Didi Chuxing Is About to Cash In On China's Rental Car Boom

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On the heels of Didi Chuxing's purchase of Uber's ride-hailing business in China -- which gave the Chinese company access to all of UberChina's customer data and branding in the country -- Didi has announced that it's now entering the rental car business as well.

The new rental car service is called, simply enough, Didi Car Rental, according to ChinaDaily.com. The new service adds to the company's massive transportation services portfolio, which includes private ride hailing, bus transportation, new car test-drives, taxis, and social car sharing.

The company said it won't buy lots of cars to rent out itself, but will instead use ones from existing leasing firms and rent them to its customers through its app.Didi's been testing the rental car service in Shanghai since July, and will bring it to more cities in the first half of 2017. Users can have rental cars delivered to them for free after a short signup in the Didi Chuxing app.

The company said in a press release that it's starting the service to capitalize on "... the boom in China's short-term and tourist car rental market as the population goes through a lifestyle revolution," ChinaDaily.com reported.

That revolution refers to China's middle class, which is taking more vacations and more business trips than ever. Also, as consumers buy more cars, those cars need more servicing, which has resulted in more demand for rental cars to fill in the gap while vehicles are getting fixed.

Hertz did some research a few years ago and found that China's rental car market will grow at acompound annual growth rate (CAGR) of 14% until at least 2018.

And a McKinsey reporton China's transportation market noted in April that, "Especially for consumers in high-tier cities, purchasing a new car is now just one option among many for getting around. Alternatives like buying a used car, leasing or renting, and relying on e-hailing and car-sharing services hold increasing appeal."

In fact, 40% of the survey respondents in the report said that rental cars are enough to meet all of their automotive needs.

Didi is banking on the current rental car demand, as well as its future growth, as a new revenue driver for the company. Frost & Sullivan estimates the Chinese rental car market will be worth 51 billion yuan by 2017, or about $7.6 billion. For reference, the U.S. rental car market is worth $8.6 billion right now.

Didi is well-positioned to benefit from all of this growth. The company's popular ride-hailing service app is already used in more than 400 cities across China and has 300 million active users.

With its expansion into rental cars, its dominant position in ride-hailing services, and its recent purchase of UberChina, Didi is proving that there's practically no automotive service that it's not willing to take on.

It's still too early to speculate how successful Didi Chuxing will be with rental cars, but if it can convert just a fraction of its current user base into rental car customers then the $35 billion Chinese company will have successfully tapped yet another Chinese automotive market.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of HTZ. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.