mainland, which 10 years ago had few privately owned cars, last year overtook Japan as the second-largest market in the world. Sales increased 25 per cent to 7.2 million vehicles, according to the China Automobile Industry Association.

The booming economy, along with a rising middle-class, has prompted forecasts that within the next 10 to 15 years ownership may surge to match the United States’ 140 million, from 24 million cars in 2005.

UAA, founded in March 2005, already has more than 1.15 million members in Beijing, Shanghai, Guangzhou and Chengdu. To lure more, the group tries to offer everything a driver can want, from car insurance and
emergency road services to maintenance services, travel guides, second-hand cars and even discounted car washes.

UAA says it covers more than 90 per cent of the country with 2,302 road rescue service providers. It has 3,320 partnered repair shops and 11,375 other service partners. Ctrip, the country’s largest online travel
agent, is linked with UAA to provide hotels and air tickets.

“Ctrip on wheels” is how UAA describes itself on its website to help the public understand what a car club can offer.

“Basically, we are like Ctrip,” Mr Lu said, who sold his previous ventures for more than US$12 million. “Ctrip partners hotels and airlines and takes commission from them when customers make bookings. We partner car repair shops, insurance companies and others and take commission from them when our members require these services.”

The heart of UAA’s operation is a 400-person call centre in Beijing, which handles all members’ requests.

At present, car insurance is the main revenue source, with commissions of 7 per cent to 8 per cent of premiums charged on policies arranged through partnerships with eight of the country’s largest car insurance

Commission for other services, such as car washes, ranges from 5 per cent to10 per cent, with the rest of UAA’s revenue coming from membership fees.

The group is still losing money, with spending of three million to four million yuan per month. Operations might break even by October as scale increases, Mr Lu said.

The company forecasts revenue will triple to 200 million yuan this year as membership grows to four million and increase 100 per cent to 200 per cent next year as operations expand to 15 cities. It is targeting 19.5
million members by 2010.

UAA has received US$20 million to US$30 million of investment so far.

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