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TABLE OF CONTENTS
FINANCIAL INDEX CONTENTS

As filed with the Securities and Exchange Commission on March 14, 2012

Registration No. 333-179048

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



Amendment No. 2 to
FORM F-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933



China Auto Rental Holdings Inc.
(Exact name of registrant as specified in its charter)

Not Applicable
(Translation of Registrant's name into English)

Cayman Islands
(State or other jurisdiction of
incorporation or organization)
  7510
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

2F, Lead International Building
2A Zhonghuan South Road, Wangjing
Chaoyang District
Beijing, PRC 100102
+86-10-5820-9999

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Corporation Service Company
1180 Avenue of the Americas, Suite 210
New York, New York 10036-8401
+1-800-927-9800

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:
David T. Zhang, Esq.
Fan Zhang, Esq.
Kirkland & Ellis International LLP
c/o 26/F, Gloucester Tower, The Landmark
15 Queen's Road Central
Hong Kong
+852-3761-3318
  James C. Lin, Esq.
Li He, Esq.
Davis Polk & Wardwell LLP
2201, China World Office 2
1 Jian Guo Men Wai Avenue
Chaoyang District
Beijing 100004, China
+86-10-8567-5000



Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o              

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o              

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering.    o              



CALCULATION OF REGISTRATION FEE

       
 
Title of each class of securities
to be registered(1)(2)

  Proposed maximum
aggregate
offering price(3)

  Amount of
registration fee

 

Ordinary shares, par value US$0.00005 per share

  US$300,000,000   US$34,380(4)

 

(1)
Includes ordinary shares that may be purchased by the underwriters pursuant to an option to purchase additional ADSs. Also includes ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public. These ordinary shares are not being registered for the purposes of sales outside of the United States.
(2)
American depositary shares issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-             ). Each American depositary share represents             ordinary shares.
(3)
Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act.
(4)
Previously paid.



The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

   


Table of Contents

Subject to completion, dated                                        , 2012

The information in this prospectus is not complete and may be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting any offer to buy these securities in any jurisdiction where such offer or sale is not permitted.

Prospectus

             American depositary shares

GRAPHIC

China Auto Rental Holdings Inc.

Representing             ordinary shares

This is an initial public offering of American depositary shares, or ADSs, by China Auto Rental Holdings Inc. China Auto Rental Holdings Inc. is selling                           ADSs. Each ADS represents                           ordinary shares of China Auto Rental Holdings Inc., par value $0.00005 per share. The estimated initial public offering price is between $             and $             per ADS.

We have applied to list our ADSs on the New York Stock Exchange under the symbol "CARH."

   

    Per ADS     Total  
   

Initial public offering price

  US$                 US$                

Underwriting discounts and commissions

 
US$

             
 
US$

             
 

Proceeds to China Auto Rental Holdings Inc., before expenses

 
US$

             
 
US$

             
 
   

China Auto Rental Holdings Inc. has granted the underwriters an option for a period of 30 days to purchase from them up to                       additional ADSs.

The underwriters expect to deliver the ADSs to purchasers on or about                        , 2012.

Investing in our ADSs involves a high degree of risk. See "Risk factors" beginning on page 12.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

BofA Merrill Lynch   J.P. Morgan   Morgan Stanley

(in alphabetical order)

                           , 2012


Table of Contents

GRAPHIC


Table of Contents


Table of contents

 
  Page
 

Prospectus summary

    1  

Risk factors

    12  

Special note regarding forward-looking statements

    48  

Use of proceeds

    50  

Dividend policy

    51  

Capitalization

    52  

Dilution

    53  

Exchange rate information

    55  

Enforceability of civil liabilities

    56  

Corporate structure and history

    58  

Selected consolidated financial and operating data

    60  

Management's discussion and analysis of financial condition and results of operations

    62  

Industry

    89  

Business

    95  

Regulations

    116  

Management

    131  

Principal shareholders

    139  

Related party transactions

    141  

Description of share capital

    144  

Description of American depositary shares

    154  

Shares eligible for future sale

    166  

Taxation

    168  

Underwriting

    178  

Expenses related to this offering

    187  

Legal matters

    188  

Experts

    188  

Where you can find additional information

    189  

Index to consolidated financial statements

    F-1  

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Prospectus summary

This summary highlights information contained elsewhere in this prospectus and does not contain all the information that you should consider before investing in our ADRs. You should carefully read the entire prospectus, including our financial statements and related notes included in this prospectus and the information set forth under the headings "Risk factors" and "Management's discussion and analysis of financial condition and results of operations," before making an investment decision. This prospectus contains statistical data extracted from a report commissioned by us and issued by Roland Berger, a third-party consulting firm, in 2012.

Our business

We are the largest car rental company in China, commanding a leading position in the industry as measured by fleet size, network coverage and number of customers, according to Roland Berger. We also command the largest market share in terms of revenue in China's car rental market, according to Roland Berger.

We believe we are the first and only car rental company with a rental fleet of more than 10,000 vehicles in China's nascent but fast-growing car rental industry. Our fleet, comprising 25,845 vehicles covering most of the popular models in China, was as large as the aggregate fleet size of the next eight largest car rental companies and over three times that of the second largest car rental company in China as of December 31, 2011, according to Roland Berger.

We are dedicated to providing customers with enjoyable, affordable and reliable car rental services. Our network of 520 service locations covers 66 cities in all provinces and provincial-level municipalities of China. We strive to provide superior car rental services to our customers with 24/7 service at 52 major airports in China and in every city where we operate. Our products include short-term rentals, long-term rentals and leasing. As of December 31, 2011, we had a customer base of over 450,000. Over 920,000 members registered with us through our loyalty program for short-term rentals as of December 31, 2011, of whom approximately 48.5% had rented cars from us.

Our brand " GRAPHIC ," or "China Auto Rental," has become the most recognized car rental brand in China, according to a consumer survey conducted by Roland Berger in 2011. According to Baidu Index and Google Trends, two major keyword search popularity indices, our brand had the highest search volume among car rental companies in China and our total search volume on Baidu and Google was over four times and twice, respectively, that of our closest competing brand in China in 2011. Leveraging our strong brand, we employ a direct sales strategy and market through targeted Internet and traditional advertising. We believe our direct sales approach lowers our customer acquisition costs by bypassing third-party intermediaries and enhances service quality and customer retention by providing us with in-depth understanding of customer needs.

We have established a highly reliable and scalable information technology, or IT, platform, which fully integrates all aspects of our operations including transaction processing, customer management, fleet management and payment processing. Our IT platform allows us to collect, monitor and analyze vast amounts of customer, fleet and financial data on a real-time basis, which enables us to improve our operational efficiency and service quality. Our IT platform

 

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effectively supported our operations as our fleet expanded from 692 vehicles as of December 31, 2009 to 25,845 vehicles as of December 31, 2011, and we believe our IT platform is highly scalable for our future business expansion.

We have achieved substantial growth over the past three years. We derive our revenues primarily from short-term rentals of our vehicles. Our revenues increased from RMB54.0 million in 2009 to RMB143.0 million in 2010 and RMB775.8 million (US$123.3 million) in 2011. We incurred net losses of RMB3.2 million, RMB43.3 million and RMB151.4 million (US$24.1 million) in 2009, 2010 and 2011. Our adjusted EBITDA for 2009, 2010 and 2011 was RMB17.3 million, RMB26.3 million and RMB275.7 million (US$43.8 million), respectively. For a reconciliation of our adjusted EBITDA to our net loss, see footnote 1 on pages 9 and 10 of this prospectus.

Our industry

China's car rental industry is at an early stage of development and has experienced substantial growth in recent years. According to Roland Berger, total revenues in China's car rental industry grew from approximately RMB5 billion in 2005 to approximately RMB17 billion (US$2.5 billion) in 2010, representing a compound annual growth rate, or CAGR of 27%, and are expected to further increase to approximately RMB39 billion (US$6.1 billion) in 2015, representing a CAGR of 18% from 2010 to 2015. As of December 31, 2011, there were over 10,000 car rental companies in China with an average fleet size of no more than 50 vehicles, according to the same source. The car rental penetration rate, which is the number of rental vehicles as a percentage of the total number of registered passenger vehicles, is still low in China and has considerable room for growth, according to Roland Berger. Further, in contrast to more mature markets, the majority of car rentals in China is for business use, while leisure use and replacement rentals constitute a smaller yet growing percentage of the total market, according to Roland Berger.

Growth in China's car rental industry is driven largely by the rapid growth of China's economy, the urbanization of China's population, the increase in disposable income of China's consumers, improvement in China's road infrastructure, the increasing burden of car ownership and a favorable policy environment.

China's car rental market is divided into two segments: short-term rentals, or rentals of 30 days or less, and long-term rentals, or rentals of over 30 days. Sustained disparity between numbers of licensed drivers and car owners is expected to contribute to the growth in the short-term rental market in China, according to Roland Berger. China had approximately 151.3 million licensed drivers and 61.2 million registered passenger vehicles as of December 31, 2010, according to the National Bureau of Statistics of China, or the NBSC. Growth of the short-term rental market in China is also expected to be driven by the development of the replacement rental market and improved credit verification systems, according to Roland Berger. We believe that an increase in the amount of local travel by Chinese consumers and the growth of the domestic travel industry will also drive the growth of the short-term rental market. Growth of the long-term rental market in China is expected to be driven by demand for car use by institutional customers that prefer not to incur large capital expenditures or dedicate significant resources to fleet management, as well as government agencies resorting to long-term rentals due to policy reform limiting car ownership by government agencies, according to Roland Berger.

 

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Our strengths

We believe the following strengths have contributed to our success and differentiated us from our competitors:

leading position in China's nascent but fast-growing car rental market;

quality services and leading brand;

strong business partnerships;

diversified business mix;

highly reliable and scalable IT platform; and

experienced management team.

Our strategy

Our goal is to solidify and strengthen our leadership position in China's car rental market. To achieve this goal, we intend to:

enhance market leadership position;

further expand customer base and improve customer loyalty;

continue to improve operational efficiency; and

develop and enhance our used car sale business.

Our challenges

Our business is subject to numerous risks, as more fully described in the section entitled "Risk factors" and other information included in this prospectus. These risks include:

our limited operating history in an emerging and rapidly evolving market;

our ability to be profitable in the future;

our ability to manage our growth or execute our strategies effectively and our ability to maintain or increase our average daily rental rate, utilization rate and RevPAC in growing our business;

the sustainability of our growth;

our ability to manage our liquidity and cash flows, retain existing financial resources or raise additional capital;

the effect of restrictive covenants on our ability to incur additional indebtedness and capital expenditures and conduct our business;

our ability to maintain and enhance our reputation and market recognition of our brand;

the substantial control of our directors, executive officers and principal shareholders over our corporate actions; and

uncertainties in the PRC car rental industry.

 

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Our corporate structure

The following diagram illustrates our corporate structure as of the date of this prospectus:

GRAPHIC

In September 2007, Mr. Charles Zhengyao Lu, our chairman and chief executive officer, founded Beijing China Auto Rental Co., Ltd., or CAR Beijing, and we commenced our car rental business. Legend Holdings Limited, or Legend Holdings, a leading investment holding company in China with investments in a broad array of industries, and its affiliate LC Fund III, L.P., became our shareholders in November 2010 and August 2010, respectively, owning approximately 64.99% of our company. In January 2012, Legend Holdings and LC Fund III, L.P. transferred all of their equity interests in us to their affiliate Grand Union Investment Fund, L.P., or Grand Union. For more detailed disclosure of our corporate structure, see "Corporate structure and history—Corporate history and reorganization" and "Principal shareholders."

Legend Holdings has provided strong financial support for our efforts to replenish and expand our rental fleet, including loans and guarantees to secure our borrowings from financial institutions. As of the date of this prospectus, the outstanding principal amount of loans from Legend Holdings totaled RMB908.0 million (US$144.3 million). The aggregate outstanding amount of borrowings from financial institutions guaranteed by Legend Holdings totaled RMB2,281.2 million (US$362.4 million) as of December 31, 2011, RMB368.3 million (US$58.5 million) of which were also secured by certain of our rental vehicles. For more detailed disclosure of Legend Holdings' financial support and related risks, see "Management's discussion and analysis of financial condition and results of operations—Liquidity and capital resources," "Risk factors—Risks related to our business and industry—Loans extended by Legend

 

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Holdings may be declared void by PRC authorities, which may adversely affect our financial condition and results of operations," and "Risk factors—Risks related to our business and industry—Our business and results of operations may be adversely affected if Legend Holdings fails to comply with the terms of guarantees for our borrowings or ceases to provide similar guarantees in the future."

Our corporate information

Our principal executive offices are located at 2F, Lead International Building, 2A Zhonghuan South Road, Wangjing, Chaoyang District, Beijing 100102, People's Republic of China. Our telephone number at this address is +86-10-5820-9999 and our fax number is +86-10-5820-9966. Our registered office in the Cayman Islands is located at the offices of Offshore Incorporations (Cayman) Limited, Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand Cayman KY1-1112, Cayman Islands.

Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our website is www.zuche.com. The information contained on our website is not a part of this prospectus. Our agent for service of process in the United States is Corporation Service Company, 1180 Avenue of the Americas, Suite 210, New York, New York 10036-8401.

Conventions that apply to this prospectus

Unless otherwise indicated, references in this prospectus to:

"we," "us," "our," "our company" or "China Auto Rental Holdings Inc." are to China Auto Rental Holdings Inc., a Cayman Islands company and its subsidiaries;

"shares" or "ordinary shares" are to our ordinary shares, par value US$0.00005 per share;

"Share Incentive Plan" are to our 2012 share incentive plan;

"ADSs" are to our American depositary shares, each of which represents                           ordinary shares;

"ADRs" are to the American depositary receipts, which, if issued, evidence our ADSs;

"China" or the "PRC" are to the People's Republic of China, excluding Taiwan and the special administrative regions of Hong Kong and Macau for the purposes of this prospectus only;

"RMB" or "Renminbi" are to the legal currency of China; and

"US$" are to the legal currency of the United States.

This prospectus contains translations of certain Renminbi amounts into U.S. dollars at specified rates. For amounts not recorded in our consolidated combined financial statements included elsewhere in this prospectus, unless otherwise stated, all translations of financial data from Renminbi into U.S. dollars has been made at RMB6.2939 to US$1.00, the noon buying rate in effect on December 30, 2011 as set forth in the H.10 Statistical Release of the Federal Reserve Board. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On March 9, 2012, the noon buying rate was RMB6.3109 to US$1.00.

 

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The offering

The following assumes that the underwriters will not exercise their option to purchase additional ADSs in the offering, unless otherwise indicated.

Offering price   We currently estimate that the initial public offering price will be between US$             and US$             per ADS.

ADSs offered by us

 

                           ADSs.

ADSs outstanding
immediately after this
offering

 

             ADSs (or             ADSs if the underwriters exercise their option to purchase additional ADSs in full).

Ordinary shares
outstanding
immediately after this
offering

 

             ordinary shares (or             ordinary shares if the underwriters exercise their option to purchase additional ADSs in full).

New York Stock
Exchange symbol

 

CARH.

The ADSs

 

Each ADS represents             ordinary shares. The ADSs may be evidenced by ADRs.

 

 

The depositary will hold the shares underlying your ADSs and you will have rights as provided in the deposit agreement.

 

 

We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees and expenses.

 

 

You may turn in your ADSs to the depositary in exchange for ordinary shares. The depositary will charge you fees for any exchange.

 

 

We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended.

 

 

To better understand the terms of the ADSs, you should carefully read the "Description of American depositary shares" section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

 

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Option to purchase
additional ADSs
  We have granted to the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an additional             ADSs.

Use of proceeds

 

We estimate that we will receive net proceeds of approximately US$             million from this offering (or US$             million if the underwriters exercise their option to purchase additional ADSs in full), after deducting the underwriting discounts, commissions and estimated offering expenses payable by us and assuming an initial public offering price of US$             per ADS, being the mid-point of the estimated range of the initial public offering price shown on the front cover of this prospectus. We plan to use the net proceeds we receive from this offering for the following purposes:

 

US$             million for vehicle acquisition to further expand our rental fleet;

 

US$             million for repayment of certain borrowings; and

 

US$             million for working capital and other general corporate purpose.


 

 

See "Use of proceeds" for additional information.

Lock-up

 

Mr. Charles Zhenyao Lu, our chairman and chief executive officer, and Grand Union, our principal shareholder, have agreed with the underwriters not to sell, transfer or otherwise dispose of any ADSs, ordinary shares and similar securities for a period of 360 days after the date of this prospectus. We and all of our other directors, executive officers and existing shareholders have agreed with the underwriters not to sell, transfer or otherwise dispose of, and not to announce an intention to sell, transfer or otherwise dispose of any ADSs, ordinary shares or similar securities for a period of 180 days after the date of this prospectus. See "Underwriting" for more information.

Risk factors

 

See "Risk factors" and other information included in this prospectus for a discussion of risks you should carefully consider before investing in the ADSs.

Depositary

 

Citibank, N.A.

The number of ordinary shares that will be outstanding immediately after this offering is based on 250,760,000 ordinary shares outstanding as of the date of this prospectus and excludes 7,522,800 ordinary shares reserved for future issuances under the Share Incentive Plan as of the date of this prospectus.

 

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Summary consolidated financial and operating data

We present below our summary consolidated financial and other operating data for the periods indicated. The following summary consolidated statement of operations data for the years ended December 31, 2009, 2010 and 2011 and the consolidated balance sheet data as of December 31, 2010 and 2011 have been derived from our audited consolidated financial statements included elsewhere in this prospectus.

We have omitted financial information as of and for the year ended December 31, 2008 because such information is not available on a basis that is consistent with the consolidated financial information included in this prospectus and cannot be provided without unreasonable effort or expense. Furthermore, we believe that the omission of such financial information would not have a material impact on a reader's understanding of our financial results and condition and related trends.

The summary consolidated financial and operating data should be read in conjunction with our consolidated financial statements and related notes and "Management's discussion and analysis of financial condition and results of operations" included elsewhere in this prospectus. The consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our historical results are not necessarily indicative of our results for any future periods.

 

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  Year ended December 31  
(in thousands, except for share,
per share and per ADS data)

 
  2009
  2010
  2011
  2011
 
   

Consolidated statement of operations data:

                         

Net revenues

    RMB54,010     RMB142,992     RMB775,811   US$ 123,264  

Expenses

                         

Depreciation of rental vehicles

    (11,924 )   (47,206 )   (263,684 )   (41,895 )

Direct operating expenses

    (22,692 )   (61,525 )   (291,239 )   (46,273 )

Selling, marketing and distribution expenses

    (3,463 )   (25,516 )   (96,416 )   (15,319 )

General and administrative expenses

    (11,366 )   (32,980 )   (136,294 )   (21,655 )

Interest income and other income, net

    14     737     1,679     267  

Interest expenses

    (7,735 )   (20,374 )   (140,641 )   (22,346 )
       

Total expenses

    (57,166 )   (186,864 )   (926,595 )   (147,221 )

Loss before income tax expense

    (3,156 )   (43,872 )   (150,784 )   (23,957 )

Income tax benefit/(expense)

        542     (638 )   (101 )
       

Net loss

    (3,156 )   (43,330 )   (151,422 )   (24,058 )
       

Loss per ordinary share(1):

                         

Basic

    (0.17 )   (0.29 )   (0.63 )   (0.10 )

Diluted

    (0.17 )   (0.29 )   (0.63 )   (0.10 )

Weighted average ordinary shares used in per share computation(1):

                         

Basic

    18,569,588     151,943,291     239,634,718     239,634,718  

Diluted

    18,569,588     151,943,291     239,634,718     239,634,718  

Selected non-GAAP financial data:

                         

Adjusted EBITDA(2)

    17,277     26,262     275,719     43,808  
   

(1)   The share information and per share data reflect the 1-to-20,000 share split effected on February 24, 2012, pursuant to which every ordinary share was subdivided into 20,000 ordinary shares and the par value of the ordinary shares was changed from US$1.0 per share to US$0.00005 per share.

(2)   Adjusted EBITDA is defined as net income before income tax benefit or expense, interest income and other income, net, interest expenses, depreciation, amortization and one-time restructuring cost.

Our management uses adjusted EBITDA as an operating performance metric for internal monitoring and planning purposes, including the preparation of our annual operating budget and monthly operating reviews. In addition, adjusted EBITDA serves as a supplemental measure with which we can evaluate profitability and make performance trend comparisons between us and our competitors. Furthermore, we believe that adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

Adjusted EBITDA is also used by our management to evaluate our operating performance exclusive of financing costs and depreciation policies. Furthermore, we believe it provides a comparative metric to our management and investors that is consistent across companies with different capital structures and depreciation policies, enabling them to more accurately compare our performance to that of our peers. In addition, our management uses adjusted EBITDA as a proxy for cash flow available to finance fleet expenditures and the costs of our capital structure on a day-to-day basis so that we can more easily monitor our cash flows when a full statement of cash flows is not available.

Adjusted EBITDA is not a recognized measurement under U.S. GAAP. When evaluating our operating performance or liquidity, investors should not consider adjusted EBITDA in isolation of, or as a substitute for, measures of our financial performance and liquidity as determined in accordance with U.S. GAAP, such as net income, operating income or net cash provided by operating activities. Adjusted EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. Because other companies may calculate adjusted EBITDA differently than we do, it may not be comparable to similarly titled measures reported by other companies.

 

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Our adjusted EBITDA is calculated as follows for the periods presented:

   
 
  Year ended December 31  
(in thousands)
  2009
  2010
  2011
  2011
 
   

Net loss

    RMB(3,156 )   RMB(43,330 )   RMB(151,422 ) US$ (24,058 )

Income tax (benefit)/expense

        (542 )   638     101  

Interest income and other income, net

    (14 )   (737 )   (1,679 )   (267 )

Interest expenses

    7,735     20,374     140,641     22,346  

Depreciation

    12,712     49,937     275,483     43,770  

Amortization

        560     5,976     950  

One-time restructuring cost

            6,082     966  

Adjusted EBITDA

    17,277     26,262     275,719     43,808  
   

The following table presents a summary of our consolidated balance sheet data:

on an actual basis as of December 31, 2009, December 31, 2010 and December 31, 2011; and

on a pro forma basis to give effect to the issuance and sale of the                                        ordinary shares in the form of ADSs by us in this offering, based on the initial public offering price of US$             per ADS, the midpoint of the initial public offering price range as shown on the cover of this prospectus, after deducting underwriting discounts, commission and estimated offering expenses payable by us and assuming no exercise of the underwriters' option to purchase additional ADSs.

 
 
  Year ended December 31
(in thousands)
  2010
(Actual)

  2011
(Actual)

  2011
(Actual)

  2011
(Pro forma)

  2011
(Pro forma)

 

Consolidated balance sheet data:

                       

Cash and cash equivalents

    RMB81,062     RMB637,245   US$101,248   RMB                US$             

Total current assets

    167,170     841,640   133,723        

Rental vehicles, net

    917,515     2,413,847   383,522        

Total non-current assets

    978,986     2,699,566   428,919        

Total assets

    1,146,156     3,541,206   562,642        

Long-term borrowings due within one year

    218,967     825,497   131,158        

Total current liabilities

    440,115     2,091,294   332,273        

Long-term borrowings

    403,514     1,285,180   204,195        

Total non-current liabilities

    608,809     1,301,669   206,815        

Total shareholders' equity

    97,232     148,243   23,554        

Total liabilities and shareholders' equity

    1,146,156     3,541,206   562,642        
 

The following table sets forth certain key operating data as of and for the dates and periods indicated:

   
 
  As of and for the year ended December 31  
 
  2009
  2010
  2011
 
   

Fleet size(1)

    692     10,202     25,845  

Average daily rental rate(2) (RMB)

    327     204     197  

Utilization rate(3)

    65.3%     61.2%     56.7%  

RevPAC(4) (RMB)

    213     125     112  
   

(1)   End period fleet size includes vehicles in operations and excludes vehicles retired and awaiting sale or vehicles in our possession but not yet in operation.

(2)   Average daily rental rate is calculated by dividing net short-term rental revenue in a given period by the fleet transaction days in that period. Fleet transaction days are the total rental days for all vehicles in our short-term fleet in a given period.

 

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(3)   Fleet utilization rate is calculated by dividing the aggregate rental days for our short-term rental fleet during a given period by the aggregate days our short-term rental vehicles are available for rental during the same period. We exclude vehicles that are potentially lost, sold, awaiting sale or salvaged, but include vehicles in repair or maintenance and vehicles being used internally when calculating the aggregate days available for rental. Long-term rentals are also excluded from the fleet utilization rate calculation.

(4)   RevPAC is calculated by multiplying the average daily rental rate in a given period by the fleet utilization rate in that same period.

 

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Risk factors

An investment in our ADSs involves a high degree of risk. You should carefully consider all of the information in this prospectus, including the risks and uncertainties described below, before you decide to buy our ADSs. Any of the following risks could have a material and adverse effect on our business, prospects, financial condition and results of operations. In any such case, the trading price of our ADSs could decline, and you could lose all or part of your investment.

Risks related to our business and industry

Our limited operating history in an emerging and rapidly evolving market may not provide an adequate basis on which to judge our future prospects and results of operations.

We commenced business operations in September 2007 and have expanded rapidly since then. Within a relatively short period of time, we have become the largest car rental company in China in terms of fleet size, network coverage, number of customers and revenues, according to Roland Berger. However, our limited operating history may not provide a meaningful basis for you to evaluate our business, financial performance and prospects. Accordingly, you should not rely on results of operations for any prior periods as an indication of our future performance. You should consider our business and prospects in light of the risks, uncertainties, expenses and challenges that we will face as an early-stage company operating in a rapidly growing market. Going forward, we may not be successful in addressing the risks and uncertainties that we will confront, which may materially and adversely affect our business prospects.

We have operated at a loss and we may not be profitable in the near future.

We experienced net losses in 2009, 2010 and 2011. We may not achieve profitability or avoid net losses in the future. Although our revenues have grown significantly in recent periods, such growth rates may not be sustainable and may decrease in the future. In addition, our ability to become profitable depends on our ability to control our expenses, which we expect will increase as we develop and expand our business. We may incur significant losses in the future for a number of reasons, including the other risks described in this prospectus, and we may further encounter unforeseen expenses, difficulties, complications, delays and other unknown events. If we fail to increase revenues at the rate we anticipate or if our expenses increase without a more rapid increase in our revenues, we may not be able to achieve or maintain profitability.

If we are unable to manage our growth, execute our strategies effectively or maintain or improve certain of our key operating metrics while growing our business, our business and prospects may be materially and adversely affected.

We have achieved substantial growth since our establishment. We may not be able to effectively manage our growth in future periods due to a number of different factors, including, among others, macroeconomic factors out of our control, competition within China's car rental industry, the greater difficulty of growing at sustained rates from a larger revenue base, our inability to control our expenses and the availability of resources for our growth. Specifically, our anticipated further expansion will place a significant strain on our management, systems and resources. We intend to broaden and deepen our network coverage to strategically add new service locations to further penetrate cities within our existing

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network, as well as to selectively enter into lower tier cities that we believe have high growth potential. In addition, we plan to continue to expand our fleet size, optimize our fleet composition and diversify our business mix. All of these endeavors will require substantial managerial effort and skill and the incurrence of additional expenditures. Furthermore, our average daily rental rate, utilization rate and RevPAC decreased from 2009 to 2011 primarily due to the continued expansion of our fleet size and service network as well as our pricing strategies to acquire new customers.

Further, pursuing these strategies may require us to expand our operations through internal development efforts as well as partnerships, joint ventures, investments and acquisitions. We may not be able to efficiently or effectively implement our growth strategies or manage the growth of our operations, and any failure to do so may limit future growth and hamper our business strategies.

Our growth rate may not be sustainable and a failure to maintain an adequate growth rate will adversely affect our business.

Our revenues and our business operations have grown rapidly since our inception. Our net revenues have grown from RMB54.0 million in 2009 to RMB143.0 million in 2010 and RMB775.8 million (US$123.3 million) in 2011. Our fleet size increased from 692 vehicles as of December 31, 2009 to 10,202 vehicles as of December 31, 2010 and to 25,845 vehicles as of December 31, 2011. We may not be able to sustain these high rates of growth in future periods and you should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. If we are unable to maintain adequate revenue growth and at the same time control our expenses, our results of operation may be adversely affected, and we may not have adequate resources to execute our business strategies.

Our business requires a large amount of capital to finance the replenishment and expansion of our fleet. Failure to manage our liquidity and cash flows or inability to obtain additional financing in the future may materially and adversely affect our business, results of operations and financial condition.

The car rental industry is capital intensive. Maintaining our competitiveness and implementing our growth strategies both require us to obtain sufficient funds to replenish and expand our fleet. Our capital expenditures relating to vehicle acquisitions, net of proceeds from used car sales, were RMB867.5 million in 2010 and RMB1,859.0 million (US$295.4 million) in 2011. We expect our capital expenditures in 2012 to be approximately RMB2.0 billion (US$317.8 million), the substantial majority of which will relate to the planned expansion of our fleet. To replenish or expand our fleet, we have depended substantially on borrowings from financial institutions, capital leases, and loans from Legend Holdings. As of December 31, 2011, our outstanding borrowings from financial institutions totaled RMB2,327.7 million (US$369.8 million) and capital leases totaled RMB3.3 million (US$0.5 million), and as of the date of this prospectus, the outstanding principal amount of loans from Legend Holdings, a former shareholder of ours and an affiliate of our principal shareholder Grand Union, totaled RMB908.0 million (US$144.3 million). As of December 31, 2011, we had net current liabilities of RMB1,249.7 million (US$198.6 million) as we incurred a substantial amount of short-term and long-term borrowings to finance the rapid expansion of our rental fleet. From time to time, we will be required to repay our short-term and long-term borrowings when they become due. We may not be able to generate sufficient cash flows from our operations or obtain additional financing to service these obligations. Our ability to make additional capital expenditures to

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finance our business growth, primarily including our rental fleet expansion, may also be materially and adversely affected.

Furthermore, we expect to raise additional financing to fund the replenishment and expansion of our fleet and the overall expansion of our business to provide enhanced products and services, acquire a larger customer base, respond to competitive pressures and develop complementary businesses, technologies or services. Such additional financing may not be available on commercially reasonable terms or at all, especially if there is a recession or other events causing volatility in the capital markets worldwide. To the extent that we raise additional financing by issuing equity securities, our shareholders may experience substantial dilution, and to the extent we engage in debt financing, we may become subject to restrictive covenants that could limit our flexibility in conducting future business activities.

Our ability to retain our existing financial resources and obtain additional financing on acceptable terms is subject to a variety of uncertainties, including:

PRC governmental policies relating to bank loans and other credit facilities;

PRC governmental regulations of foreign investment and the car rental industry in China;

economic, political and other conditions in China;

investors' perception of, and demand for, securities of car rental companies;

conditions of the United States and other capital markets in which we may seek to raise funds; and

our future results of operations, financial condition and cash flows.

If additional financing is not available on acceptable terms or at all, we may not be able to fund our expansion, promote our brand, enhance our products and services, respond to competitive pressures or take advantage of investment or acquisition opportunities, all of which may adversely affect our results of operations and business prospects.

Restrictive covenants contained in credit facilities may limit our ability to incur additional indebtedness or capital expenditures and restrict our future operations, and failure to comply with these restrictive covenants may adversely affect our liquidity, financial condition and results of operations.

We are subject to restrictive covenants under our credit facilities with banks and other financial institutions. These restrictive covenants include, among other things, financial covenants such as maintaining certain asset-liability ratios, vehicle utilization rates and rates of return on fixed assets, limitations on our ability to incur additional indebtedness or create new mortgages or charges, making timely reports, restrictions on the use of proceeds and asset sales, and requirements to provide notice or obtain consent for certain significant corporate events. These covenants limit the manner in which we conduct our business and we may be unable to engage in certain business activities or finance future operations or capital needs. We have received written confirmation from the relevant banks and other financial institutions that we are not, and have not been, in breach under the credit facilities.

Failure to meet any of these financial covenants or any other restrictive covenant in the future may entitle lenders to declare all borrowings outstanding and accrued and unpaid interest to be immediately due and payable and require us to pay accrued and unpaid interest at higher

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interest rates. Furthermore, any event of default or acceleration of payment in a credit facility may trigger cross-default or cross-acceleration provisions in other credit facilities. If lenders accelerate the repayment of our borrowings, we may not have sufficient cash to timely repay the borrowings and any repayment may disrupt our cash flow and liquidity plans. Additionally, Legend Holdings has provided guarantees for a significant portion of our borrowings and to a lesser extent, we have provided collateral under certain credit facilities. If we cannot repay these borrowings, lenders may enforce these guarantees or take ownership of other collaterals granted to them. In addition, our failure to comply with any financial or other restrictive covenants under our credit facilities, or an assessment that we are likely to fail to comply with these covenants could lead us to seek an amendment to or a waiver of these covenants. If we are not successful in obtaining such amendment or waiver, the lender may demand acceleration of the repayment of the borrowings. As a result, our business, financial condition and results of operations would be materially and adversely affected.

Our business depends heavily on our reputation and market recognition of our brand, and any negative publicity or other harm to our brand or failure to maintain and enhance our brand recognition may materially and adversely affect our business, financial condition and results of operations.

We believe that our reputation and market recognition of our brand have contributed significantly to the success of our business. Maintaining and enhancing our reputation and brand recognition depends primarily on the quality and consistency of our products and services, as well as the success of our marketing and promotional efforts. We believe that maintaining and enhancing our brand is critical to our efforts to maintain and expand our customer base. If customers do not perceive our products to be of high quality, our brand image may be harmed, thereby decreasing the attractiveness of our products. While we have devoted significant resources to brand promotion efforts in recent years, our ongoing marketing efforts may not be successful in further promoting our brand. In addition, our brand image may be harmed by negative publicity relating to our company or China's car rental industry regardless of its veracity. If we are unable to maintain and further enhance our brand recognition and increase market awareness for our company and products, our ability to attract customers may be impeded and our business prospects may be materially and adversely affected.

Our growth may be adversely impacted by uncertainties in China's car rental industry, which is relatively new and may experience unexpected downturns for various reasons, including market acceptance and government policies.

China's car rental industry is relatively new and renting a car is a relatively new concept among Chinese consumers. Car rentals may not gain acceptance or popularity among Chinese consumers. The growth of the car rental industry, as well as demand for our products and services, is subject to uncertainties and numerous other factors, some of which are beyond our control. These uncertainties and factors include but are not limited to:

general economic conditions in China, particularly economic conditions adversely affecting consumer spending;

the growth and strength of China's travel industry and demand for transportation services;

the growth and strength of the global automobile industry, in particular China's automobile industry, including the popularity and perceptions of automobile safety and reliability;

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the development and change of government regulations of transportation laws and regulations; and

the popularity and perceptions of car rental among the general public.

A decline in the popularity of car rentals could adversely affect our revenue growth and business prospects.

If we do not compete successfully against existing and new competitors, we may lose market share and customers.

The car rental industry in China is highly competitive and fragmented. As of December 31, 2011, there were over 10,000 car rental companies in China with an average fleet size of no more than 50 vehicles, according to Roland Berger. We compete in the short-term rental market with local car rental companies such as eHi Car Service and Topone and with international car rental companies such as Avis. We compete in the long-term rental market with state-owned enterprises such as Shou Qi and Dazhong and international companies such as Avis. Alliances or mergers among our existing competitors or with new entrants into the car rental industry may present additional challenges. Some of our competitors or potential competitors, especially major international car rental companies, may have higher brand recognition among certain of our target customers and greater financial, technical and marketing resources. In addition, certain of our competitors have operated commercially successful car rental businesses for as long as or longer than we have.

We believe that our ability to compete successfully depends upon many factors both within and beyond our control, including the competitiveness of our prices, diversity and condition of our vehicles, the quality of our products and services, the size and diversity of our customer base, our brand strength in the market relative to our competitors, customer receptivity of the car rental business, consumer spending power and other macroeconomic factors. In particular, we believe that price is one of the key factors that customers consider in choosing car rental services. The Internet has also increased pricing transparency by enabling customers to access various competitors' prices easily. If we try to increase our prices, our competitors who have greater financial resources may seek to compete aggressively on price. In addition, our competitors may reduce prices to gain a competitive advantage or compensate for declines in their rental activities. To the extent we do not match or remain within a reasonable competitive margin of our competitors' pricing, our revenue and results of operations could be materially and adversely affected, as we may lose customers and experience a decrease in reservations. If competitive pressure leads us to match our competitors' downward pricing and we are not able to reduce our expenses, our profit margins and results of operations could be materially and adversely impacted.

If we are unable to purchase adequate supplies of competitively priced cars and the cost of the cars we purchase increases, our financial condition and results of operations may be materially and adversely affected.

The price and other terms at which we can acquire vehicles from automobile manufacturers vary based on market conditions. In 2011, we purchased approximately 28.0%, 22.4%, 16.4%, 13.8% and 5.6% of our fleet vehicles from our top five vehicle suppliers, respectively. There is no guarantee we will be able to purchase a sufficient number of vehicles on competitive terms and conditions to meet our expansion and replenishment needs. If we are unable to obtain an adequate supply of cars, if we obtain less favorable pricing and other terms when we acquire

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cars and are unable to pass on those increased costs to our customers, or if we fail to maintain good relationships with any of our significant car suppliers, our financial condition and results of operations may be materially and adversely affected.

Because we incur significant up-front capital expenditures for vehicle acquisitions, our profitability may be materially and adversely affected if we fail to achieve our forecasted revenues.

To fulfill the anticipated demand for our products, we must make significant investments in vehicle acquisitions. The build-up of our fleet in advance of actual reservations exposes us to significant up-front capital expenditures. If market demand for our products does not increase as quickly as we anticipate, if at all, we may be unable to afford paying our up-front costs, and our operating results may be adversely affected as a result of underutilization of capacity and asset impairment charges.

We face residual risks related to the disposition of our rental vehicles.

Automobile manufacturers in China do not offer vehicle repurchase or guaranteed depreciation programs to car rental companies. We bear the risk of effective depreciation when disposing of our rental vehicles, and carry all of the risk that the market value of a vehicle at the time of its disposition may be less than its estimated residual value. This is known as "residual risk." When we acquire rental vehicles, we estimate the period that we will hold the assets, primarily based on historical measures of the amount of rental activity. We also estimate the residual value of the vehicles at the expected time of disposal. As a result, our results of operations are affected by our ability to accurately estimate the optimal holding periods and appropriate residual value for our vehicles in our fleet and our ability to dispose of these vehicles at optimal prices.

China's used car market is at its early stage of development and there is no established national distribution network of used automobile dealers in China, which creates an impediment for the sale of used vehicles and increases the residual risk of our fleet. A variety of reasons could cause the used car market for vehicles in our fleet to experience considerable downward pricing pressure. For example, a decline in new car sales prices may drive down used car sales prices or discourage consumers from buying used cars. A continued decline in the results of operations, financial condition or reputation of a manufacturer of vehicles included in our fleet could reduce the residual values of those vehicles, particularly if the manufacturer were to unexpectedly announce the eventual elimination of a model or immediately cease manufacturing them altogether. Such a reduction in residual value could cause us to sustain a loss on the ultimate sale of these vehicles. A decline in general economic activity may also have a material adverse effect on the value we realize when we sell our used vehicles. Any such decline would adversely affect our overall financial condition.

Loans extended by Legend Holdings may be declared void by PRC authorities, which may adversely affect our financial condition and results of operations.

From July 2010 to January 2012, Legend Holdings made a series of loans to our PRC operating company, CAR Beijing, to finance our vehicle acquisitions and business operations as well as our acquisition of Beijing Beichen Auto Rental Co., Ltd., or Beijing Beichen. These loans have terms of one to two years. As of the date of this prospectus, the total outstanding principal amount of loans from Legend Holdings totaled RMB908.0 million (US$144.3 million), bearing interest at floating interest rates between 7.04% and 7.87%. PRC laws do not permit companies that do not possess financial service business licenses to extend loans directly to other companies, including affiliates, without using a financial institution. Legend Holdings did not hold a financial services business license and did not extend loans to us through a financial institution. PRC governmental authorities may declare these loans void and as a result, require us to repay the loans to Legend Holdings before their maturity dates, which may adversely affect our financial condition and results of operations.

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Our business and results of operations may be adversely affected if Legend Holdings fails to comply with the terms of guarantees for our borrowings or ceases to provide similar guarantees in the future.

Legend Holdings has provided guarantees for a significant portion of our loans and capital lease obligations, the aggregate outstanding amount of which amounted to RMB2,281.2 million (US$362.4 million) as of December 31, 2011, RMB368.3 million (US$58.5 million) of which were also secured by certain of our rental vehicles. If Legend Holdings fails to comply with the terms of these guarantees, our lenders may accelerate the payment schedule of our loans or capital lease obligations, and we may not be able to obtain loans or other credit facilities from banks or other financial institutions at favorable terms, if at all, without obtaining guarantees from another guarantor. In addition, our ability to obtain loans or enter into capital lease arrangements in the future may also be limited if Legend Holdings ceases to provide guarantees for our loans or capital lease obligations. Any of these events may materially and adversely affect our business and financial conditions.

If our efforts to maintain a high level of customer satisfaction and loyalty are not successful, we may not be able to attract or retain customers, and our operating results may be adversely affected.

Customer satisfaction is critical to the success of our business. From time to time, our customers may express dissatisfaction with our products and services, including our vehicle availability or response time for questions or incidents relating to our vehicles. To the extent dissatisfaction with our products and services is widespread or not adequately addressed, our reputation could be harmed and our efforts to build and strengthen our brand recognition would be adversely impacted, which could harm our ability to attract and retain customers and adversely affect our business and results of operations.

We rely on third-party service providers to deliver certain services to our customers. If these service providers experience operational difficulties or disruptions or deliver services of an inadequate level of quality, our business could be adversely affected.

We depend on third-party service providers to deliver certain of our services to our customers. In particular, we outsource the cleaning, repair and general maintenance work for our fleet to third-party service providers such as automobile dealerships, repair shops designated by automobile dealerships and local service shops selected based on reputation and assessment by our local teams. We also use third-party service providers to dispatch on-the-ground, nationwide roadside assistance teams to promptly respond to our customers' roadside emergencies. We do not control the operation of these providers. If these third-party service providers terminate their relationship with us, or do not provide an adequate level of service to our customers, it would be disruptive to our business as we seek to replace the service provider or remedy the inadequate level of service. In addition, if one or more of our customers suffer or claim to have suffered harm or damages as a result of the actions or are otherwise unsatisfied with the quality of services of third-party service providers, our reputation and our brand could be harmed. This, in turn, may cause us to lose customers, which would adversely affect our business and results of operations.

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Our business, financial condition and results of operations may be adversely affected by the downturn in the PRC or global economy and weakness in travel demand.

Our results are affected by many economic factors. A decline in economic activity either in China or in international markets may have a material adverse effect on our business. For the car rental business, a decline in economic activity typically results in a decline in both business and leisure travel and, accordingly, a decline in the volume of car rental transactions. The global financial markets experienced significant disruptions in 2008 and 2009. A variety of factors, including the current European sovereign debt crisis and concerns about the viability of the European Union and the Euro, could cause further disruptions to the global economy. To the extent that there have been improvements in some areas, it is uncertain whether such recovery is sustainable.

A slowdown in the global or Chinese economy or the recurrence of any financial disruptions may also have a material and adverse impact on financings available to us. The weakness in the economy could erode investors' confidence, which constitutes the basis of the equity markets. A financial turmoil affecting the financial markets and banking system may significantly restrict our ability to obtain financing in the capital markets or from financial institutions on commercially reasonable terms, or at all.

Our business, financial condition and results of operations may be adversely affected by fluctuations in fuel costs or supplies.

We may be adversely affected by significant increases in fuel prices or limitations on fuel supplies. Prices for petroleum-based products, including gasoline, have experienced significant volatility in recent years and affected automotive travel patterns in many ways. Limitations in fuel supplies or significant increases in fuel prices could substantially discourage customers from renting cars and have an adverse effect on our business and results of operations.

We may not be successful in expanding into used car sale business.

Historically, we disposed of our used vehicles primarily through auctions and biddings to used car dealers and brokers. In April 2012, we expect to adopt a three-phase used car disposition system which consists of our rent-to-buy used car sale program, bidding and auction systems. Under this system, our rental vehicles of a certain age are automatically entered into the proper system for disposition through our rent-to-buy used car sale program, bidding or auction, which we believe will provide a more systematic and cost-efficient way for us to proactively sell our used vehicles to rental customers, brokers and dealers. As part of this effort, we may make substantial investments in anticipation of future revenues. Expansion into the used car sale business may require us to work with different groups of business partners and address a different market. Expansion into the used car sale business may also result in substantial costs and the diversion of resources and management attention. In addition, we may face new competitive pressure as we expand into the used car sale business. Our expansion into the used car sale business may not be successful or profitable. If we fail to implement such disposition strategy successfully or if we are unable to successfully incorporate our used car sale business into our existing business model, our results of operations and our business could be adversely and materially affected.

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Our business depends substantially on the continued efforts of our key executive officers and our business may be severely disrupted if we lose their services.

Our future success depends on the active participation of our executive team, who possesses significant knowledge of the car rental business and is responsible for the strategic direction of our business. In particular, we are highly dependent on Mr. Charles Zhengyao Lu, our founder, chairman and chief executive officer. Our business also depends on the continued services of our key employees who have specialized knowledge of our business and industry and would be difficult to replace. Competition for qualified personnel is particularly intense in the car rental industry. While we attempt to provide competitive compensation packages to attract and retain key personnel, some of our competitors may have greater resources and more experience than us, making it difficult for us to compete for key personnel.

Our expenses may increase if we implement salary increases in order to retain the requisite services of our staff.

As of December 31, 2011, we had 3,384 full-time employees, the majority of whom staff our stores and call centers in positions that demand a relatively low wage. However, we have observed an overall tightening of the labor market and an emerging labor shortage. Failure to obtain stable and dedicated labor support may disrupt our business and adversely affect our operations. Furthermore, labor costs have increased in China in recent years and may continue to increase in the near future. To remain competitive, we may need to increase the salaries of our employees to attract and retain them. Our labor costs amounted to RMB14.2 million, RMB37.9 million and RMB142.5 million (US$22.6 million) in 2009, 2010 and 2011, respectively, accounting for 26.3%, 26.5% and 18.4% of our net revenues during the respective periods. Increases in labor costs will increase our expenses and our financial position may be adversely affected.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

We principally rely on trade secrets to protect our technology and know-how. We have devoted substantial resources to the development of our technology, including our software program for rental reservations. In order to protect our technology and know-how, we rely significantly on confidentiality agreements with our employees, licensees, independent contractors and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we would not be able to assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive position.

Restrictions on car usage in certain Chinese cities may limit our fleet growth, increase our vehicle license fees and adversely affect our fleet utilization rate, which may adversely affect our results of operations.

Several of the major Chinese cities we operate in, including Beijing and Shanghai, have implemented quotas or other restrictions on new vehicle registrations in an effort to ease traffic congestion and air pollution. If such restrictions continue or intensify, or if more Chinese

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cities adopt similar restrictions, our vehicle license fees may increase substantially and the growth of our fleet may be limited, which in turn may adversely affect our business prospects and results of operations. In addition, some cities in China such as Beijing, Nanchang and Guiyang have also implemented traffic control measures banning cars with certain license plate numbers on certain days from traveling in these cities. If such restrictions continue, or if more Chinese cities adopt similar restrictions, our fleet management and fleet utilization rate may be adversely affected, which in turn may adversely affect our business prospects and results of operations.

Failure to fully comply with various PRC transportation laws and regulations and other applicable PRC laws with respect to our businesses could harm our results of operations.

Our business operations are subject to a number of PRC laws and regulations with respect to transportation and car rental businesses. Regulatory requirements and restrictions include the registration of commercial vehicles, restrictions on the non-local use of cars, the registration of a branch company for each service hub, obtaining licenses and permits and making certain filings to operate the car rental business. See "Regulations—Regulations relating to enterprises engaging in car rental business" and "Regulations—Regulations on registration of branch companies." If we fail to comply with the laws and regulations, regardless of whether such failure was intentional, we could be subject to fines and other penalties, including the withdrawal of licenses or permits that are essential to the operation of our business, which could adversely affect our business operations.

In addition, PRC laws and regulations regulate other aspects of our business, including operation of parking facilities, leasing and the sale of used cars. For example, we may be required to register or file with or obtain a license from local authorities to operate parking facilities, according to local rules and regulations. See "Regulations—Regulations on operating parking facilities." If we fail to comply with any existing PRC laws or regulations, including the laws with respect to operating parking facilities, leasing and the sale of used cars, or fail to obtain or maintain any of the required permits or approvals, or if the PRC government promulgates new laws and regulations that require additional licenses or imposes additional restrictions on the operation of any part of our business, the relevant regulatory authorities may impose fines and penalties on us, confiscate our income, revoke our business licenses and require us to discontinue our business or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material and adverse effect on our results of operations.

Our PRC subsidiaries may have engaged in business activities without the necessary approvals from or registration with local authorities. This could subject us to fines or other penalties that may negatively impact our results of operations or interfere with our ability to operate our business.

According to applicable PRC laws, a company is required to conduct business within the business scope prescribed in its business license and file an amendment to its registration with the appropriate authority if the company expands or changes the scope of its business. Additional governmental approvals, licenses, registrations or filings may also be required for any expansion of business scope. As our PRC operating subsidiaries quickly expand their operations, they may need to obtain additional governmental approvals and licenses or amend their registrations or filings, which they may fail to do in a timely manner. Failure to obtain

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these permits or register or file in a timely manner, or at all, may subject us to fines and penalties and substantially inhibit our ability to operate our business.

As the car rental industry is at an early stage of development in China, the regulatory scheme continues to evolve and there are currently very few national laws or regulations specifically regulating the car rental industry. The car rental industry is mainly regulated by governmental authorities at local levels, which impose various regulatory requirements on the operating entities and vehicles, and such regulatory requirements vary from place to place, and the practice of local authorities may also deviate from the existing local rules. See "Regulations—Regulations relating to enterprises engaging in car rental business." As a result of the inconsistency in local rules and their interpretation and implementation, as well as the fast expansion of our business, we have not obtained or timely renewed all of the requisite permits and licenses, made or timely renewed all of our requisite filings or registrations for our business operations or fully complied with all other regulatory requirements applicable in the cities in which we currently operate, including the permit or registration for car rental business and the registration and operational requirements of the commercial vehicles used for rental operations, as required by certain local authorities. We are in the process of obtaining 23 requisite permits, licenses and registrations for our car rental business in a number of Chinese cities. We will endeavor to obtain a majority of these outstanding requisite permits, licenses or registrations by the end of 2012. However, in some cities, implementation procedures of the applicable rules and regulations are still under development by local government agencies. Furthermore, the practice of local authorities may deviate from the currently effective local rules and regulations. As a result, it may take us a long time to obtain all of the outstanding permits, licenses and registrations. As such, we are not able to anticipate when we will become fully in compliance with all of the applicable rules and regulations with regard to the permits, licenses and registrations for our car rental business. We may be subject to penalties if we fail to obtain or timely renew these permits and licenses or registrations or fail to comply with any other regulatory requirements. These penalties may include fines ranging from RMB100 to RMB100,000.

A large number of PRC provinces and cities have promulgated rules that prohibit an entity with a prescribed business scope of engaging in the car rental business from concurrently providing chauffeured services during the provisions of car rental services. An April 2011 circular from the Ministry of Transport, or MOT, reiterated the prohibition on the national level, stating that PRC car rental companies without passenger transportation permits should not provide chauffeured services to rental customers. See "Regulations—Regulations relating to enterprises engaging in car rental business—Regulations on chauffeured services." Historically, we provided chauffeured services to a small number of long-term rental customers through certain PRC subsidiaries engaged in the car rental business. We are in the process of transferring these services to our PRC subsidiary that is licensed to provide chauffeured services. If relevant authorities find that a legal entity providing both car rental services and chauffeured services violated applicable regulations or rules, we may be required to refrain from providing chauffeured services and be subject to fines of up to RMB100,000 or up to ten times of any income generated from the non-compliant activity and other penalties.

Furthermore, a company that conducts business in a location outside its domicile must register its branch office as a branch company with the competent local authority. See "Regulations—Regulations on registration of branch companies." As of the date of this prospectus, we had

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234 service hubs, 179 of which were registered as our subsidiaries or branch companies with competent local authorities. We are in the process of applying for the remaining of branch company registrations in cities where we operate rental businesses. As we quickly expand our operations, we may need to register additional branches. If we fail to complete such registrations in a timely manner, we may be subject to penalties, which may include fines of up to RMB100,000 or disgorgement of income. We may be subject to these penalties as a result of our failure to meet the registration requirements, and these penalties may substantially inhibit our ability to operate our business.

Our failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.

Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations. See "Regulations—Regulations on labor matters." We have not made adequate employee benefit payments as required under applicable PRC labor laws. Accruals for the underpaid amounts as recorded were RMB9.2 million (US$1.5 million) as of December 31, 2011. Our failure to make contributions to various employee benefit plans and comply with applicable PRC labor-related laws may subject us to late payment penalties or fines. If we are subject to such penalties in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

We do not have title to vehicles covered by the capital lease agreements or sale and leaseback agreements during the term of these agreements, and a failure to service these agreements could adversely impact our ability to operate the vehicles.

In 2010 and 2011, we acquired a total of 338 cars from Minsheng Financial Leasing through capital leases and entered into sales and leaseback arrangements with Minsheng Financial Leasing under which we used 7,182 cars as collateral to obtain borrowings. During the terms of the capital lease agreements and sale and leaseback agreements, which typically range from 24 to 36 months, we do not have title to the leased vehicles. Under these agreements, we may lose access to the vehicles if we fail to make timely payments, insure the vehicles as required by the financial institutions, or breach other covenants under the agreements, which would make it difficult to maintain normal operations of our fleet and achieve optimal fleet utilization rate, which in turn may adversely affect our results of operations.

We face risks related to liabilities resulting from the use of our vehicles by our customers.

Our business can expose us to claims for personal injury, death and property damage resulting from the use of our rental cars by our customers. For example, if a customer uses a car that has worn tires or some mechanical or other problem, including a manufacturing defect, which contributed to a motor vehicle accident that results in a death or significant property damage, we may be a defendant of the claims for the alleged liabilities for the accident and the damage resulting from it. Furthermore, according to the PRC Tort Law, when the driver of a rental car who is not the owner of the vehicle is held liable for a traffic accident, liability will first be covered by the insurance company providing the compulsory traffic accident insurance of the vehicle, and the driver shall be responsible for the portion not covered by the compulsory traffic accident insurance. See "Regulations—Tort law." However, since judicial or arbitral proceedings determining the cause of a motor vehicle accident can be lengthy and costly, and the results of such proceedings may be uncertain, we may not be successful in

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defending ourselves each time such an incident occurs. If a significant number of such claims cannot be resolved, our reputation could suffer.

We could be negatively impacted if losses for which we do not have insurance coverage increase or our insurance coverage prove to be limited or inadequate.

Our rental contracts typically provide that the customers are responsible for damage to or loss (including certain loss through theft) of our vehicles while they are renting them. We also require that our customers bear a portion of insurance premiums for accident damage that we have purchased from third-party insurance companies. We bear the risk of damage to or losses of our vehicles, including those caused by theft or flood. To mitigate such risk, we maintain motor vehicle damage insurance coverage of up to 100% of the actual value of each vehicle in respect of vehicle damage. Though we believe the amounts and nature of the coverage we obtain are adequate in light of the risks involved, this coverage may not be sufficient to cover all damage that our vehicles could potentially sustain. Further, if any customer damages or loses one of our vehicles, the customer may not be able to compensate us for all of our losses, or at all. Further, pursuing claims against our insurers or our customers may prove costly and time consuming and because we are responsible for damage to our vehicles, a deterioration in claims management could lead to delays in settling claims, thereby increasing claim costs. In addition, substantial uninsured claims filed against us or the inability of our insurance carriers to pay otherwise-insured claims would have an adverse effect on our financial condition.

The insurance premiums we have to pay may increase, which may adversely affect our business and results of operations.

We rely upon insurance coverage to protect against personal injuries and property damage caused by our vehicles and require our customers to bear a portion of the insurance premiums at the time of rental. We also maintain property insurance coverage in respect of vehicle damage and other losses. The insurance premiums amounted to RMB3.2 million, RMB20.3 million and RMB102.5 million (US$16.3 million) during 2009, 2010 and 2011, respectively, which accounted for 5.9%, 14.2% and 13.2% of our net revenues during the respective periods. We have purchased insurance from a limited number of insurance companies in China on favorable terms. Two PRC insurance companies provide substantially all of our insurance coverage. If the insurance premiums we pay for our coverage increase, regardless of whether it is because of an increase in claims on our part, a general industry-wide increase in pricing or our failure to maintain good relationships with our primary insurance providers, we may not be able to pass such premium increase to our customers, which could have an adverse effect upon our results of operations.

If we are unable to obtain and maintain adequate space at locations convenient to our customers at reasonable costs, or if our rights to lease certain properties are challenged, our growth opportunities may be adversely affected.

Our service hubs, all of which are on leased properties and operated by us, are physical storefronts with parking facilities. Our service hubs are located primarily in China's largest cities and we must compete for limited parking space in these cities. Further, the efficient operation of our business requires that our physical storefronts and the parking facilities are within close proximity of each other. Given the population density of the large cities in which we operate, identifying such locations can be difficult and renting them can be expensive. If we were to lose a lease or concession rights relating to our locations, finding suitable replacement

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locations at reasonable costs could prove difficult and we may not be able to find replacement locations at all.

Furthermore, as of December 31, 2011, the lessors of approximately 30% of our service hubs have not provided us with copies of title certificates, instruments or other evidence proving title to these properties, or documents evidencing the authorization or consent by the ultimate owners of such properties. In the event the lessors have no legal rights to lease the properties to us, a PRC court may declare the corresponding lease agreements invalid. We are in the process of collecting the outstanding title certificates or the owners' written consents from the lessors. In addition, as of December 31, 2011, lessors of 178 of our leased properties had not completed registration of our lease agreements as required by applicable PRC regulations although we have urged all of our lessors to make the requisite registrations of these lease agreements. We are not able to anticipate when each of the outstanding title certificates or the owners' written consents will be collected or when the registration of all of our lease agreements will be completed by our lessors. Under the PRC laws, failure to register a lease agreement with the local housing authority may subject the lessors and us to fines of up to RMB10,000 each. As of the date of this prospectus, we are not aware of any action, claim or investigation being conducted or threatened by the competent government authorities with respect to the defects in our leased properties. However, if we are fined or penalized by government authorities due to our lessors' failure to register our lease agreements, our business and financial condition may be negatively impacted.

Manufacturer safety recalls could create risks to our business.

Our vehicles may be subject to safety recalls by their manufacturers. During a recall period, we may attempt to retrieve recalled cars from customers and decline to rent these cars until we have taken all of the steps described in the recall. If a large number of cars is subject to simultaneous recalls, we may not be able to rent those vehicles to our customers for a significant period of time. These recalls, depending on their severity, could materially affect our revenues, damage our customer relations and brand, and reduce the residual value of the vehicles involved.

We face risks arising from our heavy reliance on information technology systems and any disruption to our information technology systems, such as computer virus attacks, could adversely impact our business.

We rely heavily upon our IT platform in all aspects of our operations, including transaction processing, fleet management and payment processing. Our IT platform connects one central data center with four kinds of service terminals, namely, our website at www.zuche.com, our mobile client applications available for iOS and Android operating systems, our 24/7 call centers and our service hubs. A major disruption of communications could cause a loss of reservations, interfere with our fleet management, slow down rental and sales processes and otherwise materially and adversely affect our ability to manage our business effectively.

The reliability of our network infrastructure is critical to our business. Any system interruption that results in the unavailability of our website or a disruption to our communications platform could damage our reputation and brand and cause our business and operating results to suffer. We may experience temporary system interruptions for various reasons, including network failures, power failures, cyber attacks, software errors or an overwhelming number of visitors trying to reach our website during periods of strong demand. As we are dependent in part on

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third parties for the implementation and maintenance of certain aspects of our systems and because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely or satisfactory manner, or at all.

Our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions and delays in our service and operations as well as loss, misuse or theft of data. Any successful attempts by hackers to disrupt our website service or our internal systems could harm our business, reputation or brand, and could be expensive to remedy. Efforts to prevent hackers from entering our computer systems are expensive to implement and may limit the functionality of our services. Any significant disruption to our website or internal computer systems could result in a loss of customers and adversely affect our business and results of operations.

If our IT platform that stores confidential information about our customers is breached or otherwise subjected to unauthorized access or fraudulent transactions, we may be exposed to liabilities and suffer a loss of customers and damage to our business reputation.

Our IT platform holds confidential information about our customers. We have implemented measures to protect our proprietary information database from Internet hacking and other unauthorized access to our customers' confidential information. However, we cannot guarantee that such anti-hacking technology will effectively protect against increasingly sophisticated counter-measures and it is possible that third parties, such as hackers or criminal organizations, may unlawfully gain access to information provided by our users to us. Confidential information of our customers may also be misappropriated or inadvertently disclosed through employee misconduct or mistakes. We may also in the future be required to disclose to government authorities certain confidential information concerning our customers.

Furthermore, many of our customers pay for our services through third-party online payment service providers. In such transactions, secure transmission of confidential information, such as customers' debit and credit card numbers and expiration dates, personal information and billing addresses, over public networks, including our website, is essential for maintaining consumer confidence. We have limited influence over the security measures of third-party online payment service providers. Any compromise of our security or third-party service providers' security would have a material adverse effect on our reputation, business prospects, financial condition and results of operations.

Any significant breach of security of our IT platform could significantly harm our business, reputation and results of operations and could expose us to lawsuits brought by our customers and sanctions by government authorities in the jurisdictions in which we operate. Additionally, if we are accused of failing to protect the confidential information of our customers, we may be forced to expend significant financial and managerial resources in defending against these accusations and we may face potential liability. Any negative publicity may adversely affect our public image and reputation, which in turn may reduce the number of our users and harm our business and results of operations.

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Our servers may also be vulnerable to computer viruses, break-ins and similar disruptions caused by any unauthorized tampering into our computer systems, which could lead to interruptions, delays, loss of critical data or the unauthorized disclosure of confidential information of our customers. We may not have sufficient protection or recovery plans in these circumstances and our business interruption insurance may not be sufficient to compensate us for losses that may occur. As we rely heavily on our servers, computer systems and the Internet service in performing our business, such disruptions could negatively impact our ability to effectively run our business, which could have an adverse affect on our operating results.

Failure to adequately protect our intellectual property rights may substantially harm our business and operating results.

Because our business depends substantially on our intellectual property, including our IT platform, the protection of our intellectual property rights is crucial to the success of our business. We rely on a combination of trademarks, trade secrets, copyright law and contractual restrictions to protect our intellectual property. These afford only limited protection. Despite our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy aspects of our website features, software and functionality or obtain and use information that we consider proprietary, such as the technology used to operate our website, our content and our trademarks. Moreover, policing our proprietary rights is difficult and may not always be effective.

As of December 31, 2011, we registered in China the trademark for our " GRAPHIC " brand and three other trademarks. We are in the process of registering the trademark for our " GRAPHIC " brand and four other trademarks in China. As of December 31, 2011, we also registered five domain names, including www.zuche.com. Competitors have adopted and in the future may adopt service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the term " GRAPHIC " or our other trademarks.

The protection of intellectual property rights and brands in China may not be as effective as those in the United States or other countries. The steps we have taken may be inadequate to prevent the misappropriation of our technology or unauthorized use of our brands. From time to time, we may have to enforce our intellectual property rights through litigation. Such litigation may result in substantial costs and diversion of resources and management attention.

Our business may be subject to seasonal effects, and a disruption in rental activities during our busy seasons could adversely affect our results of operations.

Our business generally experiences some effects of seasonal variations due to customer demand or increases in travel during certain time of the year such as Labor Day, National Day and Chinese Lunar New Year holidays. During these times, our rate of reservations and the revenues generated are generally higher than the rest of the year. However, our revenues also fluctuate due to other factors affecting our income such as changing weather conditions. The seasonality changes may cause fluctuations in our financial results and any occurrence that disrupts rental activity during our busy seasons could have a disproportionately material adverse effect on our liquidity and results of operations.

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Future strategic alliances or acquisitions may have a material and adverse effect on our business, reputation and results of operations.

Our success will depend, in part, on our ability to expand our markets and grow our business in response to changing customer needs and competitive pressures. We may seek to grow our business by entering into strategic alliances to obtain access to complementary businesses, solutions or technologies, or we may seek to obtain these benefits through acquisitions. The identification of suitable partners or acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully close desired agreements. The anticipated benefits of any alliance, acquisition, investment or business relationship may not be realized or we may be exposed to unknown liabilities. Further, if a business partner were to violate the agreement we have entered into with them, such actions may have an adverse effect on our business and our reputation. Also, we may not be able to successfully assimilate and integrate the business, technologies, solutions, personnel or operations of any company we partner with or acquire. Acquisitions may also involve the entry into geographic or business markets in which we have little or no prior experience. For one or more of those arrangements or transactions, we may:

provide proprietary information and the right to use of our intellectual property to our business partners;

issue additional equity securities that would dilute our shareholders;

use cash that we may need in the future to operate our business;

incur debt on terms unfavorable to us or that we are unable to repay;

incur large charges or expenses or assume substantial liabilities;

encounter difficulties retaining key employees of the acquired companies or integrating business cultures; and

become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.

Any of these actions involve risks that could harm our business and operating results.

If we fail to implement and maintain an effective system of internal controls or fail to remediate the material weakness and deficiencies in our internal control over financial reporting that has been identified, we may be unable to accurately report our results of operations or prevent fraud, and investor confidence and the market price of our ADSs may be materially and adversely affected.

Prior to this offering, we have been a private company and have had limited accounting personnel and other resources with which to address our internal control over financial reporting. We and our independent registered public accounting firm, in connection with the preparation and external audit of our consolidated financial statements as of and for the fiscal year ended December 31, 2011, identified a material weakness and other control deficiencies in our internal control over financial reporting as of December 31, 2011. A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

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The material weakness identified primarily related to our lack of U.S. GAAP resources, processes and documentation. Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control for purposes of identifying and reporting material weaknesses and other control deficiencies in our internal control over financial reporting as we and they will be required to do once we become a public company. In light of the material weakness and other control deficiencies that were identified as a result of the limited procedures performed, we believe it is possible that, had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional control deficiencies may have been identified.

We have taken measures and plan to continue to take measures to remedy the identified material weakness and control deficiencies. However, the implementation of these measures may not fully address this material weakness and other control deficiencies in our internal control over financial reporting, and we cannot assure you that any of those or other measures will be adequate to fully remedy the material weakness and control deficiencies. Our failure to address the material weakness and other control deficiencies or our failure to discover and address any other material weaknesses or control deficiencies may result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud.

Upon the completion of this offering, we will become a public company in the United States that will be subject to the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act. The SEC, as required under Section 404 of the Sarbanes-Oxley Act, or Section 404, has adopted rules requiring public companies to include a report of management on the effectiveness of these companies' internal control over financial reporting in their annual reports. In addition, an independent registered public accounting firm must report on the effectiveness of public companies' internal control over financial reporting. These requirements will first apply to us beginning with our annual report on Form 20-F for the fiscal year ending December 31, 2013. Our management may conclude that our internal control over financial reporting is not effective due to our failure to cure the identified material weakness and control deficiencies or otherwise. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may not reach the same conclusion or may issue a report that is qualified if it is not satisfied with our internal control over financial reporting or the level at which our controls are documented, designed, operated or reviewed. In addition, during the course of the evaluation, documentation and testing of our internal control over financial reporting, we may identify other material weaknesses and deficiencies that we may not be able to remediate in time to meet the deadline imposed by the SEC for compliance with the requirements of Section 404. If our management or our independent registered public accounting firm concludes that our internal control over financial reporting is not effective, the market price of our ADSs may be adversely affected due to a loss of investor confidence in the reliability of our reporting process. We will need to incur significant costs and use significant management and other resources to comply with Section 404 of the Sarbanes-Oxley Act.

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Our business is vulnerable to interruptions caused by health epidemics, earthquakes, fires, floods, other natural events.

Our business could be materially and adversely affected by the outbreak of health epidemics such as H1N1, or swine influenza, avian influenza, severe acute respiratory syndrome, or SARS. In 2009 and early 2010, there were outbreaks of swine influenza in certain regions of the world, including China. In 2006, 2007 and 2011, there were reports on the occurrences of avian influenza in various parts of China, including a few confirmed human cases and deaths. Any prolonged recurrence of swine influenza, avian influenza, SARS or other adverse public health developments in China could adversely affect economic activities in China, decrease business or leisure travel and require the temporary closure of our offices, which could severely disrupt our business operations and adversely affect our results of operations. Our systems and operations are also vulnerable to interruption or damage caused by earthquakes, fires, floods, power losses, telecommunications failures, acts of war, human errors, break-ins and similar events. Significant natural disasters such as earthquake, fire or flood, could have a material adverse impact on our business, operating results and financial condition.

We have limited insurance coverage, which may expose us to significant costs and business disruption.

Risks associated with our business and operations include, but are not limited to, damage to properties due to fire, explosions and other accidents, business interruption due to power shortages or network failure, losses of key personnel and risks posed by natural disasters including storms, floods and earthquakes, any of which may result in significant costs or business disruption. Insurance companies in China currently offer limited business-related insurance products. We do not maintain insurance coverage for our office equipment or premises, nor do we maintain business interruption insurance. In addition, consistent with customary practice in China, we do not maintain key employee insurance for our directors and executive officers. If we were to incur substantial liabilities that were not covered by our insurance, we could incur costs and losses that could materially and adversely affect our results of operations.

Risks related to doing business in the People's Republic of China

Adverse changes in economic and political policies of the PRC government could have a material and adverse effect on overall economic growth in China, which could materially and adversely affect our business.

We conduct substantially all of our business operations in China. Accordingly, our business, financial condition, results of operations and prospects depend to a significant degree on economic developments in China. China's economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement in the economy, the general level of economic development, growth rates and control of foreign exchange and the allocation of resources. While the PRC economy has experienced significant growth in the past 30 years, this growth has remained uneven across different periods, regions and among various economic sectors. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. The PRC government also exercises significant control over China's economic growth through strategically allocating resources, controlling the payment of foreign

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currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Since late 2003, the PRC government has implemented a number of measures, such as increasing the People's Bank of China's statutory deposit reserve ratio and imposing commercial bank lending guidelines, which had the effect of slowing the growth of credit availability. In 2008 and 2009, however, in response to the global financial crisis, the PRC government has loosened such requirements. Any future actions and policies adopted by the PRC government could materially affect the Chinese economy and slow the demand of vehicle usage in China, which could materially and adversely affect our business.

Uncertainties with respect to the PRC legal system could have a material and adverse effect on us.

We conduct our business primarily through our subsidiaries and branch companies in China. Our operations in China are governed by PRC laws and regulations. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value.

Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations continue to evolve and the limited number and non-binding nature of published decisions concerning them, their interpretation and enforcement involves uncertainties. In addition, the PRC legal system is based partly on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until some time after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

We principally rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us, or the tax implications of making payments to us, could have a material adverse effect on our ability to conduct our business or our financial condition.

We are a holding company, and we rely principally on dividends and other distributions on equity from our wholly owned subsidiaries in China for our cash requirements, including the funds necessary to service any debt we may incur. Current PRC regulations permit our subsidiaries in China to pay dividends to us only out of their respective accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our PRC subsidiaries is required to set aside at least 10% of its respective after tax profits each year, if any, to fund certain statutory reserve funds until the aggregate amount of such reserve funds reaches 50% of its registered capital. At its discretion, each of our PRC subsidiaries may allocate a discretionary portion of its respective after-tax profits to staff welfare and bonus funds. These reserves may not be distributable as cash dividends. Furthermore, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Most of our assets are held by, and substantially all of our earnings and cash

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flows are attributable to, our PRC subsidiaries. Our cash flows are principally derived from dividends paid to us by our PRC subsidiaries. As a result, our ability to distribute dividends largely depends on earnings from our PRC subsidiaries and their ability to pay dividends out of their earnings. If operating losses from our PRC subsidiaries were to continue to grow, our operating results and cash flows would be further materially and adversely affected. Our PRC subsidiaries so far have not paid us any dividends. We cannot assure you that our PRC subsidiaries will generate sufficient earnings and cash flows in the near future to pay dividends or otherwise distribute sufficient funds to enable us to meet our obligations, pay interest and expenses or declare dividends.

In addition, the PRC Enterprise Income Tax Law, or New EIT Law, and its implementation rules provide that a withholding tax rate of 10% will be applicable to dividends payable by foreign-invested enterprises in the PRC to their non-PRC resident enterprise shareholders unless otherwise exempted or reduced according to treaties or arrangements between the PRC government and governments of other countries or regions where the non-PRC resident enterprises are incorporated. While the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income, or the Double Tax Avoidance Arrangement, provides that dividends paid by a foreign-invested enterprise in the PRC to its direct holding company, which is considered a Hong Kong tax resident and is determined by competent PRC tax authority to have satisfied relevant requirements under the Double Tax Avoidance Arrangement between China and Hong Kong and other applicable PRC laws, will be subject to withholding tax at the rate of 5% of total dividends. Entitlement to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of other countries or regions is further subject to approval of the relevant tax authority.

Based on the Notice on Certain Issues with respect to the Enforcement of Dividend Provisions in Tax Treaties, or Circular 81, issued on February 20, 2009 by the State Administration of Taxation, or SAT, the relevant PRC tax authorities may deny such tax treaty benefits to "conduit companies" or shell companies without business substance. Furthermore, SAT promulgated the Circular on How to Interpret and Recognize the "Beneficial Owners" in Tax Treaties, or Circular 601, issued by SAT in October 2009 which provides guidance for determining whether a resident of a contracting state is the "beneficial owner" of an item of income under the PRC's tax treaties and tax arrangements. According to Circular 601, a beneficial owner generally must be engaged in substantive business activities. A "conduit company" will not be regarded as a beneficial owner and, therefore, will not qualify for treaty benefits. A "conduit company" normally refers to a company that is set up for the purpose of avoiding or reducing taxes or transferring or accumulating profits. It is unclear whether any dividends distributed by our PRC subsidiaries to us will be entitled to the benefits under the Double Tax Avoidance Arrangement and other applicable PRC laws. Accordingly, it is uncertain whether China Auto Rental (Hong Kong) Limited, or CAR Hong Kong, our wholly-owned subsidiary incorporated in Hong Kong will be entitled to the 5% reduced tax rate. If we were to pay dividends and dividends paid to CAR Hong Kong were subject to 10% tax rate instead of the 5% tax rate, our financial condition will be negatively affected.

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We may be classified as a "PRC resident enterprise" for PRC enterprise income tax purposes, which could result in our global income becoming subject to 25% PRC enterprise income tax.

The New EIT Law provides that an enterprise established outside China whose "de facto management body" is located in China is considered a "PRC resident enterprise" and will generally be subject to the uniform 25% enterprise income tax rate, or EIT rate, as to its global income. Under the implementation rules, "de facto management body" is defined as the organization body that effectively exercises management and control over such aspects as the production and business operations, personnel, accounting and properties of the enterprise.

On April 22, 2009, SAT released the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, that sets out the standards and procedures for determining whether the "de facto management body" of an enterprise registered outside of the PRC and controlled by PRC enterprises or PRC enterprise groups is located within the PRC. Under Circular 82, a foreign enterprise controlled by a PRC enterprise or PRC enterprise group is considered a PRC resident enterprise if all of the following apply: (i) the senior management and core management departments in charge of daily operations are located mainly within the PRC; (ii) financial and human resources decision are subject to determination or approval by persons or bodies in the PRC; (iii) major assets, accounting books, company seals and minutes and files of board and shareholders' meeting are located or kept within the PRC; and (iv) at least half of the enterprise's directors with voting rights or senior management reside within the PRC. Although Circular 82 explicitly provides that the above standards apply to enterprises which are registered outside the PRC and funded by PRC enterprises or PRC enterprise groups as controlling investors, Circular 82 may reflect SAT's criteria for determining the tax residence of foreign enterprises in general. Further, we currently do not believe that we are, or our Hong Kong subsidiary is, a PRC resident enterprise because we do not believe that we or our Hong Kong subsidiary meet all of the conditions above but there is no assurance in this regard. If the PRC tax authorities successfully challenge our position, we will be subject to PRC enterprise income tax reporting obligations and 25% PRC enterprise income tax on our global income. If we are treated as a PRC resident enterprise, it is not entirely clear whether dividends received from our PRC subsidiaries will be exempted from the income tax. If we are treated as a PRC resident enterprise and dividends received from our PRC subsidiaries are not exempt from the income tax, the 25% tax on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.

You may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of our ADSs or ordinary shares.

Under the New EIT Law and related implementation rules, subject to any applicable tax treaty or similar arrangement between the PRC and your jurisdiction of residence that provides for a different income tax arrangement, PRC withholding tax at the rate of 10% is normally applicable to dividends from PRC sources payable to investors that are non-PRC resident enterprises, which do not have an establishment or place of business in the PRC, or which have such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business. Any gain realized on the transfer of ADSs or shares by such investors is subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC unless a treaty or similar arrangement otherwise provides. Under the PRC Individual Income Tax Law and its implementation rules, dividends from sources within

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the PRC paid to foreign individual investors who are not PRC residents are generally subject to a PRC withholding tax at a rate of 20% and gains from PRC sources realized by such investors on the transfer of ADSs or shares would be subject to 20% PRC income tax, in each case, subject to any reduction or exemption set forth in applicable tax treaties and PRC laws. Although substantially all of our business operations are in China, it is unclear whether dividends we pay with respect to our ordinary shares or ADSs, or the gain realized from the transfer of our ordinary shares or ADSs, would be treated as income derived from sources within the PRC and as a result be subject to PRC income tax if we are considered a PRC resident enterprise. If PRC income tax is imposed on gains realized through the transfer of our ordinary shares or ADSs or on dividends payable to our non-resident investors, the value of your investment in our ordinary shares or ADSs may be materially and adversely affected. Furthermore, our ADS holders whose jurisdictions of residence have tax treaties or arrangements with China may not qualify for benefits under such tax treaties or arrangements.

The heightened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on our business operations, our acquisition or restructuring strategy or the value of your investment in us.

In connection with the New EIT Law, the Ministry of Finance and SAT jointly issued, on April 30, 2009, the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59. On December 10, 2009, SAT issued the Notice on Strengthening the Management on the Enterprise Income Tax for Non-resident Enterprises Equity Transfer, or Circular 698. Both Circular 59 and Circular 698 became effective retrospectively on January 1, 2008. By promulgating and implementing these circulars, the PRC tax authorities have strengthened their scrutiny over the direct or indirect transfer of equity interest in a PRC resident enterprise by a non-PRC resident enterprise. For example, Circular 698 specifies that the relevant PRC tax authority is entitled to redefine the nature of an equity transfer where offshore vehicles are interposed by abusing corporate structures for tax avoidance purposes and without reasonable commercial purpose. We have conducted and may conduct acquisitions involving corporate structures, and historically our shares were transferred by certain then shareholders to us. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to provide assistance for the investigation of PRC tax authorities with respect thereto. Any PRC tax imposed on transfer of our shares or any adjustment of such gains would cause us to incur additional costs.

PRC regulations of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

We may transfer funds to our PRC subsidiaries or finance our PRC subsidiaries by means of shareholder's loans or capital contributions upon completion of this offering. Any loans to our PRC subsidiaries, which are foreign-invested enterprises, or FIEs, cannot exceed statutory limits based on the difference between the registered capital and the investment amount of such subsidiaries, and shall be registered with the State Administration of Foreign Exchange, or SAFE, or its local counterparts. Furthermore, any capital contributions we make to our PRC subsidiaries shall be approved by the Ministry of Commerce, or MOFCOM, or its local counterparts. We may not be able to obtain these government registrations or approvals on a

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timely basis, if at all. If we fail to receive such registrations or approvals, our ability to provide loans or capital contributions to our PRC subsidiaries in a timely manner may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

In addition, SAFE promulgated the Circular on the Relevant Operating Issues concerning Administration Improvement of Payment and Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Circular 142, on August 29, 2008. Under Circular 142, registered capital of a foreign-invested company settled in RMB converted from foreign currencies may only be used within the business scope approved by the applicable governmental authority and may not be used for equity investments in the PRC. In addition, foreign-invested companies may not change how they use such capital without SAFE's approval, and may not in any case use such capital to repay RMB loans if proceeds of such loans have not been utilized. Violations of Circular 142 may result in severe penalties, including heavy fines as set forth in the "Regulations—Regulations on Foreign Exchange." As a result, Circular 142 may significantly limit our ability to transfer the net proceeds from our initial public offering and subsequent offerings or financings to our PRC subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.

Furthermore, SAFE promulgated Circular 59 on November 9, 2010, which requires the PRC government to closely examine the authenticity of settlement of net proceeds from offshore offerings and the net proceeds to be settled in the manner described in the offering documents. Circular 142 and Circular 59 may significantly limit our ability to transfer the net proceeds from this offering to our PRC subsidiaries and convert the net proceeds into RMB, which may materially and adversely affect our liquidity and our ability to fund and expand our business in the PRC.

Restrictions on the remittance of RMB into and out of the PRC and governmental control of currency conversion may limit our ability to pay dividends and other obligations, and affect the value of your investment.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and the remittance of currency out of China. We receive all of our revenues in RMB and all of our cash inflows and outflows are denominated in Renminbi. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC operating subsidiaries. We may convert a portion of our revenues into other currencies to meet our foreign currency obligations, such as payments of dividends declared in respect of our ordinary shares, if any. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy its foreign currency denominated obligations.

Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval by complying with certain procedural requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange

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control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs. Further, there is no assurance that new regulations will not be promulgated in the future that would have the effect of further restricting the remittance of RMB into or out of PRC.

We may be subject to penalties, including restriction on our ability to inject capital into our PRC subsidiaries and our PRC subsidiaries' ability to distribute profits to us, if our PRC resident shareholders or beneficial owners fail to comply with relevant PRC foreign exchange.

SAFE issued a public notice in October 2005, or Circular 75, requiring PRC residents to register with the local SAFE branch before establishing or controlling any company outside of China for the purpose of capital financing with assets or equities of PRC companies owned by such PRC residents, referred to in the notice as an "offshore special purpose vehicle." SAFE has further issued a series of implementation guidance, including the most recent Notice of SAFE on Printing and Distributing the Rules for the Implementation of the Operating Procedure of Foreign Exchange in Fund-Raising and Round-trip Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Circular 19, which has come into effect as of July 1, 2011. These regulations require PRC residents and PRC corporate entities to register with competent local branches of SAFE in connection with their direct or indirect offshore investment in offshore special purpose vehicles. These regulations may apply to our shareholders who are PRC residents or have PRC residents as their ultimate owners and may apply to any offshore acquisitions that we make in the future.

Under these foreign exchange regulations, PRC residents who make, or have previously made prior to October 2005, direct or indirect investments in offshore special purpose vehicles are required to register those investments. In addition, any PRC resident that is a shareholder of an offshore special purpose vehicle is required to amend its SAFE registration with respect to that offshore special purpose company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China or other material changes in share capital. Moreover, any subsidiary of such offshore special purpose company in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE. If any shareholder who is considered as a PRC resident by SAFE fails to make the required registration or to update the previously filed registration, the subsidiary of such offshore special purpose company in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the offshore special purpose company, and the offshore special purpose company may also be prohibited from making additional capital contribution into its subsidiary in China.

We have requested all of our current shareholders and/or beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the ambit of the SAFE notice and its guidance and will urge relevant shareholders, upon learning they are PRC residents, to register with the local SAFE branch as required under the SAFE notice and its guidance. However, we may not be fully informed of the identities of all our shareholders or beneficial owners who are PRC residents, and we cannot provide any assurance that all of our shareholders and beneficial owners who are PRC residents will comply with our request to make, obtain or update any applicable registrations or comply with other requirements required by the SAFE notice or other related rules in a timely manner. In case of any non compliance on any of our shareholders or beneficial owners who are PRC residents, our PRC subsidiaries and such shareholders and beneficial owners may be subject to fines and other legal sanctions, including restriction on our ability to contribute additional capital into our PRC subsidiaries and our PRC subsidiaries' ability to distribute dividends to our offshore holding companies, which will adversely affect our business.

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Failure to comply with PRC regulations regarding the registration requirements for stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

Under the SAFE regulations, PRC residents who participate in an employee stock ownership plan or stock option plan in an overseas publicly-listed company are required to register with SAFE or its local branch and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly-listed company, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of these participants. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise or sale of stock options. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes.

We and our PRC resident employees who participate in our share incentive plan, which we adopted in February 2012, will be subject to these regulations when our company becomes publicly listed in the United States. If we or our PRC resident option grantees fail to comply with these regulations, we or our PRC resident option grantees may be subject to fines and other legal or administrative sanctions. See "Regulation—Regulations on employee stock options plans."

Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy resulted in an over 20% appreciation of the RMB against the U.S. dollar over the following three years. For almost two years after reaching a high against the U.S. dollar in July 2008, however, the Renminbi traded within a narrow band against the U.S. dollar, remaining within 1% of its July 2008 high. As a consequence, the Renminbi fluctuated sharply since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. In June 2010, the PRC government announced that it would allow more RMB exchange rate fluctuation. However, it remains unclear how this announcement might be implemented. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuation of the RMB against the U.S. dollar. Substantially all of our revenues and costs are denominated in RMB, and a significant portion of our financial assets are also denominated in RMB. We are a holding company and we rely on dividends paid by our operating subsidiaries in China for our cash needs. Any significant revaluation of the RMB may materially and adversely affect any dividends payable on, our ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars we received from this offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.

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The approval of the China Securities Regulatory Commission, may be required in connection with this offering under PRC law, and if required, we cannot assure you that we will be able to obtain such approval.

On August 8, 2006, six PRC regulatory agencies, including MOFCOM, the State Assets Supervision and Administration Commission, or SASAC, SAT, SAIC, the China Securities Regulatory Commission, or CSRC, and SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rules, which became effective on September 8, 2006, and were amended on June 22, 2009 by MOFCOM. These regulations, among other things, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and this offering may ultimately require approval from CSRC, and if it does, it is uncertain how long it will take us to obtain the approval. If CSRC approval is required for this offering, our failure to obtain or delay in obtaining CSRC approval for this offering would subject us to sanctions imposed by CSRC and other PRC regulatory agencies, which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect our business, results of operations and financial condition.

Our PRC counsel, Han Kun Law Offices, has advised us that, based on its understanding of the current PRC laws and regulations, we will not be required to submit an application to CSRC for the approval of the listing and trading of our ADSs on the New York Stock Exchange, or the NYSE because (i) CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to this regulation, and (ii) our wholly-owned PRC subsidiary was established by foreign direct investment, rather than through a merger or acquisition of a domestic company as defined under the New M&A Rules, and it is not aware of any public record indicating that any of the issuers having similar offshore and onshore corporate structures and already listed on an offshore stock exchange has been required by CSRC to procure the approval of CSRC prior to its listing. However, the relevant PRC government agencies, including CSRC, may not reach the same conclusion as that of our PRC counsel.

PRC laws and regulations establish more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

PRC laws and regulations, such as the New M&A Rules, Anti-monopoly Law of the PRC and the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by the MOFCOM in August 2011, or the MOFCOM Security Review Rules, established additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time consuming and complex, including requirements in some instances that MOFCOM be notified in advance of any change of control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. PRC laws and regulations also

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require certain merger and acquisition transactions to be subject to merger control review or security review. The MOFCOM Security Review Rules, effective from September 1, 2011, which implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, further provide that, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review by MOFCOM, the principle of substance over form should be applied and foreign investors are prohibited from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that our car rental business or other business of our PRC subsidiaries fall into the scope subject to the security review. As these circulars and rules are relatively new and there is a lack of clear statutory interpretation on the implementation of the same, there is no assurance that the MOFCOM will apply these national security review-related circulars and rules to the acquisition of equity interest in our PRC subsidiaries. If we are found to be in violation of the MOFCOM Security Review Rules and other PRC laws and regulations with respect to the merger and acquisition activities in China, or fail to obtain any of the required approvals, the relevant regulatory authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income, revoking our PRC subsidiaries' business or operating licenses, requiring us to restructure or unwind the relevant ownership structure or operations. Any of these actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial condition and results of operations. Further, if the business of any target company that we plan to acquire falls into the ambit of security review, we may not be able to successfully acquire such company either by equity or asset acquisition, capital contribution or through any contractual arrangement. We may grow our business in part by acquiring other companies operating in our industry. Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and any required approval processes, including approval from MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may adversely affect our business and our results of operations.

On June 29, 2007, the Standing Committee of the National People's Congress of China enacted the Labor Contract Law, which became effective on January 1, 2008. The PRC Labor Contract Law introduces specific provisions related to fixed-term employment contracts, part-time employment, probation, consultation with labor union and employee assemblies, employment without a written contract, dismissal of employees, severance, and collective bargaining, which together represent enhanced enforcement of labor laws and regulations. According to the PRC Labor Contract Law, an employer is obliged to sign an unlimited-term labor contract with any employee who has worked for the employer for ten consecutive years. Further, if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract must have an unlimited term, with certain exceptions. The employer must pay severance to an employee where a labor contract is terminated or expires, with certain exceptions. In addition, the government has continued to introduce various new labor-related regulations after the effectiveness of the PRC Labor Contract Law. Among other things, it is required that that annual leave ranging from five to

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15 days be made available to employees and that employees be compensated for any untaken annual leave days in the amount of three times of their daily salary, subject to certain exceptions. As a result of these new regulations designed to enhance labor protection, we expect our labor costs to increase. In addition, as the interpretation and implementation of these new regulations are still evolving, our employment practice may not be at all times be deemed in compliance with the new regulations. If we are subject to severe penalties or incur significant liabilities in connection with labor disputes or investigations, our business and results of operations may be adversely affected.

Risks related to the ADSs and this offering

There has been no public market for our ordinary shares or ADSs prior to this offering, and an active trading for our ADSs may not develop after this offering so you may not be able to resell your ADSs at or above the price you paid, or at all.

Prior to this offering, there has been no public market for our ordinary shares or ADSs. We have applied to have the ADSs listed on the NYSE. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. If an active trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs would be materially and adversely affected.

The initial public offering price for our ADSs will be determined by negotiations between us and the underwriter and may bear no relationship to the market price for our ADSs after the offering. An active trading market for our ADSs may not develop and the market price of our ADSs may decline below the initial public offering price. You may lose parts or all of your investment in our ADSs.

The market price for our ADSs may be volatile, which could result in substantial losses to you.

The market price for our ADSs may be volatile and subject to wide fluctuations in response to factors such as actual or anticipated fluctuations in our quarterly results of operations, changes in financial estimates by securities research analysts, negative publicity, studies or reports, changes in the economic performance or market valuations of other companies operate in our industry, announcements by us or our competitors of material acquisitions, strategic partnerships, joint ventures or capital commitments, fluctuations of exchange rates between RMB and the U.S. dollar, intellectual property litigation, release of lock-up or other transfer restrictions on our outstanding shares or ADSs, and economic or political conditions in China. In addition, the performance, and fluctuation in market prices, of other companies with business operations located mainly in China that have listed their securities in the United States may affect the volatility in the price of and trading volumes of our ADSs. Volatility in global capital markets, as was experienced during the global financial crisis and during the ongoing European debt crisis, could also have an adverse effect on the market price of our ADSs. Furthermore, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our ADSs.

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Our quarterly results may fluctuate due to a number of factors and, as a result, could fall below investor expectations or estimates by securities research analysts, which may cause the trading price of our ADSs to decline.

Our revenues and operating results are difficult to predict, and have in the past varied and are likely in the future to vary significantly from period to period. As a result of a number of factors, many of which are beyond our control, it is possible that results of operations for future periods may be below the expectations of public market analysts and investors, causing the market price of our securities to decline. Factors that may affect our quarterly results include, but are not limited to:

seasonal variations in operating results;

the discretionary nature of our users' demands and spending patterns;

competition from our competitors;

vulnerability of our business to a general economic downturn in the global economy; and

changes in the laws that affect our operations.

As a result, investors should not rely on quarter-to-quarter comparisons of results of operations as an indication of future performance.

Substantial future sales or the perception of sales of our ADSs or ordinary shares in the public market could cause the price of our ADSs to decline.

Sales of our ADSs or ordinary shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. The remaining ordinary shares outstanding after this offering will be available for sale, upon the expiration of the applicable lock-up period beginning from the date of this prospectus, subject to volume and other restrictions as applicable under Rule 144 and Rule 701 under the Securities Act. See "Shares eligible for future sale" and "Underwriting" for a detailed description of the lock-up restrictions. Any or all of these shares may be released prior to expiration of the lock-up period at the discretion of the underwriter for this offering. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of our ADSs could decline.

Since the initial public offering price is substantially higher than our net tangible book value per share, you will incur immediate and substantial dilution.

If you purchase our ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of approximately RMB                           (US$             ) per ADS (assuming no exercise by the underwriters of their option to purchase additional ADSs), representing the difference between our net tangible book value per ADS as of             , after giving effect to this offering at an assumed initial public offering price of US$             per ADS, the midpoint of the estimated initial public offering price range set forth on the cover of this prospectus. In addition, you may experience further dilution to the extent

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that our ordinary shares are issued upon exercise of share options under our Share Incentive Plan. See "Dilution" for a more complete description of how the value of your investment in our ADSs will be diluted upon completion of this offering.

Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of our ADSs for return on your investment.

We intend to retain most, if not all, of our available funds and earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income.

Our board of directors has significant discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value after this offering or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are organized under Cayman Islands law, conduct substantially all of our operations in China and all of our directors and officers reside outside the United States.

We are incorporated in the Cayman Islands and all of our assets are located outside of the United States. We conduct substantially all of our current operations in China through our subsidiaries in China. All of our officers and directors reside outside the United States and a substantial portion of the assets of those persons are located outside of the United States. It may be difficult for you to effect service of process within the United States upon these persons. As a result, it may be difficult for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the United States securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will generally recognize and enforce a non penal judgment of a foreign court of competent jurisdiction without retrial of the merits. For more information regarding the relevant laws of the Cayman Islands and China, see "Enforceability of civil liabilities."

Our corporate affairs are governed by our memorandum and articles of association, as amended from time to time, and by the Companies Law (as amended) and the common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands.

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The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the Untied States, and provides significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States.

The corporate affairs of our PRC subsidiaries are governed by the PRC Company Law. Under Articles 148, 149 and 150 of the PRC Company Law, the directors and management of our PRC subsidiaries owe fiduciary duties and duties of diligence to our PRC subsidiaries. However, these duties are not clearly established and there are limited precedents of actual enforcement under these provisions. Additionally, Han Kun Law Offices, our PRC counsel, is not aware of any specific and clear guidance under PRC law that addresses the resolution of any conflict between PRC laws and Cayman Islands laws in respect of corporate governance regime.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation organized in a jurisdiction in the United States.

Our memorandum and articles of association will contain anti-takeover provisions that could adversely affect the rights of holders of our ordinary shares and ADSs.

Our amended and restated memorandum and articles of association are expected to become effective immediately upon the closing of this offering. Our amended and restated memorandum and articles of association will contain certain provisions that could limit the ability of third parties to acquire control of our company, including a provision that grants authority to our board of directors to establish from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series. The provisions could have the effect of depriving our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transactions.

You may not have the same voting rights as the holders of our ordinary shares and must act through the depositary to exercise your rights.

As an ADS holder, you may only exercise voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon timely receipt of your voting instructions, the depositary will vote the underlying ordinary shares in accordance with these instructions if voting is by poll. Furthermore, if the vote is by show of hands, the depositary will vote all the deposited securities in accordance with the voting instructions received from the majority of the holders of ADSs who provided voting instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the ordinary shares underlying your ADSs. In the event of poll voting, holders of ADSs representing deposited securities for which no instructions are received will be deemed to have

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instructed the depositary to give a discretionary proxy to vote such deposited securities to a person designated by the Company.

Pursuant to our amended and restated memorandum and articles of association, we may convene a shareholders' meeting upon 10 days' notice. When a shareholder's meeting is convened, you may not receive sufficient advance notice to withdraw the ordinary shares underlying your ADSs to allow you to vote with respect to any specific matter. If we give timely notice, the depositary will notify you of the upcoming vote and arrange to deliver our voting materials to you. You may not receive the voting materials in time to instruct the depositary to vote the ordinary shares underlying your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if the ordinary shares underlying your ADSs are not voted as you requested.

The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders' meetings, except in limited circumstances, which could adversely affect your interests.

Under the deposit agreement for the ADSs, if you do not vote and the vote is taken by poll, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders' meetings unless:

we have failed to timely provide the depositary with notice of meeting and related voting materials;

we have instructed the depositary that we do not wish a discretionary proxy to be given;

we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or

a matter to be voted on at the meeting would have a material adverse impact on shareholders.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems doing so expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs when our books or the books of the depositary are closed, when we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, under any provision of the deposit agreement or for any other reason.

You may not be able to participate in rights offerings and may experience dilution of your holdings as a result.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement for the ADSs, the depositary will not offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are registered under the Securities Act, or the distribution of them to ADS holders is

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exempted from registration under the Securities Act with respect to all holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. In addition, we may not be able to rely on an exemption from registration under the Securities Act to distribute such rights and securities. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings as a result.

You may not receive distributions on our ordinary shares or any value for them if such distribution is illegal or impractical or if any required government approval cannot be obtained in order to make such distribution available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under relevant securities laws but that are not properly registered or distributed under an applicable exemption from registration. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions.

We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

Our management will have considerable discretion as to the use of the net proceeds to be received by us from this offering and you may not agree with our management on these uses.

Our management will have considerable discretion in the application of the net proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for general corporate purposes that do not improve our efforts to achieve and maintain profitability or increase our share price. The net proceeds from this offering may be placed in investments that do not produce income or lose value.

Our corporate actions are substantially controlled by our directors, executive officers and principal shareholders, who can exert significant influence over important corporate matters, which may reduce the price of our ADSs and deprive you of an opportunity to receive a premium for your ADSs.

After this offering, our directors, executive officers and principal shareholders will beneficially own approximately             % of our outstanding ordinary shares. In particular, our principal shareholder Grand Union will beneficially own a             % controlling interest in our outstanding ordinary shares after this offering. Grand Union or these shareholders acting together could exert substantial influence over matters such as electing directors and approving

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material mergers, acquisitions or other business combination transactions. This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could have the dual effect of depriving our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and reducing the price of our ADSs. These actions may be taken even if they are opposed by our other shareholders, including those who purchase ADSs in this offering. In addition, these persons could divert business opportunities away from us to themselves or others. This significant concentration of share ownership may adversely affect the trading price of our ADSs due to investors' perception that conflicts of interest may exist or arise.

We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to United States Holders of our ADSs or ordinary shares.

We do not expect to be a passive foreign investment company, or PFIC, for United States federal income tax purposes for our current taxable year or in the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you the United States Internal Revenue Service will not take a contrary position. A non-United States corporation will be a PFIC for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. A separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year. In addition, the determination of whether we are a PFIC is based on the interpretation of certain United States Treasury regulations relating to rental income and the application of those rules to our subsidiaries, which regulations are potentially subject to different interpretations. If we are a PFIC for any taxable year during which a United States Holder (as defined in "Taxation—United States federal income taxation") holds an ADS or ordinary share, certain adverse U.S. federal income tax consequences could apply to such United States Holder. See "Taxation—United States federal income taxation—Passive foreign investment company."

We will incur increased costs as a public company.

As a public company, we will incur a significantly higher level of legal, accounting and other expenses than we do as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the NYSE, has required changes in the corporate governance practices of public companies.

When we become a public company, we will establish additional board committees and will adopt and implement additional policies regarding internal controls over financial reporting and disclosure controls and procedures. In particular, compliance with Section 404 of the Sarbanes-Oxley Act, which requires public companies to include a report of management on the effectiveness of their internal control over financial reporting, will increase our costs. In addition, we will incur costs associated with public company reporting requirements, such as the requirements to file an annual report and other reports with the SEC.

We are currently evaluating and monitoring developments with respect to these rules. We expect these rules and regulations will increase our legal and financial compliance costs, but

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we cannot predict or estimate the additional costs or the timing of initially additional costs we may incur.

As a foreign private issuer, we are permitted to follow certain home country corporate governance practices in lieu of certain NYSE requirements. This may afford less protection to holders of our ordinary shares.

As a foreign private issuer whose ordinary shares are listed on the NYSE, we are permitted to follow certain home country corporate governance practices in lieu of certain NYSE requirements. A foreign private issuer must disclose in its annual reports filed with the SEC each NYSE requirement with which it does not comply, followed by a description of its applicable home country practice. Our Cayman Islands home country practices may afford less protection to holders of our ADSs. Although we currently do not intend to rely on any exemptions provided by the NYSE to a foreign private issuer, we may follow our home country practices in the future, and as a result, you may not be provided with the benefits of certain corporate governance requirements of the NYSE.

We will be a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. issuer.

Upon consummation of this offering, we will report under the Securities Exchange Act of 1934, as a foreign private issuer. Because we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time, and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events.

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Special note regarding forward-looking statements

This prospectus contains forward-looking statements that are based on our management's beliefs and assumptions and on information currently available to us. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify these forward-looking statements by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, among other things, statements relating to:

our business strategies and initiatives as well as our business plans;

our future business development, results of operations and financial condition;

expected changes in our revenues and certain cost or expense items;

our expectation regarding the use of proceeds from this offering;

trends and competition in the car rental market and industry in China; and

general economic and business conditions in China.

You should thoroughly read this prospectus and the documents that we have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual results in the future may be materially different from or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this prospectus include additional factors which could adversely affect our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Important risks and factors that could cause our actual results to be materially different from our expectations are set forth in the "Prospectus summary," "Risk factors," "Use of proceeds," "Management's discussion and analysis of financial condition and results of operations," "Industry," "Business" and elsewhere in this prospectus.

This prospectus also contains third-party data related to macroeconomic data, the car rental market and the used car market as well as related projections and analyses based on a number of assumptions. These market data, including statistical data extracted from a report commissioned by us and issued by Roland Berger in February 2012, include projections that are based on a number of assumptions. The projected growth of China's car rental industry may not materialize at the rates suggested by the market data, or at all. The failure of these markets to grow at the projected rates may have a material adverse effect on our business and

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the market price of our ADSs. In addition, the changing nature of the car rental industry subjects any projections or estimates relating to the growth prospects or future condition of our market to significant uncertainties. If any one or more of the assumptions underlying the market data turns out to be incorrect, our actual results may differ from the projections based on these assumptions. Although we believe, and have acted as if, the publications, reports and surveys are reliable, we have not independently verified the data.

The forward-looking statements made in this prospectus relate only to events or information as of the date on which these statements are made in this prospectus. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.

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Use of proceeds

We estimate that we will receive net proceeds from this offering of approximately US$              million, or approximately US$              million if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and the estimated offering expenses payable by us. These estimates are based upon an initial offering price of US$             per ADS, the midpoint of the estimated range of the initial public offering price shown on the cover page of this prospectus. Assuming the number of ADSs offered by us as set forth on the cover page of this prospectus remains the same, and after deduction of underwriting discounts and estimated offering expenses payable by us, a US$1.00 increase (decrease) in the assumed initial public offering price of US$             per ADS would increase (decrease) the net proceeds of this offering by approximately US$              million.

We plan to use the net proceeds of this offering as follows:

US$              million for vehicle acquisition to further expand our rental fleet;

US$              million for repayment of certain borrowings; and

US$              million for working capital and other general corporate purposes.

The borrowings that we plan to repay with the proceeds of this offering have maturity dates in 2012 and interest rates ranging from 6.65% to 12.8%. These borrowings were used to fund our vehicle acquisition and business expansion.

The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. See "Risk factors—Risks related to the ADSs and this offering—Our management will have considerable discretion as to the use of the net proceeds to be received by us from this offering and you may not agree with our management on these uses." We have not identified any alternative use of proceeds other than those set forth above.

In using the proceeds of this offering, as an offshore holding company, we are permitted, under PRC laws and regulations, to provide funding to our PRC subsidiaries only through loans or capital contributions and to other entities only through loans. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our PRC subsidiaries or make additional capital contributions to our PRC subsidiaries to fund their capital expenditures or working capital. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See "Risk factors—Risks related to doing business in the People's Republic of China—PRC regulations of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business."

To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, we intend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.

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Dividend policy

We have not paid any dividends in the past and do not anticipate paying dividends on our ordinary shares in the foreseeable future. We currently intend to retain future earnings, if any, to operate our business and finance future growth strategies. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

Our board of directors has complete discretion on whether to pay dividends, subject to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American depositary shares." Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

We are a holding company, and we rely on dividends paid by our operating subsidiaries in China for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay our expenses. The payment of dividends in China is subject to limitations. Regulations in China currently permit payment of dividends by our PRC subsidiaries only out of accumulated profits as determined in accordance with accounting standards and regulations in China. In addition, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year to contribute to its reserve fund until the accumulated balance of the reserve funds reach 50% of its registered capital. Our PRC subsidiary, Lianhui Auto (Langfang) Co., Ltd., or Lianhui Langfang, is also required to reserve a portion of its after-tax profits to its employee welfare and bonus fund, the amount of which is determined by its board of directors in accordance with its articles of association. These funds are not distributable in cash dividends. Our PRC subsidiaries did not distribute any dividends from their undistributed earnings for the years or periods prior to December 31, 2011. We have determined that it is probable that dividends will not be distributed in the foreseeable future from the undistributed profits of our PRC subsidiaries accumulated up to December 31, 2011.

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Capitalization

The following table sets forth our capitalization as of December 31, 2011:

on an actual basis;

on a pro forma basis to reflect the issuance and sale of the                                        ordinary shares in the form of ADSs by us in this offering, assuming an initial public offering price of US$             per ADS, the midpoint of the estimated range of the initial public offering price, after deducting underwriting discounts, commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters' option to purchase additional ADSs.

The pro forma adjustments reflected below are subject to change and are based upon available information and certain assumptions that we believe are reasonable. You should read this capitalization table together with "Use of proceeds," "Selected consolidated financial and operating data," "Management's discussion and analysis of financial condition and results of operations" and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.

   
December 31, 2011
(in thousands, except share and per share data)

  Actual
  Pro forma
 
 
  (RMB)
  (US$)
  (RMB)
  (US$)
 
   

Long-term borrowings

    1,285,180     204,195              

Long-term borrowings due within one year

    825,497     131,158              

Equity

                         

Ordinary shares (US$0.00005 par value, 1,000,000,000 shares authorized, 250,760,000 shares issued and outstanding on an actual basis and ordinary shares issued and outstanding on a pro forma basis)

    80     13              

Additional paid-in capital

    386,384     61,391              

Accumulated deficit

    (238,221 )   (37,850 )            

Accumulated other comprehensive loss

                     
                       

Total shareholder's equity

    148,243     23,554              
                   

Total capitalization

    2,258,920     358,907              
   

A US$1.00 increase (decrease) in the assumed initial public offering price of US$             per ADS would increase (decrease) each of additional paid-in capital, total shareholders' equity and total capitalization by US$              million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

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Dilution

If you invest in our ADSs, your interest will be diluted for each ADS you purchase to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

Our net tangible book value as of December 31, 2011 was RMB120.8 million (US$19.2 million), or RMB0.5 (US$0.1) per ordinary share (adjusted to reflect the share split on a 1-to-20,000 basis effected in February 2012 as if the share split had occurred as of December 31, 2011) and RMB                             (US$             ) per ADS. Net tangible book value represents the amount of our total consolidated assets, less the amount of our total consolidated liabilities and intangible assets. Dilution is determined by subtracting pro forma net tangible book value per ordinary share from the assumed initial public offering price per ordinary share, which is based on the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Without taking into account any other changes in net tangible book value after December 31, 2011, other than to give effect to our sale of ADSs offered in this offering based on the assumed initial public offering price of US$             per ADS after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of                           would have been US$              million, or US$             per outstanding ordinary share and US$             per ADS. This represents an immediate increase in net tangible book value of US$             per ordinary share and US$             per ADS to the existing shareholders, and an immediate dilution in net tangible book value of US$             per ordinary share and US$             per ADS to investors purchasing ADSs in this offering. The following table illustrates such dilution:

   

Assumed initial public offering price per ADS

  US$    

Net tangible book value per ordinary share as of December 31, 2011

  $    

Pro forma net tangible book value per ordinary share after giving effect to this offering

  $    

Pro forma net tangible book value per ADS after giving effect to this offering

  $    

Amount of dilution in net tangible book value per ordinary share to new investors in the offering

  $    

Amount of dilution in net tangible book value per ADS to new investors in the offering

  $    
   

The following table summarizes, on a pro forma basis as of December 31, 2011, the differences between existing shareholders and the new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per ordinary share and ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses. The total number of ordinary shares does

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not include ordinary shares underlying the ADSs issuable upon the exercise of the underwriters' option to purchase additional ADSs.

   
 
  Ordinary shares purchased    
   
   
   
 
 
  Total consideration   Average
price per
ordinary
share

  Average
price per
ADS

 
 
  Number
  Percent
  Amount
  Percent
 
   

Existing shareholders

          %   US$       %   US$     US$    

New investors

                                     
       

Total

          100.0%   US$       100.0%   US$     US$    
   

A US$1.00 increase (decrease) in the assumed initial public offering price per ADS would increase (decrease) our pro forma net tangible book value after giving effect to the offering by US$              million, the pro forma net tangible book value per ordinary share and per ADS after giving effect to this offering by US$             per ordinary share and US$             per ADS and the dilution in pro forma net tangible book value per ordinary share and per ADS to new investors in this offering by US$             per ordinary share and US$             per ADS, assuming no exercise of the underwriters' option to purchase additional ADSs and no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. The pro forma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.

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Exchange rate information

We conduct substantially all of our operations in China. All of our revenues, costs and expenses are denominated in RMB. This prospectus contains translations of certain RMB amounts into U.S. dollars at specified rates. Unless otherwise stated, the translation of RMB into U.S. dollars has been made at the noon buying rate in effect on December 30, 2011, which was RMB6.2939 to US$1.00. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On March 9, 2012, the noon buying rate was RMB6.3109 to US$1.00.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you.

   
 
  Noon buying rate(1)  
(RMB per US$1.00)
  Period end
  Average(2)
  Low
  High
 
   

2006

    7.8041     7.9579     8.0702     7.8041  

2007

    7.2946     7.5806     7.8127     7.2946  

2008

    6.8225     6.9193     7.2946     6.7800  

2009

    6.8259     6.8295     6.8470     6.8176  

2010

    6.6000     6.7603     6.8330     6.6000  

2011

                         

August

    6.3778     6.4036     6.4401     6.3778  

September

    6.3780     6.3885     6.3975     6.3780  

October

    6.3547     6.3710     6.3825     6.3534  

November

    6.3765     6.3564     6.3839     6.3400  

December

    6.2939     6.3482     6.3733     6.2939  

2012

                         

January

    6.3080     6.3119     6.3330     6.2940  

February

    6.2935     6.2997     6.3120     6.2935  

March (through March 9)

    6.3109     6.3071     6.3159     6.2982  
   

Source: Federal Reserve Bank of New York and Federal Reserve Statistical Release

(1)   For all dates through December 31, 2008, exchange rates between RMB and U.S. dollars are presented at the noon buying rate in the City of New York for cable transfers in RMB per U.S. dollars as certified for customs purposes by the Federal Reserve Bank of New York. For January 1, 2009 and all later dates and periods, the exchange rate refers to the noon buying rate as set forth in the weekly H.10 statistical release of the U.S. Federal Reserve Board.

(2)   Annual averages were calculated by using the average of the exchange rates on the last day of each month during the relevant year. Monthly averages are calculated by using the average of the daily rates during the relevant month.

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Enforceability of civil liabilities

We are incorporated in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as:

political and economic stability;

an effective judicial system;

a favorable tax system;

the absence of exchange control or currency restrictions; and

the availability of professional and support services.

However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include:

the Cayman Islands has a less developed body of securities laws as compared to that of the United States and these securities provide significantly less protection to investors; and

the potential lack of standing by Cayman Islands companies to sue before the federal courts of the United States.

Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be subject to arbitration.

Almost all of our assets are located in China. All of our directors and officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state of the United States.

We have appointed Corporation Service Company, located at 1180 Avenue of the Americas, Suite 210, New York, New York 10036-8401, as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

Conyers Dill & Pearman, our counsel as to Cayman Islands law, has advised us that there is uncertainty as to whether the courts of the Cayman Islands would:

recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

entertain original actions brought in the Cayman Islands against us or our directors or officers predicated upon the civil liability provision of the securities laws of the United States or any state in the United States.

Conyers Dill & Pearman has further advised us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States

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(and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), a judgment obtained in such jurisdiction will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided that (a) such courts had proper jurisdiction over the parties subject to such judgment, (b) such courts did not contravene the rules of natural justice of the Cayman Islands, (c) such judgment was not obtained by fraud, (d) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands, (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands and (f) there is due compliance with the correct procedures under the laws of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a punitive judgment of a United States court predicated upon the liabilities provision of the federal securities laws in the United States without retrial on the merits if such judgment gives rise to obligations to make payments that may be regarded as fines, penalties or similar charges. Our shareholders can, under certain circumstances, originate actions against us. See "Description of share capital—Differences in corporate law—Shareholders' suits."

We have been advised by Han Kun Law Offices, our PRC counsel, that there is uncertainty as to whether the courts of the PRC would enforce judgments of United States courts or Cayman courts obtained against us or these persons predicated upon the civil liability provisions of the United States federal and state securities laws. Han Kun Law Offices has further advised us that PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between the PRC and the jurisdiction where the judgment is made or on reciprocity arrangements between jurisdictions. If there are no treaties or reciprocity arrangements between the PRC and a foreign jurisdiction where a judgment is rendered, according to the PRC Civil Procedures Law, matters relating to the recognition and enforcement of the foreign judgment in the PRC may be resolved through diplomatic channels. The PRC does not have any treaties or other arrangements with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is generally difficult to enforce in the PRC a judgment rendered by a U.S. or Cayman Islands court.

As Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States, there is doubt as to the enforceability in Hong Kong, in original actions or in actions for the enforcement of judgments of United States courts, of civil liabilities predicated solely upon the laws of the United States (including its federal securities laws or the securities laws of any state or territory within the United States).

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Corporate structure and history

Corporate structure

The following diagram illustrates our corporate structure as of the date of this prospectus:

GRAPHIC

Corporate history and reorganization

In September 2007, Mr. Charles Zhengyao Lu, our chairman and chief executive officer, founded CAR Beijing, through which we commenced our car rental business operations. In August 2010, LC Fund III, L.P., through its indirect subsidiary Lianhui Langfang, invested approximately RMB14.5 million (US$2.3 million) in CAR Beijing. In November 2010, Legend Holdings acquired 100% of the equity interests in Beijing Huaxia United Auto Network Technology Co., Ltd., or Huaxia Auto Network, a shareholder of CAR Beijing, and invested approximately RMB207.8 million (US$33.0 million) in CAR Beijing through Huaxia Auto Network in January and June 2011.

Since August 2010, we have acquired a number of businesses in China from independent third parties through CAR Beijing:

in September 2010, we acquired 100% of the equity interests in Shanghai Huadong Auto Rental Co., Ltd., or Shanghai Huadong, to expand our business in Shanghai and surrounding areas;

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in April 2011, we acquired 100% of the equity interests in Beijing Beichen to strengthen our long-term rental business;

in August 2011, we acquired 100% of the equity interests in Guiyang Jinglv Commerce and Trading Co., Ltd. to expand our business in southwestern China;

in December 2011, we acquired 100% of the equity interests in Beijing Da Shi Hang Hua Wei Labor Services Co., Ltd. to expand our business in Beijing; and

in January 2012, we acquired 100% of the equity interests in Shanghai Tai Chang Chauffeured Services Co., Ltd. to provide customers with more comprehensive services.

Between October 2010 and April 2011, CAR Beijing also formed three operating subsidiaries—Guangzhou China Auto Rental Co., Ltd. to expand our business in southern China, Wuxi China Auto Rental Co., Ltd. to further expand our business, and Beijing Kaipu Parking Management Co., Ltd. to manage our parking facilities.

In preparation for this offering, we underwent a series of corporate reorganization transactions inside and outside China. We incorporated China Auto Rental Inc. in the Cayman Islands as an exempted limited liability company on July 13, 2011 as our proposed listing entity. On January 13, 2012, we changed our name from China Auto Rental Inc. to China Auto Rental Holdings Inc.

In November 2011, all shareholders of CAR Beijing other than Lianhui Langfang transferred all of their respective equity interests in CAR Beijing to Lianhui Langfang. Immediately following this transaction, Lianhui Langfang became the sole shareholder of CAR Beijing.

In December 2011, we issued 10,000 ordinary shares for an aggregate cash consideration of approximately US$36.1 million to certain investors, including Right Lane Limited, an entity wholly-owned by Legend Holdings, Haode Group Inc. and Sky Sleek Limited. During the same period, LC Fund III, L.P. exchanged all of its shares in CAR Hong Kong for 2,538 ordinary shares in us. As a result, we became the sole shareholder of CAR Hong Kong which holds 100% of the equity interests in Lianhui Langfang, which in turn holds 100% of the equity interests in CAR Beijing.

In January 2012, LC Fund III, L.P. transferred all of the 2,538 shares in us it held to its affiliate Grand Union. During the same period, Right Lane Limited transferred 5,548 shares in us to Grand Union, and 125 shares in us to Grandsun International Investment Limited. See "Description of share capital—History of securities issuances—Ordinary shares."

On February 24, 2012, we effected a share split, pursuant to which each ordinary share was subdivided into 20,000 ordinary shares, and the par value of the shares was changed from US$1.0 per share to US$0.00005 per share.

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Selected consolidated financial and operating data

We present below our selected consolidated financial and other operating data for the periods indicated. The following selected consolidated statement of operations data for the years ended December 31, 2009, 2010 and 2011 and the consolidated balance sheet data as of December 31, 2010 and 2011 have been derived from our audited consolidated financial statements included elsewhere in this prospectus.

We have omitted financial information as of and for the year ended December 31, 2008 because such information is not available on a basis that is consistent with the consolidated financial information included in this prospectus and cannot be provided without unreasonable effort or expense. Furthermore, we believe that the omission of such financial information would not have a material impact on a reader's understanding of our financial results and condition and related trends.

The selected consolidated financial and operating data should be read in conjunction with our consolidated financial statements and related notes and "Management's discussion and analysis of financial condition and results of operations" included elsewhere in this prospectus. The consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of our results for any future periods.

   
 
  Year ended December 31  
(in thousands, except for share,
per share and per ADS data)

 
  2009
  2010
  2011
  2011
 
   

Consolidated statement of operations data:

                         

Net revenues

    RMB54,010     RMB142,992     RMB775,811   US$ 123,264  

Expenses

                         

Depreciation of rental vehicles

    (11,924 )   (47,206 )   (263,684 )   (41,895 )

Direct operating expenses

    (22,692 )   (61,525 )   (291,239 )   (46,273 )

Selling, marketing and distribution expenses

    (3,463 )   (25,516 )   (96,416 )   (15,319 )

General and administrative expenses

    (11,366 )   (32,980 )   (136,294 )   (21,655 )

Interest income and other income, net

    14     737     1,679     267  

Interest expenses

    (7,735 )   (20,374 )   (140,641 )   (22,346 )
       

Total expenses

    (57,166 )   (186,864 )   (926,595 )   (147,221 )

Loss before income tax expense

    (3,156 )   (43,872 )   (150,784 )   (23,957 )

Income tax benefit/(expense)

        542     (638 )   (101 )
       

Net loss

    (3,156 )   (43,330 )   (151,422 )   (24,058 )
       

Loss per ordinary share(1):

                         

Basic

    (0.17 )   (0.29 )   (0.63 )   (0.10 )

Diluted

    (0.17 )   (0.29 )   (0.63 )   (0.10 )

Weighted average ordinary shares used in per share computation(1):

                         

Basic

    18,569,588     151,943,291     239,634,718     239,634,718  

Diluted

    18,569,588     151,943,291     239,634,718     239,634,718  

Selected non-GAAP financial data:

                         

Adjusted EBITDA(2)

    17,277     26,262     275,719     43,808  
   

(1)   The share information and per share data reflect the 1-to-20,000 share split effected on February 24, 2012, pursuant to which every ordinary share was subdivided into 20,000 ordinary shares and the par value of the ordinary shares was changed from US$1.0 per share to US$0.00005 per share.

(2)   Adjusted EBITDA is defined as net income before income tax benefit or expense, interest income and other income, net, interest expenses, depreciation, amortization and one-time restructuring cost.

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Our management uses adjusted EBITDA as an operating performance metric for internal monitoring and planning purposes, including the preparation of our annual operating budget and monthly operating reviews. In addition, adjusted EBITDA serves as a supplemental measure with which we can evaluate profitability and make performance trend comparisons between us and our competitors. Furthermore, we believe that adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

Adjusted EBITDA is also used by our management to evaluate our operating performance exclusive of financing costs and depreciation policies. Furthermore, we believe it provides a comparative metric to management and investors that is consistent across companies with different capital structures and depreciation policies, enabling them to more accurately compare our performance to that of our peers. In addition, our management uses adjusted EBITDA as a proxy for cash flow available to finance fleet expenditures and the costs of our capital structure on a day-to-day basis so that we can more easily monitor our cash flows when a full statement of cash flows is not available.

Adjusted EBITDA is not a recognized measurement under U.S. GAAP. When evaluating our operating performance or liquidity, investors should not consider adjusted EBITDA in isolation of, or as a substitute for, measures of our financial performance and liquidity as determined in accordance with U.S. GAAP, such as net income, operating income or net cash provided by operating activities. Adjusted EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. Because other companies may calculate adjusted EBITDA differently than we do, it may not be comparable to similarly titled measures reported by other companies.

Our adjusted EBITDA is calculated as follows for the periods presented:

   
 
  Year ended December 31  
(in thousands)
  2009
  2010
  2011
  2011
 
   

Net loss

    RMB(3,156 )   RMB(43,330 )   RMB(151,422 ) US$ (24,058 )

Income tax (benefit)/expense

        (542 )   638     101  

Interest income and other income, net

    (14 )   (737 )   (1,679 )   (267 )

Interest expenses

    7,735     20,374     140,641     22,346  

Depreciation

    12,712     49,937     275,483     43,770  

Amortization

        560     5,976     950  

One-time restructuring cost

            6,082     966  

Adjusted EBITDA

    17,277     26,262     275,719     43,808  
   

 

   
 
  As of December 31  
(in thousands)
  2009
  2010
  2011
  2011
 
   

Consolidated balance sheet data:

                         

Cash and cash equivalents

    RMB4,624     RMB81,062     RMB637,245     US$101,248  

Total current assets

    16,813     167,170     841,640     133,723  

Rental vehicles, net

    71,159     917,515     2,413,847     383,522  

Total non-current assets

    74,950     978,986     2,699,566     428,919  

Total assets

    91,763     1,146,156     3,541,206     562,642  

Long-term borrowings due within one year

    11,793     218,967     825,497     131,158  

Total current liabilities

    112,421     440,115     2,091,294     332,273  

Long-term borrowings

    2,676     403,514     1,285,180     204,195  

Total non-current liabilities

    2,676     608,809     1,301,669     206,815  

Total shareholders' (deficit)/equity

    (23,334 )   97,232     148,243     23,554  

Total liabilities and shareholders' equity

    91,763     1,146,156     3,541,206     562,642  
   

The following table sets forth certain key operating data as of and for the dates and periods indicated:

   
 
  As of and for
the year ended
December 31
 
 
  2009
  2010
  2011
 
   

Fleet size(1)

    692     10,202     25,845  

Average daily rental rate(2) (RMB)

    327     204     197  

Utilization rate(3)

    65.3%     61.2%     56.7%  

RevPAC(4) (RMB)

    213     125     112  
   

(1)   End period fleet size includes vehicles in operation and excludes vehicles retired and awaiting sale or vehicles in our possession but not yet in operation.

(2)   Average daily rental rate is calculated by dividing net short-term rental revenue in a given period by the fleet transaction days in that period. Fleet transaction days are the total rental days for all vehicles in our short-term fleet in a given period.

(3)   Fleet utilization rate is calculated by dividing the aggregate rental days for our short-term rental fleet during a given period by the aggregate days our short-term rental vehicles are available for rental during the same period. We exclude vehicles that are potentially lost, sold, awaiting sale or salvaged, but include vehicles in repair or maintenance and vehicles being used internally when calculating the aggregate days available for rental. Long-term rentals are also excluded from the fleet utilization rate calculation.

(4)   RevPAC is calculated by multiplying the average daily rental rate in a given period by the fleet utilization rate in that same period.

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Management's discussion and analysis of financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled "Selected consolidated financial and operating data" and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk factors" and elsewhere in this prospectus.

Overview

We are the largest car rental company in China, commanding a leading position in the industry as measured by fleet size, network coverage and number of customers, according to Roland Berger. We also command the largest market share in terms of revenue in China's car rental market, according to Roland Berger.

We believe we are the first and only car rental company with a rental fleet of more than 10,000 vehicles in China's nascent but fast-growing car rental industry. Our fleet, comprising 25,845 vehicles covering most of the popular models in China, was as large as the aggregate fleet size of the next eight largest car rental companies and over three times that of the second largest car rental company in China as of December 31, 2011, according to Roland Berger.

We are dedicated to providing customers with enjoyable, affordable and reliable car rental services. Our network of 520 service locations covers 66 cities in all provinces and provincial-level municipalities of China. We strive to provide superior car rental services to our customers with 24/7 service at 52 major airports in China and in every city where we operate. Our products include short-term rentals, long-term rentals and leasing. As of December 31, 2011, we had a customer base of over 450,000. Over 920,000 members registered with us through our loyalty program for short-term rentals as of December 31, 2011, of whom approximately 48.5% had rented cars from us.

We have achieved substantial growth over the past three years. We derive our revenues primarily from short-term rentals of our vehicles. Our revenues increased from RMB54.0 million in 2009 to RMB143.0 million in 2010 and RMB775.8 million (US$123.3 million) in 2011. We incurred net losses of RMB3.2 million, RMB43.3 million and RMB151.4 million (US$24.1 million) in 2009, 2010 and 2011. Our adjusted EBITDA for 2009, 2010 and 2011 was RMB17.3 million, RMB26.3 million and RMB275.7 million (US$43.8 million), respectively. For a reconciliation of our adjusted EBITDA to our net loss, see footnote 1 on pages 9 and 10 of this prospectus.

Factors affecting our results of operations

Our results of operations are affected by macroeconomic conditions that affect China's economy, as well as factors that impact China's car rental industry. China's economic growth has resulted in higher per capita disposable income, increased business and leisure travel, an increasing number of drivers and expanding roadway infrastructure, all of which have contributed to the fast growth of China's car rental industry. The PRC government's policies

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and regulations relating to vehicle purchase, ownership and usage also have a significant impact on the car rental industry. See "Industry" for more information relating to macro-level factors affecting our results of operations.

In addition, our results of operations are directly affected by a number of company-specific factors including the following:

Scale of our business.    The scale of our business, including our fleet size and network coverage, has a significant impact on our revenue generating capacity, expenses and competitiveness. Our fleet size increased by more than 37 times from 692 vehicles as of December 31, 2009 to 25,845 vehicles as of December 31, 2011. We expanded our geographic coverage from 65 service locations in 30 cities as of December 31, 2009 to 520 service locations in 66 cities across China as of December 31, 2011. The rapid growth of our fleet size and network coverage has generated increasing economies of scale. Our costs and expenses as a percentage of net revenues have decreased as we leveraged our scale advantage and spread our fixed costs and expenses across a broader base of operations. Our costs of service locations and call centers as a percentage of net revenues decreased from 26.9% in 2009 to 18.2% in 2010 and 12.7% in 2011. Our general and administrative expenses as a percentage of net revenues decreased from 23.1% in 2010 to 17.6% in 2011. Our selling, marketing and distribution expenses as a percentage of net revenues decreased from 17.8% in 2010 to 12.4% in 2011. Our large scale has allowed us to expand our business rapidly and to offer more products and services and competitive prices to our customers, which we believe will continue to enhance our revenue generating capacity and enable further economies of scale.

Fleet utilization rate.    Fleet utilization rate directly impacts our revenues. Fleet utilization rate refers to the aggregate days our vehicles are rented on a short-term basis as a percentage of the aggregate days our vehicles are available for our short-term rental business. Long-term rentals are not counted towards our fleet utilization rate. Factors generally affecting our fleet utilization rate include, among other things, market demand, fleet management, pricing and seasonality. The continued expansion of our service network and growth of our business volume has required us to increase our fleet size and deploy the appropriate numbers and types of vehicles across our service locations, which has affected and may continue to affect our fleet utilization rate. The pricing of our short-term rentals also impacts our fleet utilization rate. Lower prices may increase the demand for our rentals and in turn, our utilization rate. We strive to balance optimizing our fleet utilization rate with the rapidly growing scale of our business while satisfying the diverse needs of our customers. In order to enhance customer experience and improve customer loyalty, we have strategically expanded our fleet and increased vehicle selection in recent years in anticipation of strong market demand. As a result, our fleet utilization rate decreased from 65.3% in 2009 to 61.2% in 2010 and to 56.7% in 2011. With our rapid expansion, we have accumulated extensive understanding of the rental behaviors and vehicle preferences of our customers and the seasonality of our business, which we believe will help us improve our fleet utilization rate in the future. Our ability to achieve and maintain an optimal utilization rate as we expand our business and improve our customer experience and loyalty will continue to materially impact our operating results.

Pricing.    We charge our short-term rental customers basic rental rates, cost of basic insurance coverage, handling fees and fees for value-added services, if applicable. Basic rental rates are determined based on, among others, maintaining our margins, competition and customer acceptance of our products and services. Our average daily rental rate is calculated by dividing

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net short-term rental revenues in a given period by the fleet transaction days in that period. Our average daily rental rate decreased from RMB327 in 2009 to RMB204 in 2010 and to RMB197 (US$31) in 2011. These decreases were primarily due to our pricing strategies, including offering discounts to acquire new customers and enhance customer loyalty at the early development stage of China's car rental industry. We believe our efficient cost structure allows us to deliver high quality services to our customers at competitive prices, thereby retaining and growing our customer base and enhancing our market leading position. In February 2012, we adopted a dynamic pricing system under which our short-term rental rates are determined primarily by factors such as rental term, location, vehicle availability, timing of booking, our competitiveness and target profits. We believe this dynamic pricing system will improve our results of operations by enabling us to more efficiently price our products and services in line with customer demand, our rental vehicle supply and operating cost structure.

Vehicle acquisition and disposition.    Vehicle acquisition and disposition affect our capital expenditures, liquidity and depreciation of rental vehicles. Vehicle acquisition expenditures have constituted substantially all of our capital expenditure requirements. We have expanded our fleet rapidly since our inception and expect to continue to increase our volume of new vehicle acquisitions in 2012 and 2013. We purchased RMB1.7 million, RMB873.8 million and RMB1,937.6 million (US$307.9 million) of rental vehicles in the years ended December 31, 2009, 2010 and 2011. We have focused on optimizing our vehicle acquisition costs by leveraging our large scale and market leadership position to secure favorable purchase terms.

The depreciation of rental vehicles constitutes a significant portion of our expenses. Due to the lack of repurchase or guaranteed depreciation programs from automobile manufacturers in China, we bear the risk of effective depreciation when disposing of our rental vehicles. Our depreciation of rental vehicles were 22.1%, 33.0% and 34.0% of our net revenues for the years ended December 31, 2009, 2010 and 2011, respectively. We determine depreciation of rental vehicles by primarily estimating (i) our vehicles' holding periods and (ii) residual values at the expected time of disposal. As a result, our depreciation costs are affected by our ability to accurately estimate optimal holding periods and appropriate residual values for our vehicles and our ability to dispose of these vehicles at optimal prices.

We proactively manage our vehicle disposition to maximize resale value. Historically, we sold used vehicles to dealers and brokers primarily through bidding and auction processes to ensure that we received the best prices. In the future, we intend to dispose of our rental vehicles more frequently and earlier in their life cycles. In April 2012, we expect to adopt a vehicle disposition system under which we will dispose of our rental vehicles through our rent-to-buy used car sale program, bidding or auction based on vehicle condition. We believe this new system will provide a more systematic and cost-efficient way for us to proactively sell our used vehicles to rental customers, brokers and dealers. We expect our used car sale business to diversify our vehicle disposition channels and optimize our vehicle disposition process. In addition, we believe that strong demand for used cars and future growth of the used car market in China will provide a favorable market environment for our vehicle disposition strategy.

Financing costs.    We fund the rapid expansion of our business through various financing sources. Our ability to secure debt financing at commercially reasonable interest rates significantly impacts our interest expenses and results of operations. Our interest expenses were 14.3%, 14.2% and 18.1% of our net revenues for the years ended December 31, 2009, 2010

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and 2011, respectively. While we enjoy generally favorable financing terms from major banks and lending institutions for a business of our scale, the growth of general interest rates in China as a result of macroeconomic factors has contributed to the increase of our interest expenses in recent years. The rapid expansion of our fleet has also increased our borrowing needs and correspondingly, our interest expenses. We expect to gain access to additional sources of financing after we become a public company.

Seasonality.    We generally experience effects of seasonality primarily due to increases in leisure travel during certain periods such as the Chinese New Year, Labor Day and National Day holidays.

Description of Certain Statement of Operations Items

Net revenues

Our net revenues represent our gross revenues from operations, less business taxes and related surcharges. We derive our revenues from car rentals (including short-term and long-term rentals), leasing and other revenues. Other revenues primarily include parking fees we generate from excess capacity in our parking facilities. Our net revenues increased from RMB54.0 million in 2009 to RMB143.0 million in 2010 and RMB775.8 million (US$123.3 million) in 2011 as a result of the rapid growth of our short-term and long-term rental businesses.

The following table sets forth our revenues by service type in absolute amounts and as percentages of our net revenues for the periods presented:

 
 
  Year ended December 31
 
  2009   2009   2010   2010   2011   2011   2011
(in thousands, except percentages)
  RMB
  % of net
revenues

  RMB
  % of net
revenues

  RMB
  US$
  % of net
revenues

 

Net revenues from short-term rentals

    41,147   76.2%     108,453   75.8%     629,620     100,037   81.2%

Net revenues from long-term rentals(1)

    12,682   23.5%     32,903   23.0%     143,742     22,838   18.5%

Net revenues from direct financing leases

    100   0.2%     232   0.2%     2,235     355   0.3%

—Net revenues from direct financing leases portion of long-term rentals(2)

    100   0.2%     232   0.2%     1,616     257   0.2%

—Net revenues from leasing(3)

                619     98   0.1%

Net revenues from others

    81   0.1%     1,404   1.0%     214     34   0.0%

Total net revenues

    54,010   100.0%     142,992   100.0%     775,811     123,264   100.0%
 

(1)   Exclude revenues generated from long-term rentals that are classified as direct financing lease revenues in accordance with U.S. GAAP.

(2)   Represent revenues generated from long-term rentals that are classified as direct financing lease revenues in accordance with U.S. GAAP.

(3)   We began offering leasing to institutional customers in May 2011.

Short-term rentals.    We categorize rentals of 30 days or shorter as short-term rentals. We provide short-term rental services to our individual and institutional customers to meet their local and inter-city travel needs, as well as replacement rental and other special needs for both business and leisure purposes. Our short-term rental business has grown significantly since our inception. Our short-term rental fleet size increased from 532 vehicles as of December 31, 2009 to 21,920 vehicles as of December 31, 2011. Our short-term rental revenues were RMB41.1 million, RMB108.5 million and RMB629.6 million (US$100.0 million) for the years ended December 31, 2009, 2010 and 2011, representing 76.2%, 75.8% and 81.2% of our net

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revenues, respectively. The substantial increase in short-term rental revenues was mainly due to the additional rental capacity we gained from our fast growing fleet, partially offset by a decrease of our RevPAC during this period. We expect that revenues from our short-term rentals will continue to constitute a substantial majority of our net revenues in the foreseeable future.

Long-term rentals.    We categorize most of our rentals of over 30 days as long-term rentals, although certain rentals of over 30 days are categorized as direct financing leases in accordance with U.S. GAAP. We offer long-term rentals to institutions under individually negotiated contracts. Our long-term rental fleet size increased from 160 vehicles as of December 31, 2009 to 3,898 vehicles as of December 31, 2011. Our long-term rental revenues were RMB12.7 million, RMB32.9 million and RMB143.7 million (US$22.8 million) for the years ended December 31, 2009, 2010 and 2011, respectively. Our long-term rentals have experienced rapid growth, primarily as a result of a significant increase in rental capacity we gained from our increasing scale in both fleet size and network coverage and our direct sales approach. As a percentage of net revenues, our revenues from long-term rentals were 23.5%, 23.0% and 18.5% of our net revenues for the years ended December 31, 2009, 2010 and 2011, respectively. The decreases were mainly because the growth of our short-term rental business outpaced the growth of our long-term rental business. We expect revenues from long-term rentals will continue to increase as we further grow the long-term rental business.

Direct financing leases.    Revenues from direct financing leases include the portion of revenues from certain long-term rentals categorized as direct financing leases in accordance with U.S. GAAP and revenues from our leasing business, which we began providing to institutional customers in May 2011. Our leasing terms usually range from one to three years. Leasing differs from our long-term rental products primarily in that at the end of the leasing period, customers obtain the title of the leased car for a payment amount agreed upon at the beginning of the leasing arrangement. Although our leasing business currently accounts for a small portion of our net revenues, we believe the leasing market in China is at an early stage of development and has high growth potential. As such, we expect the revenues from our leasing business will continue to grow.

Expenses

Our expenses include depreciation of rental vehicles, direct operating expenses, selling, marketing and distribution expenses, general and administrative expenses, interest income and other income, net, and interest expenses.

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The following table sets forth the components of our expenses for the periods presented:

 
 
  Year ended December 31
 
  2009   2009   2010   2010   2011   2011   2011
(in thousands, except percentages)
  RMB
  % of net
revenues

  RMB
  % of net
revenues

  RMB
  US$
  % of net
revenues

 

Depreciation of rental vehicles

    11,924   22.1%     47,206   33.0%     263,684     41,895   34.0%

Direct operating expenses

    22,692   42.0%     61,525   43.0%     291,239     46,273   37.5%

—Insurance fees

    3,202   5.9%     20,257   14.2%     102,519     16,289   13.2%

—Cost of service locations and call centers

    14,517   26.9%     26,024   18.2%     98,533     15,655   12.7%

—Fuel expenses

    1,658   3.1%     3,541   2.5%     27,463     4,363   3.5%

—Others

    3,315   6.1%     11,703   8.1%     62,724     9,966   8.1%

Selling, marketing and distribution expenses

    3,463   6.4%     25,516   17.8%     96,416     15,319   12.4%

General and administrative expenses

    11,366   21.0%     32,980   23.1%     136,294     21,655   17.6%

Interest income and other income, net

    (14 ) (0.0)%     (737 ) (0.5)%     (1,679 )   (267 ) (0.2)%

Interest expenses

    7,735   14.3%     20,374   14.2%     140,641     22,346   18.1%
     

Total expenses

    57,166   105.8%     186,864   130.6%     926,595     147,221   119.4%
 

Depreciation of rental vehicles.    A major component of our expenses for our car rental business is depreciation of rental vehicles, which includes net gains or losses on the disposal of our vehicles. Our depreciation of rental vehicles accounted for 22.1%, 33.0% and 34.0% of our net revenues for the years ended December 31, 2009, 2010 and 2011, respectively. The increase in depreciation of rental vehicles during these periods is primarily due to the rapid expansion of our fleet. We expect depreciation of rental vehicles to continue to increase in absolute amounts, and remain a significant portion of our expenses. However, we believe these increases will be partially offset by our increasing bargaining power on vehicle procurement and timely disposal of our rental vehicles at optimal prices and diversified disposition channels.

Direct operating expenses.    Our direct operating expenses include insurance fees, cost of service locations and call centers, fuel expenses and other expenses.

Insurance fees.  Vehicle insurance fees is a significant component of our direct operating expenses due to our large fleet size. Our vehicle insurance fees were 5.9%, 14.2% and 13.2% of our net revenues for the years ended December 31, 2009, 2010 and 2011, respectively. The increase in insurance fees as a percentage of our net revenues from 2009 to 2010 was a result of the decrease in RevPAC and the increase in insurance fee rates as insurance companies had heightened risk assessments of our early stage, rapidly-growing car rental business. The decrease in insurance fees as a percentage of our net revenues from 2010 to 2011 was a result of lower insurance fee rates due to our growing purchasing power from the expansion of our fleet and insurance companies' increasing comfort with and understanding of our business's operational risk level. As our fleet size increases as a result of our business expansion, we expect that vehicle insurance fees will continue to increase on an absolute basis, but may continue to decrease as a percentage of our net revenues.

Costs of service locations and call centers.  Our costs of service locations and call centers primarily comprise payroll costs related to our service locations and call centers, and parking and rental fees related to our service locations. Our costs of service locations and call centers have increased in absolute amounts in line with the growth of our business and our geographic expansion. However, as a percentage of our net revenues, our costs of service locations and call centers decreased considerably from 26.9% in 2009 to 12.7% in 2011

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    primarily as a result of our rapid revenue growth while deriving operational efficiency from the larger scale of our business. Our payroll costs consist of salaries and social insurance costs of our employees at our service locations and call centers. Our parking expenses vary from location to location in accordance with general parking facilities prices in different geographic areas. We expect that our costs of service locations and call centers as a percentage of our net revenues may decrease in the foreseeable future as we continue to benefit from increasing economies of scale.

Fuel expenses.  Our overall fuel expenses have increased with our increasing fleet size in the past. Our fuel expenses are also influenced by macroeconomic factors such as fuel prices in China. Our fuel expenses were 3.1%, 2.5% and 3.5% of our net revenues for the years ended December 31, 2009, 2010 and 2011, respectively. As fuel prices have fluctuated greatly in the past years, and we do not purchase fuel in bulk in advance, we cannot anticipate whether fuel expense will increase or decrease relative to our total net revenues in the near term.

Other direct operating expenses.  Other direct operating expenses include vehicle repair costs, toll fees, vehicle washing expenses, GPS depreciation expenses and other miscellaneous expenses.

Selling, marketing and distribution expenses.    Our selling, marketing and distribution expenses consist of advertising expenses and expenses related to our sales personnel, and have increased significantly as we expanded our business. Our selling, marketing and distribution expenses were 6.4%, 17.8% and 12.4% of our net revenues for the years ended December 31, 2009, 2010 and 2011, respectively. We have increased our spending on advertising and promotional activities significantly, including direct sales efforts, targeted Internet and traditional advertising and customer loyalty programs. Selling, marketing and distribution expenses also include salaries of our sales personnel, social insurance costs and other expenses relating to our selling and marketing activities. We increased our sales personnel from 27 employees as of December 31, 2009 to 86 employees as of December 31, 2010 and 118 employees as of December 31, 2011. Our sales, marketing and distribution expenses may continue to increase in absolute terms as we strive to strengthen our leading market position, but may continue to decrease as a percentage of our net revenues in the foreseeable future as we continue to benefit from increasing economies of scale and our direct sales strategy.

General and administrative expenses.    General and administrative expenses consist primarily of salaries and benefits for our administrative and management personnel, office rental expenses and administrative expenses. Our general and administrative expenses have increased significantly as a result of our business expansion. Our general and administrative expenses were 21.0%, 23.1% and 17.6% of our net revenues for the years ended December 31, 2009, 2010 and 2011, respectively. We expect our general and administrative expenses to continue to increase in absolute amounts as our business expands and as we incur additional administrative costs associated with being a public company. However, we believe we have established an efficient management and administrative infrastructure and a highly scalable IT platform, which we believe will efficiently support further growth in our net revenues without causing a proportionate increase in our general and administrative expenses. As a result, we expect our general and administrative expenses as a percentage of our net revenues to continue to decline in the long run as we grow our business.

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Interest income and other income, net.    Our interest income and other income, net include primarily interest generated by our interest-bearing cash deposits. Our interest income and other income, net amounted to RMB14,000, RMB737,000 and RMB1.7 million (US$267,000) for the years ended December 31, 2009, 2010 and 2011, respectively.

Interest expenses.    Interest expenses are primarily expenses for bank borrowings and credit arrangements from financial institutions and Legend Holdings to fund our vehicle acquisitions. Our interest expenses were 14.3%, 14.2% and 18.1% of our net revenues for the years ended December 31, 2009, 2010 and 2011, respectively.

Critical accounting policies

We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect, among other things: (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the end of each reporting period and (iii) the reported amounts of revenue and expenses during each reporting period. We continually evaluate these estimates and assumptions based on historical experience, knowledge and assessment of current business and other conditions, and expectations regarding the future based on available information and reasonable assumptions, which together form a basis for making judgments about matters not readily apparent from other sources. Since our financial reporting process inherently relies on the use of estimates and judgments, actual results could differ from what we expected. Some of our accounting policies require higher degrees of estimation and judgment than others in their application. When reviewing our financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgment and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places significant demands on the judgment of our management.

Revenue recognition

We are principally engaged in the provision of vehicle rental and other services to our customers which are accounted for in accordance with ASC 840, Leases. Revenue contracts are classified as operating leases or direct financing leases.

Operating leases

We classify revenue contracts with lease terms of up to 30 days as short-term lease contracts and those with lease terms of more than 30 days are classified as long-term lease contracts.

We recognize the minimum lease payment as revenue over the lease period on a straight line basis. Contingent rental in relation to operating leases is immaterial.

Direct financing leases

We record revenue attributable to direct financing leases to produce a constant rate of return on the balance of the net investment in the lease.

Property, plant and equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets.

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Rental vehicles

When rental vehicles are acquired, we estimate the period that we will hold the assets, primarily based on historical measures of the amount of rental activity (e.g., automobile mileage and equipment usage) and the targeted age of equipment at the time of disposal. Holding periods of rental vehicles are generally three years. The remaining holding periods related to the rental vehicles acquired through our business combination with Shanghai Huadong range from four months to four years.

We also estimate the residual value of the applicable revenue earning equipment at the expected time of disposal. The residual values for rental vehicles are affected by many factors, including make, age, physical condition, mileage, sale location, time of the year and channel of disposition (e.g., auction, retail, dealer direct).

Rental vehicles are depreciated over the estimated holding period on a straight line basis. We make annual adjustments to the depreciation rates of rental vehicles in response to the latest market conditions and their effect on residual values as well as the estimated time of disposal. Such adjustments are accounted for as changes in accounting estimates.

Other property, plant and equipment

Other property, plant and equipment primarily include buildings, office furniture, purchased software and equipment and certain in-car accessories that can be separated from rental vehicles. These assets are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, as follows:

 
Category
  Estimated useful life
 

Buildings

  20 years

Office furniture, purchased software and equipment

  3~5 years

In-car accessories

  3~6 years

Leasehold improvements

  The shorter of their economic lives or the lease terms
 

Repair and maintenance costs are charged to expense when incurred, whereas the cost of renewals and betterment that extends the useful life of property, plant and equipment are capitalized as additions to the related assets. Retirement, sale and disposals of assets are recorded by removing the cost and related accumulated depreciation with any resulting gain or loss reflected in the consolidated statements of income.

Impairment of long-lived assets

We evaluate our long-lived assets or asset group for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or a group of long-lived asset may not be recoverable. When these events occur, we evaluate the impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, we would recognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the

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assets, when the market prices are not readily available for the long-lived assets. No impairment of long-lived assets was recognized for any of the periods presented.

Lease obligations

In accordance with ASC 840, Leases, we classify leases for a lessee at the inception date as either a capital lease or an operating lease. We assess a lease to be a capital lease if any of the following conditions exist: (i) ownership is transferred to the lessee by the end of the lease term, (ii) there is a bargain purchase option, (iii) the lease term is at least 75% of the property's estimated remaining economic life, or (iv) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception date. A capital lease is accounted for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease. The capitalized lease obligation reflects the present value of future rental payments, discounted at the appropriate interest rates. The cost of the asset is amortized over the lease term. However, if ownership is transferred at the end of the lease term, the cost of the asset is amortized as set out under the plant and equipment section of this note.

We recognize operating lease expenses on a straight-line basis over the applicable lease term.

Accounts receivable and allowance for doubtful accounts

Accounts receivable are carried at net realizable value and mainly consist of amounts from long-term vehicle rental services. An allowance for doubtful accounts is recorded in the period when loss is probable based on an assessment of specific evidence indicating troubled collection, historical experience, accounts aging and other factors. An account receivable is written off against the allowance for doubtful accounts after all collection efforts have ceased. Bad debt expense is reflected as a component of general and administrative expenses in our consolidated statements of operations.

Income taxes

We accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. We record a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

Taxation

Cayman Islands

We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.

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Hong Kong

Our wholly-owned Hong Kong subsidiary, CAR Hong Kong, is subject to Hong Kong profit tax on its activities conducted in Hong Kong. Dividends from our Hong Kong subsidiary to us are exempt from withholding tax.

PRC

In March 2007, the PRC government enacted the New EIT Law, and promulgated the related regulation Implementation Regulations for the PRC Enterprise Income Tax Law. The law and regulation came into effect on January 1, 2008. The New EIT Law applies a uniform EIT rate of 25% to all domestic enterprises and foreign-invested enterprises and defines new tax incentives for qualifying entities. Therefore, all of our PRC subsidiaries are subject to an income tax rate of 25%.

In addition, the New EIT Law treats enterprises established outside of China that have "de facto management bodies" located in China as a PRC resident enterprise for tax purposes. A "de facto management body" is defined as a management body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. We have not been informed by any PRC tax authorities that we or CAR Hong Kong, our Hong Kong subsidiary, are treated as a "PRC resident enterprise" for PRC tax purposes as of the date of this prospectus. However, PRC tax authorities could do so in the future, and if considered a "PRC resident enterprise" for PRC tax purposes, we would be subject to the PRC enterprise income tax on our global income. See "Risk factors—Risks related to doing business in the People's Republic of China—We may be classified as a "PRC resident enterprise" for PRC enterprise income tax purposes, which could result in our global income becoming subject to 25% PRC enterprise income tax."

Pursuant to the New EIT law and its implementation rules, dividends payable to foreign investors are subject to a 10% withholding tax. Under the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income, or the Double Tax Avoidance Arrangement, a qualified Hong Kong tax resident which is determined by the competent PRC tax authority to have satisfied relevant requirements under the Double Tax Avoidance Arrangement between China and Hong Kong and other applicable PRC laws is entitled to a reduced withholding tax rate of 5%.

Internal control over financial reporting

In preparing our consolidated financial statements, we and our independent registered public accounting firm identified a material weakness and other deficiencies in our internal control over financial reporting as of December 31, 2011. As defined in standards established by the PCAOB, a "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness identified primarily related to our lack of U.S. GAAP resources, processes and documentation. Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control for purposes of identifying and

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reporting material weaknesses and other control deficiencies in our internal control over financial reporting as we and they will be required to do once we become a public company. In light of the material weakness and other control deficiencies that were identified as a result of the limited procedures performed, we believe it is possible that, had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional control deficiencies may have been identified.

To remedy our control deficiencies, we have adopted several measures to improve our internal control over financial reporting. These measures include (i) establishing an audit committee to oversee our accounting and financial reporting processes as well as external and internal audits of our company, (ii) establishing an internal audit function, (iii) hiring a chief financial officer and other qualified professionals with U.S. GAAP and SEC reporting experience to form our financial reporting team, (iv) establishing accounting policies consistent with U.S. GAAP and formal procedures with respect to the financial reporting process, (v) providing additional accounting and financial reporting training for our existing personnel, and (vi) optimizing the interaction between its operations and financial systems. However, the process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. See "Risk factors—Risks related to our business and industry—If we fail to implement and maintain an effective system of internal controls or fail to remediate the material weakness and deficiencies in our internal control over financial reporting that has been identified, we may be unable to accurately report our results of operations or prevent fraud, and investor confidence and the market price of our ADSs may be materially and adversely affected."

Results of operations

The following table sets forth a summary of our consolidated results of operations by absolute amount and as a percentage of our net revenues for the periods indicated. This information should be read together with our audited consolidated financial statements and related notes included elsewhere in this prospectus. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

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  Year ended December 31
 
  2009   2009   2010   2010   2011   2011   2011
(in thousands, except percentages)
  RMB
  % of net
revenues

  RMB
  % of net
revenues

  RMB
  US$
  % of net
revenues

 

Consolidated statement of operations data:

                                   

Net revenues

    54,010   100.0%     142,992   100.0%     775,811     123,264   100.0%

Expenses

                                   

Depreciation of rental vehicles

    (11,924 ) (22.1%)     (47,206 ) (33.0%)     (263,684 )   (41,895 ) (34.0%)

Direct operating expenses

    (22,692 ) (42.0%)     (61,525 ) (43.0%)     (291,239 )   (46,273 ) (37.5%)

Selling, marketing and distribution expenses

    (3,463 ) (6.4%)     (25,516 ) (17.8%)     (96,416 )   (15,319 ) (12.4%)

General and administrative expenses

    (11,366 ) (21.0%)     (32,980 ) (23.1%)     (136,294 )   (21,655 ) (17.6%)

Interest income and other income, net

    14   0.0%     737   0.5%     1,679     267   0.2%

Interest expenses

    (7,735 ) (14.3%)     (20,374 ) (14.2%)     (140,641 )   (22,346 ) (18.1%)
     

Total expenses

    (57,166 ) (105.8%)     (186,864 ) (130.6%)     (926,595 )   (147,221 ) (119.4%)

Loss before income tax expense

    (3,156 ) (5.8%)     (43,872 ) (30.6%)     (150,784 )   (23,957 ) (19.4%)

Income tax benefit/(expense)

      0.0%     542   0.3%     (638 )   (101 ) (0.1%)
     

Net loss

    (3,156 ) (5.8%)     (43,330 ) (30.3%)     (151,422 )   (24,058 ) (19.5%)
     

Selected non-GAAP financial data:

                                   

Adjusted EBITDA(1)

    17,277   32.0%     26,262   18.4%     275,719     43,808   35.5%
 

(1)   Adjusted EBITDA is defined as net income before income tax benefit or expense, interest income and other income, net, interest expenses, depreciation, amortization, and one-time restructuring cost.

Our management uses adjusted EBITDA as an operating performance metric for internal monitoring and planning purposes, including the preparation of our annual operating budget and monthly operating reviews. In addition, adjusted EBITDA serves as a supplemental measure with which we can evaluate profitability and make performance trend comparisons between us and our competitors. Furthermore, we believe that adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

Adjusted EBITDA is also used by our management to evaluate our operating performance exclusive of financing costs and depreciation policies. Furthermore, we believe it provides a comparative metric to our management and investors that is consistent across companies with different capital structures and depreciation policies, enabling them to more accurately compare our performance to that of our peers. In addition, our management uses adjusted EBITDA as a proxy for cash flow available to finance fleet expenditures and the costs of our capital structure on a day-to-day basis so that we can more easily monitor our cash flows when a full statement of cash flows is not available.

Adjusted EBITDA is not a recognized measurement under U.S. GAAP. When evaluating our operating performance or liquidity, investors should not consider adjusted EBITDA in isolation of, or as a substitute for, measures of our financial performance and liquidity as determined in accordance with U.S. GAAP, such as net income, operating income or net cash provided by operating activities. Adjusted EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. Because other companies may calculate adjusted EBITDA differently than we do, it may not be comparable to similarly titled measures reported by other companies.

Our adjusted EBITDA is calculated as follows for the periods presented:

   
 
  Year ended December 31  
(in thousands)
  2009
  2010
  2011
  2011
 
   

Net loss

    RMB(3,156 )   RMB(43,330 )   RMB(151,422 ) US$ (24,058 )

Income tax (benefit)/expense

        (542 )   638     101  

Interest income and other income, net

    (14 )   (737 )   (1,679 )   (267 )

Interest expenses

    7,735     20,374     140,641     22,346  

Depreciation

    12,712     49,937     275,483     43,770  

Amortization

        560     5,976     950  

One-time restructuring cost

            6,082     966  

Adjusted EBITDA

    17,277     26,262     275,719     43,808  
   

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Year ended December 31, 2011 compared to year ended December 31, 2010

Net revenues

Our total net revenues increased 442.5% from RMB143.0 million in 2010 to RMB775.8 million (US$123.3 million) in 2011. This increase was primarily due to increases in our short-term and long-term rental revenues. We started our leasing business in May 2011, which generated a small portion of our revenues in 2011.

Short-term rentals.    Our revenue from short-term rentals increased 480.3% from RMB108.5 million in 2010 to RMB629.6 million (US$100.0 million) in 2011. This substantial increase was mainly due to the additional rental capacity we gained from our fast growing short-term rental fleet size, which increased from 9,795 vehicles as of December 31, 2010 to 21,920 vehicles as of December 31, 2011. The increase was partially offset by a decrease in our RevPAC from RMB125 to RMB112 (US$18) during the same period. The decrease in RevPAC during the period was attributable to decreases in our fleet utilization rate and average daily rental rate. Our fleet utilization rate decreased from 61.2% in 2010 to 56.7% in 2011 primarily due to the rapid expansion of our fleet in anticipation of strong market demand and our efforts to provide more rental vehicle options to our customers. Our average daily rental rate decreased from RMB204 in 2010 to RMB197 (US$31) in 2011, primarily due to pricing strategies, including discounts available to our customers that we strategically initiated to acquire new customers and enhance customer loyalty at the early development stage of China's car rental industry. We expect to continue to substantially expand our short-term fleet size in the near future. In 2011, our revenues from short-term rentals accounted for 81.2% of our net revenues, compared to 75.8% of our net revenues in 2010 as the expansion of our short-term rental business outpaced the expansion of our long-term rental business.

Long-term rentals.    Our revenues from long-term rentals increased 336.8% from RMB32.9 million in 2010 to RMB143.7 million (US$22.8 million) in 2011, primarily as a result of a significant increase in our rental capacity we gained from our increasing long-term fleet size, which increased from 407 vehicles as of December 31, 2010 to 3,898 vehicles as of December 31, 2011. As a percentage of net revenues, our revenues from long-term rentals in 2011 was 18.5%, compared to 23.0% of our net revenues in 2010 as the expansion of our short-term rental business outpaced the expansion of our long-term rental business.

Direct financing leases.    Our revenues from direct financing leases increased from RMB0.2 million in 2010 to RMB2.2 million (US$350,000) in 2011. Revenues from long-term rentals classified as direct financing leases in accordance with U.S. GAAP increased from RMB232,000 in 2010 to RMB1.6 million (US$0.3 million) in 2011. We started our leasing business in May 2011. Revenues from our leasing business were RMB619,000 (US$98,000) in 2011. We believe revenues from our leasing business will continue to grow due to the financial and tax benefits that leasing arrangements bring to customers.

Other revenues.    Our other revenues primarily include parking fees we generate from excess capacity in our parking facilities. Our other revenues decreased by 84.7% from RMB1.4 million in 2010 to RMB214,000 (US$34,000) in 2011. In 2010 and 2011, our revenues from other sources accounted for an insignificant portion of our net revenues.

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Expenses

Our expenses increased 395.8% from RMB186.9 million in 2010 to RMB926.6 million (US$147.2 million) in 2011.

Depreciation of rental vehicles.    Our depreciation of rental vehicles increased by 458.7% from RMB47.2 million in 2010 to RMB263.7 million (US$41.9 million) in 2011 primarily due to the substantial increase in our fleet size.

Direct operating expenses.    Our direct operating expenses increased 373.5% from RMB61.5 million in 2010 to RMB291.2 million (US$46.3 million) in 2011 as a result of our rapid expansion.

Insurance fees.  Our vehicle insurance fees increased by 404.9% from RMB20.3 million in 2010 to RMB102.5 million (US$16.3 million) in 2011 due to the rapid expansion of our fleet.

Cost of service locations and call centers.  Our costs of service locations and call centers increased by 278.8% from RMB26.0 million in 2010 to RMB98.5 million (US$15.7 million) in 2011 due to an increase in the number of our service locations, our employee headcount at our service locations and call centers, and an increase in parking expenses associated with our increasing number of service locations.

Fuel expenses.  Our fuel expenses increased by 685.7% from RMB3.5 million in 2010 to RMB27.5 million (US$4.4 million) in 2011 due to an increase in our fleet size.

Other direct operating expenses.  Our other direct operating expenses increased by 435.9% from RMB11.7 million in 2010 to RMB62.7 million (US$10.0 million) in 2011.

Selling, marketing and distribution expenses.    Our selling, marketing and distribution expenses increased 278.0% from RMB25.5 million in 2010 to RMB96.4 million (US$15.3 million) in 2011. This increase was primarily due to significant increases in our spending on advertising and promotional activities. The increase in the selling, marketing and distribution expenses was also due to an increase in the headcount of our sales personnel as well as an increase in their salaries, benefits and social insurance payments. As a percentage of our net revenues, our selling, marketing and distribution expenses decreased from 17.8% in 2010 to 12.4% in 2011 as we benefited from increasing economies of scale.

General and administrative expenses.    Our general and administrative expenses increased 313.0% from RMB33.0 million in 2010 to RMB136.3 million (US$21.7 million) in 2011, primarily due to an increase in the headcount of our general and administrative personnel as well as an increase in their salaries, benefits and social insurance payments. As a percentage of our net revenues, our general and administrative expenses decreased from 23.1% in 2010 to 18.4% in 2011 as we benefited from increasing economies of scale.

Interest income and other income, net.    Our interest income and other income, net increased from RMB0.7 million in 2010 to RMB1.7 million (US$270,000) in 2011 primarily due to an increase in our interest-bearing cash deposits.

Interest expenses.    Our interest expenses increased significantly from RMB20.4 million in 2010 to RMB140.6 million (US$22.3 million) in 2011, primarily due to the increase in the amount of bank loans and credit arrangements used to fund vehicle acquisitions, as well as higher interest rates resulting from changes in China's macro lending environment.

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Income tax benefit/(expense).    We recorded an income tax benefit of RMB0.5 million in 2010. We recorded an income tax expense of RMB0.6 million (US$95,000) in 2011, primarily due to the taxable profit from Beijing Beichen which was acquired by us in April 2011.

Net loss.    As a result of the foregoing, we recorded a net loss of RMB151.4 million (US$24.1 million) in 2011, compared to a net loss of RMB43.3 million in 2010.

Year ended December 31, 2010 compared to year ended December 31, 2009

Net revenues

Our total net revenues increased 164.8% from RMB54.0 million in 2009 to RMB143.0 million in 2010. This increase was primarily due to an increase in our short-term and long-term rental revenues.

Short-term rentals.    Our revenues from short-term rentals increased 164.0% from RMB41.1 million in 2009 to RMB108.5 million in 2010. This substantial increase was mainly due to the additional capacity we gained from our growing short-term rental fleet size, which increased from 532 vehicles as of December 31, 2009 to 9,795 vehicles as of December 31, 2010. The increase was partially offset by decrease in our RevPAC from RMB213 in 2009 to RMB125 in 2010. The decrease in RevPAC during the period was mainly attributable to the decrease in average daily rental rate and, to a lesser extent, fleet utilization rate. We experienced a considerable decrease in the average daily rental rate from RMB327 in 2009 to RMB204 in 2010 primarily due to pricing strategies, including discounts available to our customers that we strategically initiated to acquire new customers and increase customer loyalty at the early development stage of China's car rental industry. Our utilization rate decreased from 65.3% in 2009 to 61.2% in 2010 primarily as a result of the strategic expansion of our fleet in anticipation of strong market demand and our efforts to provide more rental vehicle options to our customers. In 2010, our revenues from short-term rentals accounted for 75.8% of our net revenues, compared to 76.2% in 2009.

Long-term rentals.    Our revenues from long-term rentals increased 159.1% from RMB12.7 million in 2009 to RMB32.9 million in 2010, primarily as a result of a significant increase in our long-term rental fleet size, which increased from 160 vehicles as of December 31, 2009 to 407 vehicles as of December 31, 2010. In 2010, our revenues from long-term rentals accounted for 23.0% of our net revenues, representing a small decrease from 23.5% of our net revenues in 2009.

Direct financing leases.    Our revenues from direct financing leases in 2009 and 2010 consisted solely of revenues from long-term rentals classified as direct financing leases in accordance with U.S. GAAP, which increased from RMB100,000 in 2009 to RMB232,000 in 2010.

Other revenues.    Our other revenues primarily included parking fees we generate from excess capacity in our parking facilities and referral fees generated by referrals to other car rental companies. Our revenues from all other sources increased by 1,300% from RMB0.1 million in 2009 to RMB1.4 million in 2010. In 2009 and 2010, our revenues from other sources accounted for 0.1% and 1.0% of our net revenues, respectively.

Expenses

Our expenses increased 226.7% from RMB57.2 million in 2009 to RMB186.9 million in 2010.

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Depreciation of rental vehicles.    Our depreciation of rental vehicles increased by 296.6% from RMB11.9 million in 2009 to RMB47.2 million in 2010 due to the substantial increase in our fleet size.

Direct operating expenses.    Our direct operating expenses increased 170.9% from RMB22.7 million in 2009 to RMB61.5 million in 2010 as a result of our rapid expansion in fleet size. The increase in our direct operating expenses was primarily due to increases in the following expenses:

Insurance fees.  Our vehicle insurance fees increased by 534.4% from RMB3.2 million in 2009 to RMB20.3 million in 2010 due to the rapid increase in our fleet size and changes in our insurance companies' assessment of the commercial risk associated with our business.

Cost of service locations and call centers.  Our costs of service locations increased by 79.3% from RMB14.5 million in 2009 to RMB26.0 million in 2010 due to an increase in the number of our service locations, an increase in our employee headcount at our service locations and call centers, and an increase in parking expenses associated with our increasing number of service locations.

Fuel expenses.  Our fuel expenses increased by 105.9% from RMB1.7 million in 2009 to RMB3.5 million in 2010 due to an increase in our fleet size.

Other direct operating expenses.  Our other direct operating expenses increased by 254.5% from RMB3.3 million in 2009 to RMB11.7 million in 2010.

Selling, marketing and distribution expenses.    Our selling, marketing and distribution expenses increased 628.6% from RMB3.5 million in 2009 to RMB25.5 million in 2010. This increase was primarily due to significant increases in spending on advertising and promotional activities. The increase in the selling, marketing and distribution expenses was also due to an increase in the headcount of our sales personnel as well as an increase in their salaries, benefits and social insurance payments. As a percentage of our net revenues, our selling, marketing and distribution expenses increased from 6.4% in 2009 to 17.8% in 2010.

General and administrative expenses.    Our general and administrative expenses increased 189.5% from RMB11.4 million in 2009 to RMB33.0 million in 2010, primarily due to an increase in the headcount of our general and administrative personnel as well as an increase in their salaries, benefits and social insurance payments. As a percentage of our net revenues, our general and administrative expenses increased slightly from 21.0% in 2009 to 23.1% in 2010, partly as a result of additional administrative needs generated by our rapid expansion.

Interest income and other income, net.    Our interest income and other income, net increased from RMB14,000 in 2009 to RMB0.7 million in 2010, primarily due to an increase in our interest-bearing cash deposits.

Interest expenses.    Our interest expenses increased 164.9% from RMB7.7 million in 2009 to RMB20.4 million in 2010, primarily due to the increase in the amount of bank loans and other credit arrangements used to fund our vehicle acquisitions, as well as higher interest rates resulting from changes in China's macro lending environment.

Income tax benefit/(expense).    We recorded no income tax expense in 2009 and an insignificant amount of income tax benefit in 2010 due to limited income from certain of our subsidiaries.

Net loss.    As a result of the foregoing, we recorded a net loss of RMB43.3 million in 2010, compared to a net loss of RMB3.2 million in 2009.

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Our Selected Quarterly Results of Operations

The following table presents our selected unaudited consolidated quarterly results of operations for each of the six quarters in the period from July 1, 2010 to December 31, 2011. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus. We have prepared the unaudited consolidated quarterly financial information on the same basis as our audited consolidated financial statements. The unaudited consolidated quarterly financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. Our quarterly operating results have fluctuated and will continue to fluctuate from period to period. The operating results for any quarter are not necessarily indicative of the operating results for any future period or for a full year. For factors that may cause our revenue and operating results to vary or fluctuate, please see "Risk factors—Risks related to our business and industry."

   
 
   
   
   
   
  For the three months ended  
(in thousands RMB)
  September 30,
2010

  December 31,
2010

  March 31,
2011

  June 30,
2011

  September 30,
2011

  December 31,
2011

 
 
   
   
  (unaudited)
   
   
   
 
   
Consolidated statement of operations data:                                      
Total net revenues     32,969     81,088     117,564     151,658     220,146     286,443  

Net revenues from short-term rentals

    24,206     62,097     107,446     127,168     180,754     214,252  

Net revenues from long-term rentals(1)

    8,548     18,383     9,853     24,166     38,674     71,049  

Net revenues from direct financing leases(2)

    52     120     176     307     687     1,065  

Net revenues from others

    163     488     89     17     31     77  
Expenses                                      
Depreciation of rental vehicles     (13,663 )   (25,290 )   (39,498 )   (56,461 )   (72,681 )   (95,044 )
Direct operating expenses     (16,941 )   (31,600 )   (45,359 )   (62,763 )   (86,098 )   (97,019 )
Selling, marketing and distribution expenses     (6,902 )   (15,807 )   (13,566 )   (24,514 )   (39,751 )   (18,585 )
General and administrative expenses     (8,930 )   (17,458 )   (18,216 )   (24,901 )   (34,779 )   (58,398 )
Interest income and other income, net     237     285     205     415     287     772  
Interest expenses     (4,139 )   (13,305 )   (19,487 )   (28,956 )   (40,648 )   (51,550 )
       
Total expenses     (50,338 )   (103,175 )   (135,921 )   (197,180 )   (273,670 )   (319,824 )
Loss before income tax expense     (17,369 )   (22,087 )   (18,357 )   (45,522 )   (53,524 )   (33,381 )
       
Income tax benefit/(expense)     182     390     (25 )   405     (604 )   (414 )
       
Net loss     (17,187 )   (21,697 )   (18,382 )   (45,117 )   (54,128 )   (33,795 )
Selected non-GAAP financial data:                                      
Adjusted EBITDA(3)     426     18,202     44,024     42,772     63,504     125,419  
   

(1)   Exclude revenues generated from long-term rentals that are classified as direct financing lease revenues in accordance with U.S. GAAP.

(2)   Include revenues generated from long-term rentals that are classified as direct financing lease revenues in accordance with U.S. GAAP and revenues generated from leasing, which we began offering to institutional customers in May 2011.

(3)   Adjusted EBITDA is defined as net income before income tax benefit or expense, interest income and other income, net, interest expenses, depreciation, amortization and one-time restructuring costs.

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Our management uses adjusted EBITDA as an operating performance metric for internal monitoring and planning purposes, including the preparation of our annual operating budget and monthly operating reviews. In addition, adjusted EBITDA serves as a supplemental measure with which we can evaluate profitability and make performance trend comparisons between us and our competitors. Furthermore, we believe that adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

Adjusted EBITDA is also used by our management to evaluate our operating performance exclusive of financing costs and depreciation policies. Furthermore, we believe it provides a comparative metric to our management and investors that is consistent across companies with different capital structures and depreciation policies, enabling them to more accurately compare our performance to that of our peers. In addition, our management uses adjusted EBITDA as a proxy for cash flow available to finance fleet expenditures and the costs of our capital structure on a day-to-day basis so that we can more easily monitor our cash flows when a full statement of cash flows is not available.

Adjusted EBITDA is not a recognized measurement under U.S. GAAP. When evaluating our operating performance or liquidity, investors should not consider adjusted EBITDA in isolation of, or as a substitute for, measures of our financial performance and liquidity as determined in accordance with U.S. GAAP, such as net income, operating income or net cash provided by operating activities. Adjusted EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. Because other companies may calculate adjusted EBITDA differently than we do, it may not be comparable to similarly titled measures reported by other companies.

Our adjusted EBITDA is calculated as follows for the periods presented:

   
 
   
   
   
   
  Three months ended  
(in thousands RMB)
  September 30,
2010

  December 31,
2010

  March 31,
2011

  June 30,
2011

  September 30,
2011

  December 31,
2011

 
   
Net loss     (17,187 )   (21,697 )   (18,382 )   (45,117 )   (54,128 )   (33,795 )
Income tax (benefit)/expense     (182 )   (390 )   25     (405 )   604     414  
Interest income and other income, net     (237 )   (285 )   (205 )   (415 )   (287 )   (772 )
Interest expenses     4,139     13,305     19,487     28,956     40,648     51,550  
Depreciation     13,766     26,884     42,510     58,817     75,348     98,808  
Amortization     127     385     589     936     1,319     3,132  
One-time restructuring cost                         6,082  
Adjusted EBITDA     426     18,202     44,024     42,772     63,504     125,419  
   

Our quarterly revenues experienced continued growth during the six quarters in the period from July 1, 2010 to December 31, 2011. The continued growth in our quarterly revenues was primarily attributable to the increased rental capacity from the significant expansion of our rental fleet size and growing customer demand. Our short-term rental quarterly revenues are also affected by the seasonality of our business, which generally shows the highest levels of car rentals for leisure travel during the third and fourth quarters due to summer holidays and the National Day holiday. The decrease in long-term rental revenues from the fourth quarter of 2010 to the first quarter of 2011 was primarily attributable to the expiration of certain contracts for test drive programs with automobile manufacturers.

Our vehicle depreciation expense and direct operating expenses have increased in line with the increase in our revenues and the expansion of our rental fleet size. Our sales and marketing expenses both in absolute amounts and as a percentage of our net revenues have fluctuated from quarter to quarter due to increased sales and marketing expenditures before our peak seasons in the third and fourth quarters. Our general and administrative expenses have increased in absolute amounts in line with the expansion of our business, but have decreased as a percentage of our net revenues from the third quarter of 2010 to the third quarter of 2011 as we benefited from increasing economies of scale, but increased in the fourth quarter of 2011 as we incurred expenses related to our reorganization and preparation for this offering. Our quarterly revenues and operating results may experience fluctuations in the future due to various factors. See "Risk factors—Risks related to our business and industry."

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The following table presents certain selected operating data of our company as of the dates and for periods indicated.

   
 
   
   
   
   
  For the three months ended  
 
  September 30,
2010

  December 31,
2010

  March 31,
2011

  June 30,
2011

  September 30,
2011

  December 31,
2011

 
   
Fleet size(1)     4,622     10,202     12,387     18,796     22,638     25,845  
Average daily rental rate(2) (RMB)     216     179     186     180     205     209  
Utilization rate(3)     55.2%     64.0%     61.4%     59.3%     55.9%     53.5%  
RevPAC(4) (RMB)     119     115     114     106     115     112  
   

(1)   End period fleet size includes vehicles in operations and excludes vehicles retired and awaiting sale or vehicles in our possession but not yet in operation.

(2)   Average daily rental rate is calculated by dividing net short-term rental revenue in a given period by the fleet transaction days in that period. Fleet transaction days are the total rental days for all vehicles in our short-term fleet in a given period.

(3)   Fleet utilization rate is calculated by dividing the aggregate rental days for our short-term rental fleet during a given period by the aggregate days our short-term rental vehicles are available for rental during the same period. We exclude vehicles that are potentially lost, sold, awaiting sale or salvaged, but include vehicles in repair or maintenance and vehicles being used internally when calculating the aggregate days available for rental. Long-term rentals are also excluded from the fleet utilization rate calculation.

(4)   RevPAC is calculated by multiplying the average daily rental rate in a given period by the fleet utilization rate in that same period.

We have continually increased our rental fleet size in anticipation of strong market demand from the third quarter of 2010 through the fourth quarter of 2011. Our average daily rental rate decreased from the third quarter of 2010 to the fourth quarter of 2010 as we implemented pricing strategies, including offering discounts, to acquire new customers and enhance customer loyalty at the early development stage of the PRC car rental industry. Our average daily rental rate increased from the fourth quarter of 2010 through the fourth quarter of 2011, primarily attributable to our ability to increase our rental rates due to strong market demand for car rentals and our market leadership and pricing power. Our fleet utilization rate decreased from the fourth quarter of 2010 through the fourth quarter of 2011 as we strategically expanded our fleet size and vehicle selection to satisfy increasing demand for car rentals, enhance customer experience and improve customer loyalty. Our average daily rental rate and fleet utilization rate are also affected by the seasonality of our business.

Liquidity and capital resources

We require a substantial amount of capital to fund our vehicle acquisition and business expansion. Our operations and growth have primarily been financed by cash received from our customers, borrowings from financial institutions, capital leases and capital injections and borrowings from our shareholders. As of December 31, 2010 and December 31, 2011, we had RMB81.1 million and RMB637.2 million (US$101.2 million) in cash and cash equivalents, respectively. Our cash and cash equivalents consist primarily of cash on hand and cash in bank.

As of December 31, 2011, we had an aggregate of RMB217.0 million (US$34.5 million) of outstanding short-term borrowings with a weighted average interest rate of 8.23% per year. As of December 31, 2010 and December 31, 2011, we had RMB219.0 million and RMB825.5 million (US$131.2 million), respectively, of current portions of long-term bank loans and other loans from third party commercial banks and other financial institutions. As of December 31, 2011, we had net current liabilities of RMB1,249.7 million (US$198.6 million) as we incurred a substantial amount of short-term and long-term borrowings to finance the rapid expansion of our rental fleet. Going forward, we plan to reduce our net current liabilities by repaying our

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borrowings with the proceeds of this offering and our cash flow generated from operating activities.

As of December 31, 2010 and 2011, we had RMB403.5 million and RMB1,285.2 million (US$204.2 million), respectively, of non-current portions of long-term loans and other loans from third-party commercial banks and other financial institutions. All bank loans and other loans are denominated in RMB and bore interest at floating interest rates between 100% and 185% of the benchmark lending rate published by the People's Bank of China. The weighted average interest rates of our long-term bank loans outstanding as of December 31, 2010 and 2011 were 7.58% per annum and 8.68% per annum, respectively. These bank loans and credit facilities with financial institutions had terms of one year to three years and expired at various times throughout the year.

Legend Holdings has provided guarantees for a significant portion of our borrowings from banks and other financial institutions. The aggregate outstanding amount of borrowings from banks and other financial institutions guaranteed by Legend Holdings amounted to RMB2,281.2 million (US$362.4 million) as of December 31, 2011, RMB368.3 million (US$58.5 million) of which were also secured by certain of our rental vehicles. Out of these borrowings, RMB209.7 million and RMB368.3 million (US$58.5 million) as of December 31, 2010 and 2011, respectively, were also secured by certain of our rental vehicles. Pursuant to these guarantees, Legend Holdings will be responsible for the repayment of our borrowings if we default under our loan agreements or capital lease agreements with the financial institutions. If Legend Holdings ceases to provide guarantees or fails to comply with the terms of these agreements and we cannot obtain guarantees from another guarantor, our lenders may accelerate the payment schedule of our loans or capital lease obligations, and we may not be able to obtain loans or other credit facilities at favorable terms, or at all. See "Risk factors—Risks related to our business and industry—Our business and results of operations may be adversely affected if Legend Holdings fails to comply with the terms of guarantees for our borrowings or ceases to provide similar guarantees in the future."

Further, from July 2010 to January 2012, Legend Holdings, directly or through its subsidiary, made a series of loans to our PRC operating company CAR Beijing to finance our acquisition of Beijing Beichen as well as our vehicle acquisitions and business operations. As of the date of this prospectus, the outstanding principal amount of loans from Legend Holdings amounted to RMB908.0 million (US$144.3 million). As Legend Holdings did not hold a financial service business license and did not extend loans to us through a financial institution, there can be no assurance that PRC government authorities will not declare these loans void. In that event, we may be required to repay the loans to Legend Holdings before their maturity dates. See "Risk factors—Risks related to our business and industry—Loans extended by Legend Holdings may be declared void by PRC authorities, which may adversely affect our financial condition and results of operations."

Of the total amount of borrowings from banks and other financial institutions, as of December 31, 2010 and 2011, RMB5.5 million and nil, respectively, were secured by our vehicles and guaranteed by Mr. Charles Zhengyao Lu, our chairman and chief executive officer.

Our bank loans and credit facilities with financial institutions contain certain restrictive covenants, such as maintaining certain asset-liability ratios, vehicle utilization rates and rates of return on fixed assets, limitations on our ability to incur additional indebtedness or create new mortgages or charges, making timely reports, restrictions on the use of proceeds and asset

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sales, and requirements to provide notice or obtain consent for certain significant corporate events. We have received written confirmation from the relevant banks and other financial institutions that we are not, and have not been, in breach under these credit facilities. Failure to meet any of these covenants in the future may trigger the acceleration of our repayment obligations. In addition, any event of default or acceleration provisions in a credit facility may trigger cross-default or cross-acceleration provisions in other credit facilities. See "Risk factors—Risks related to our business and industry—Restrictive covenants contained in credit facilities may limit our ability to incur additional indebtedness or capital expenditures and restrict our future operations, and failure to comply with these restrictive covenants may adversely affect our liquidity, financial condition and results of operations."

We have a capital lease arrangement since February 5, 2010 with China Minsheng Financial Leasing. As of December 31, 2010 and 2011, we had RMB10.1 million and RMB3.3 million (US$520,000), respectively, of current portions of capital lease obligations and RMB1.2 million and nil, respectively, of non-current portions of capital lease obligations. In 2010 and 2011, our capital lease arrangements with financial institutions were guaranteed by Mr. Lu and secured by the prepaid land lease and a building of Lianhui Langfang. Our capital lease obligations had a weighted average interest rate of 7.61% for 2010 and 8.65% for 2011.

We are a holding company and conduct our operations primarily through our subsidiaries in China. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries. If our subsidiaries or any newly formed subsidiaries incur debt, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with accounting standards and regulations applicable to such subsidiaries. The undistributed earnings are considered to be indefinitely reinvested, and will be subject to PRC dividend withholding taxes upon distribution.

Under PRC law, each of our PRC subsidiaries must set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of our PRC subsidiaries with foreign investments must also set aside a portion of its after-tax profits to fund an employee welfare fund at the discretion of the board. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, companies may not distribute the reserve funds as cash dividends except upon a liquidation of these subsidiaries. In addition, dividend payments from our PRC subsidiaries could be delayed as we may only distribute such dividends upon completion of annual audits of the subsidiaries.

Furthermore, cash transfers from our PRC subsidiaries to our subsidiaries outside of China are subject to PRC government control of currency conversion. In particular, Lianhui Langfang must obtain the approval from or register with the relevant government authorities if it plans to convert cash denominated in Renminbi into U.S. dollars and remit it to our subsidiaries outside of China. See "Risk factors—Risks related to doing business in the People's Republic of China—Restrictions on the remittance of RMB into and out of the PRC and governmental control of currency conversion may limit our ability to pay dividends and other obligations, and affect the value of your investment."

We believe our current cash, cash to be received from our customers, borrowings from financial institutions, capital leases and capital injections and borrowings from our shareholders will be sufficient to meet our cash needs for working capital and capital expenditures for at least the

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next 12 months. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow from lending institutions. Financing may be unavailable in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute our earnings per share. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.

The following table sets forth a summary of our net cash flows for the periods indicated:

   
 
  Year ended December 31  
(in thousands)
  2009
  2010
  2011
  2011
 
   

Net cash generated from /(used in) operating activities

    RMB16,854     RMB(22,423 )   RMB289,164     US$45,944  

Net cash used in investing activities

    (12,760 )   (952,864 )   (1,965,211 )   (312,241 )

Net cash (used in) /generated from financing activities

    (805 )   1,051,725     2,232,230     354,666  

Net increase in cash and cash equivalents

    3,289     76,438     556,183     88,369  

Cash and cash equivalents at the beginning of year

    1,335     4,624     81,062     12,879  

Cash and cash equivalents at the end of year

    4,624     81,062     637,245     101,248  
   

Operating activities

Net cash provided by operating activities amounted to RMB289.2 million (US$45.9 million) in 2011, primarily attributable to a net loss of RMB151.4 million (US$24.1 million), adjusted for certain non-cash expenses, including depreciation of rental vehicles and other property, plant and equipment of RMB275.5 million (US$43.8 million), and for changes in certain working capital accounts that positively affected operating cash flow, including increases in accrued expenses and other payables of RMB123.9 million (US$19.7 million) due to an increase in our advertising expenses payable, increases in prepayments from customers of RMB63.7 million (US$10.1 million) primarily due to an increase in advances paid by our long-term rental related customers, and amounts due to a shareholder of RMB34.0 million (US$5.4 million). The cash inflow was partially offset by increases in prepayments of RMB31.7 million (US$5.0 million) primarily due to prepayment of insurance fees and accounts receivable of RMB21.5 million (US$3.4 million) in line with the growth of our business.

Net cash used in operating activities amounted to RMB22.4 million in 2010, primarily attributable to a net loss of RMB43.3 million, adjusted for certain non-cash expenses, including depreciation of rental vehicles and other property, plant and equipment of RMB49.9 million, and for changes in certain working capital accounts that positively affected operating cash flow, including increases in accrued expenses and other payables of RMB16.8 million and prepayments from customers of RMB15.0 million, primarily due to an increase in advances paid by our long-term rental customers. The cash inflow was partially offset by increases in prepayments of RMB57.7 million primarily due to an increase in prepayment of insurance fees and accounts receivable of RMB6.7 million in line with the growth of our business.

Net cash provided by operating activities amounted to RMB16.9 million in 2009, primarily attributable to a net loss of RMB3.2 million, adjusted for certain non-cash expenses, mainly

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depreciation of rental vehicles and other property, plant and equipment of RMB12.7 million, and for changes in certain working capital accounts that positively affected operating cash flow, such as the waiver of unpaid interest by shareholders of RMB5.3 million.

Investing activities

Our cash used in investing activities is primarily related to purchases of rental vehicles.

Net cash used in investing activities amounted to RMB1,965.2 million (US$312.2 million) in 2011, primarily attributable to purchases of rental vehicles of RMB1,937.6 million (US$307.9 million), our acquisition of Beijing Beichen for RMB51.5 million (US$8.8 million) and purchases of other property, plant and equipment of RMB44.2 million (US$7.0 million), partially offset by proceeds from disposal of rental vehicles of RMB78.6 million (US$12.5 million).

Net cash used in investing activities amounted to RMB952.9 million in 2010, primarily attributable to purchases of rental vehicles of RMB873.8 million, borrowings to related parties of RMB43.3 million, our acquisition of Shanghai Huadong in August 2010 for RMB22.6 million and purchase of property, plant and equipment for RMB17.4 million.

Net cash used in investing activities amounted to RMB12.8 million in 2009, primarily attributable to borrowings to a related party of RMB11.9 million and purchases of rental vehicles of RMB1.7 million, partially offset by proceeds from disposal of rental vehicles of RMB1.5 million.

Financing activities

Our financing activities consist primarily of long-term and short-term bank borrowings, as well as proceeds from our shareholders, including paid-in capital.

Net cash provided by financing activities amounted to RMB2,232.2 million (US$354.7 million) in 2011, primarily attributable to RMB1,566.1 million (US$248.8 million) in proceeds from long-term borrowings, RMB460.0 million (US$73.1 million) in proceeds from shareholder loans, proceeds from sale and leaseback obligations of RMB271.8 million (US$43.2 million) and proceeds from short-term borrowings of RMB217.0 million (US$34.5 million). This was partially offset by repayment of RMB244.1 million (US$38.8 million) of long-term borrowings, repayment of principal portion of capital lease obligations of RMB146.5 million (US$23.3 million) and repayment of RMB100.0 million (US$15.9 million) to a shareholder in 2011.

Net cash provided by financing activities amounted to RMB1,051.7 million in 2010, primarily attributable to RMB451.5 million in proceeds from long-term borrowings, RMB368.0 million in proceeds from shareholder loans and RMB161.0 million in capital injection from shareholders. This was partially offset by repayment of RMB89.1 million to a shareholder and related parties in 2010.

Net cash used by financing activities amounted to RMB0.8 million in 2009, primarily attributable to repayments of the principal portion of capital lease obligations of RMB21.0 million and repayments of shareholder loans of RMB3.4 million, partially offset by proceeds from sale and leaseback transactions of RMB15.0 million and proceeds from shareholder loans of RMB7.8 million.

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Capital expenditures

Our capital expenditures have been incurred primarily in connection with vehicle acquisitions, purchase of other property, plant and equipment and intangible assets. Our capital expenditures totaled RMB2.3 million, RMB893.8 million and RMB1,986.8 million (US$315.7 million) in 2009, 2010 and 2011, respectively. We expect our capital expenditures in 2012 to be approximately RMB2.0 billion (US$371.8 million), the substantial majority of which will relate to the planned expansion of our fleet. We intend to fund our capital expenditures with existing cash balances, cash generated from our operating activities, credit facilities, capital leases and the anticipated proceeds from this offering.

Contractual obligations

The following table sets forth our contractual obligations, including interest portion, as of December 31, 2011:

 
 
  Payment due by period
(in thousands)
  Total
  Within
1 Year

  1-3 Years
  3-5 Years
  More than
5 Years

 

Borrowings

    RMB2,327,677     RMB1,042,497     1,271,704     RMB13,476  

Operating lease obligations

    98,021     30,709     31,507     17,432   18,373

Capital lease obligations

    3,273     3,273          

Purchase obligations

    107,499     107,499          

Due to shareholders

    761,933     761,933          

Total

    3,298,403     1,945,911     1,303,211     30,908   18,373
 

Off-balance sheet arrangements

We do not engage in trading activities involving non-exchange traded contracts or interest rate swap transactions or foreign currency forward contracts. In the ordinary course of our business, we do not enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships that are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Inflation

Inflation in China has not materially impacted our results of operations in recent years. According to the NBSC, the change of consumer price index in China was -0.7%, 3.3% and 5.4% in 2009, 2010 and 2011, respectively. If inflation continues to rise, we may experience increases in the wages of our employees.

Quantitative and qualitative disclosure about market risk

Foreign exchange risk

Our financial statements are expressed in Renminbi, and all of our revenues and most of our expenses are denominated in Renminbi. Currently, our exposure to foreign exchange risk primarily relates to our limited cash and cash equivalents denominated in currencies other than Renminbi. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposure to foreign currencies or any other derivative financial instruments. However, the value of your investment in our ADSs will be affected by the foreign

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exchange rate between U.S. dollars and Renminbi, because the primary value of our business is effectively denominated in Renminbi, while the ADSs will be traded in U.S. dollars. See "Risk factors—Risks related to doing business in the People's Republic of China—Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment."

To the extent that we need to convert U.S. dollars we receive from this offering into Renminbi for our operations or other uses within the PRC, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. On the other hand, a decline in the value of Renminbi against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results, the value of your investment in our company and the dividends we may pay in the future, if any, all of which may have a material adverse effect on the price of our ADSs. Assuming we were to convert the net proceeds received in this offering into RMB, a 1.0% increase in the value of the RMB against the U.S. dollar would decrease the amount of RMB we receive by RMB          million.

Interest rate risk

Our exposure to interest rate risk primarily relates to the variable interest rates for our outstanding debt including borrowings, capital lease obligations and loans from Legend Holdings and, following this offering, any interest income generated by excess cash. As of December 31, 2011, our total outstanding debt amounted to RMB3,092.9 million (US$491.4 million) with interest rates ranging from 5.85% to 12.8%. Assuming the principal of the outstanding loans remains the same as of December 31, 2011, a 1% increase in each applicable interest rate would add RMB31.1 million (US$4.9 million) to our interest expenses over the next 12 months.

We have not been exposed to material risks due to changes in market interest rates. However, our future interest expenses may increase and interest income may fall due to changes in market interest rates.

Recently issued accounting standards

In December 2010, the Financial Accounting Standards Board, or FASB, issued ASU 2010-29 (ASU 2010-29), Business Combinations (Topic 805), Disclosure of Supplementary Pro Forma Information for Business Combinations. ASU 2010-29 responds to diversity in practice about the interpretation of the pro forma disclosure requirements for business combinations. When a public entity's business combinations are material on an individual or aggregate basis, the notes to its financial statements must provide pro forma revenue and earnings of the combined entity as if the acquisition date(s) had occurred as of the beginning of the annual reporting period. ASU 2010-29 clarifies that if comparative financial statements are presented, the pro forma disclosures for both periods presented (the year in which the acquisition occurred and the prior year) should be reported as if the acquisition had occurred as of the beginning of the comparable prior annual reporting period only and not as if it had occurred at the beginning of the current annual reporting period. ASU 2010-29 also expands the supplemental pro forma disclosure requirements to include a description of the nature and amount of any material non-recurring adjustments that are directly attributable to the business combination. The amendments in ASU 2010-29 are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15 2010. Early adoption is permitted. We do

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not expect that the adoption of ASU 2010-29 will have a material impact to our consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04 (ASU 2011-04), Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 amends the fair value measurement and disclosure guidance in ASC 820, Fair Value Measurement, to converge U.S. GAAP and International Financial Reporting Standards requirements for measuring amounts at fair value as well as disclosures about these measurements. The amendments are effective during interim and annual periods beginning after December 15, 2011. We do not expect that the adoption of ASU 2011-04 will have a material impact to our consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05 (ASU 2011-05), Comprehensive Income (Topic 220), Presentation of Comprehensive Income. ASU 2011-05 requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. In December 2011, the FASB issued ASU 2011- 12 (ASU 2011-12), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers the requirement in ASU 2011-05 that entities present reclassification adjustments for each component of accumulated other comprehensive income ("AOCI") in both net income and other comprehensive income on the face of the financial statements. ASU 2011-12 requires entities to continue to present amounts reclassified out of AOCI on the face of the financial statements or disclose those amounts in the notes to the financial statements. The effective date of ASU 2011-12 is consistent with ASU 2011-05, which is effective for fiscal years and interim periods beginning after December 15, 2011 for public entities. We do not expect that the adoption of both ASU 2011-05 and ASU 2011-12 will have a material impact to our consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08 (ASU 2011-08), Intangibles—Goodwill and Other (Topic 350), Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued. We do not expect that the adoption of ASU 2011-08 will have a material impact to our consolidated financial statements.

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Industry

Overview of China's car rental industry

China's car rental industry is at an early stage of development and has experienced substantial growth in recent years. Compared to more mature car rental markets such as the United States, Canada, Japan and France, China's car rental market is underpenetrated and highly fragmented.

Market size.    According to Roland Berger, total revenues in the PRC car rental industry grew from approximately RMB5 billion in 2005 to approximately RMB17 billion (US$2.5 billion) in 2010, representing a CAGR of 27%, and are expected to further increase to approximately RMB39 billion (US$6.1 billion) in 2015, representing a CAGR of 18% from 2010 to 2015. By comparison, as of December 31, 2010, the total revenues in the U.S. car rental industry were approximately US$21 billion, according to Roland Berger.

Penetration rate.    As car rental is a relatively new concept in China, the car rental penetration rate, which is the number of rental vehicles as a percentage of the total number of registered passenger vehicles, is still low in China and has considerable room for growth, according to Roland Berger. In 2010 the car rental penetration rate in China was 0.4%, compared to 1.3% in the United States, 0.8% in Canada, 2.2% in Japan, and 0.7% in France, according to Roland Berger.

Market fragmentation.    As of December 31, 2010, there were over 10,000 car rental companies in China with an average fleet size of no more than 50 vehicles, according to Roland Berger. The aggregate market share of the top five car rental companies in China was approximately 9% as of December 31, 2010, and was expected to increase to 11% by December 31, 2011. In contrast, the aggregate market share of the top five car rental companies in the United States was 95% in 2010, according to Roland Berger.

Rental use.    A majority of car rentals in China is for business use, while leisure use and replacement rentals constitute a smaller yet growing percentage of the total market, according to Roland Berger. In 2010, business use rentals, leisure use rentals and insurance replacement rentals constituted 80%, 18% and 2% of China's car rental market, respectively, according to Roland Berger. In contrast, leisure use rentals and replacement rentals account for a larger percentage of the total market in more mature car rental markets such as the United States,

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Canada and France, according to Roland Berger. The following chart shows a comparison of car rental markets by rental use in each of the countries presented for 2010.

CHART

in US$ millions


Source: Roland Berger

Factors driving the growth of China's car rental market

The following factors have driven, and are expected to continue to drive, the growth of China's car rental market:

Rapid growth of China's economy.  China has one of the largest and fastest growing economies in the world. According to the NBSC, China's GDP increased at a CAGR of 16.9% from RMB21.6 trillion in 2006 to RMB40.3 trillion (US$6.3 trillion) in 2010. GDP per capita in China increased at a CAGR of 16.1% from RMB16,500 to RMB29,992 (US$4,765) over the same period.

Urbanization and increasing disposable income.  China has experienced rapid urbanization along with its economic development in recent decades. According to the NBSC, approximately 50.0% of China's approximately 1.34 billion population lived in urban areas as of December 31, 2010. Meanwhile, disposable income has risen significantly for Chinese consumers. Per capita disposable income of urban households increased at a CAGR of 12.9% from RMB11,759 in 2006 to RMB19,109 (US$2,996) in 2010, according to NBSC. Car rental services are becoming more affordable among China's growing and increasingly affluent urban population who desire more convenient and individualized means of transportation.

Improvement in road infrastructure.  China's infrastructure construction has progressed significantly in recent years. The total length of roadways in China increased from 3.5 million kilometers in 2006 to 4.0 million kilometers in 2010, according to the NBSC. The total length of expressways in China has also grown substantially from approximately 45,300 kilometers at the end of 2006 to approximately 74,100 kilometers by the end of 2010, ranking second in the world, according to the NBSC. The significant improvement in China's roadway infrastructure enables more convenient car travel for both leisure or business, which contributes to the development of China's car rental industry.

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Considerable burden of car ownership.  Although per capita disposable income is rapidly increasing, the cost of car ownership, which includes the cost of the car, parking, fuel, insurance, repairs and maintenance, and taxes and fees, remains high for many people in China. In addition, several Chinese cities, including Beijing and Shanghai, have issued local regulations to limit the issuance of new vehicle registration permits and/or impose road-use restrictions based on license plate number or time of the day. These restrictive policies, together with road capacity constraints in many Chinese cities, increase the burden and reduce the value of car ownership. As a result, many Chinese individuals and entities who would like the convenience of car travel do not own cars, which generates a strong demand for car rental services.

Favorable policy environment.  The MOT released a circular in April 2011 setting forth guidelines to improve the regulatory environment for China's car rental industry. This circular stresses the importance of the car rental industry to the national economy and asks local authorities to provide better guidance and service to facilitate the growth of China's car rental industry. In particular, the MOT highlights its support for large car rental companies and requires local authorities to provide simplified registration process and better service for large car rental companies seeking to build a national network.

Factors driving the growth of segments of China's car rental market

China's car rental market is divided into two segments: short-term rentals, or rentals of 30 days or less, and long-term rentals, or rentals of over 30 days. For each segment, some car rental companies in China have offered both self-drive services and chauffeured services. In the past few years, more than 20 provinces and cities promulgated local regulations that prohibit car rental companies from providing chauffeured services to rental customers. The April 2011 MOT circular reiterates the prohibition on the national level, stating that the prescribed business scope of Chinese car rental companies prohibits them from providing chauffeured services to rental customers.

Short-term rentals

In addition to the factors driving the overall growth of China's car rental industry, the following factors are expected to drive the growth of the short-term rental market in China:

Sustained disparity between numbers of licensed drivers and car owners.  The number of licensed drivers in China as a percentage of the total population was approximately 12% as of December 31, 2010, compared to 69% in the United States as of the same date, according to Roland Berger. As China's economy continues to grow, the number of licensed drivers is expected to increase, and a large and growing number of those drivers do not own cars due to the significant burden of and other limiting factors on car ownership, according to the same source. China had approximately 151.3 million licensed drivers and 61.2 million passenger vehicles as of December 31, 2010, according to the NBSC. In comparison, the United States had 209.6 million licensed drivers and 254.2 million passenger vehicles in 2009, according to the United States Department of Transportation. This disparity between the numbers of licensed drivers and car owners in China is expected to increase in the near future, according to Roland Berger, which represents a strong and sustained demand for car rental services in China.

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Increased local travel.  Chinese consumers engage in an increasing amount of local travel for business and leisure purposes, such as short business trips, weekend excursions and family visits. Public transportation systems in Chinese cities have limited coverage and are often overcrowded. Chinese consumers increasingly use cars for their local travel needs, according to Roland Berger, which we believe indicates a growing demand for short-term rentals.

Growth of the domestic travel industry.  China's tourism industry has grown rapidly in recent years as Chinese consumers spend more of their disposable income on travel. In addition, as China's economy grows, the number of domestic business travelers increases. Travel spending in China increased from RMB623 billion in 2006 to RMB1,258 billion (US$200 billion) in 2010, representing a CAGR of 19.2%, according to the NBSC. We believe this growth contributes to an increasing demand for short-term rentals from both vacationers and business travelers who seek the convenience and flexibility of driving.

Development of the replacement rental market.  Insurance companies and automobile dealers in China have recently started providing replacement rental services to customers whose vehicles are under repair or maintenance. Insurance replacement rentals accounted for 2% of China's overall car rental market in 2010, according to Roland Berger. In contrast, the insurance replacement rental market accounted for approximately 9% of the total car rental market in both the United States and France in 2010, according to Roland Berger. As insurance companies and automobile manufacturers in China compete for customers by offering additional services such as replacement rentals, demand for replacement rental services is expected to increase and drive growth for the short-term rental market, according to Roland Berger.

Social and technological advances.  A number of social and technological advances have facilitated the growth of China's short-term rental market. Improvements in personal identification verification and credit check systems have reduced the risk of vehicle theft for car rental companies. Furthermore, the availability of GPS navigation systems has made it easier for customers to navigate in unfamiliar cities, which has particularly benefited short-term self-drive rentals.

Long-term rentals

The growth of the long-term rental market in China is primarily driven by demand for car uses by institutional customers that prefer not to incur large capital expenditures or dedicate significant resources to fleet management, according to Roland Berger. Long-term rentals serve as an attractive alternative to fleet ownership while providing institutional customers with certain tax benefits.

In addition, policy reforms limiting car ownership by government agencies are expected to contribute to the growth of the long-term rental market. There are more than 2 million government-owned cars in China, according to Roland Berger. The Chinese government has recently implemented a series of policy reforms to limit the number and models of cars that may be purchased by government agencies and encourage government agencies to meet their needs for car use by resorting to commercial vehicles. These reforms have reduced and are expected to further reduce the number of government-owned cars in China. For example, the new car purchase volume of government agencies in Guangdong province decreased by 50% in the first half of 2011 compared to the same period in 2010, according to Roland Berger. As a result of these reforms, government agencies are expected to resort to car rentals as one of

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the primary means of meeting their car use needs, which creates a strong demand for long-term rentals, according to Roland Berger.

Competitive landscape of China's car rental industry

Car rental companies in China include privately-owned domestic car rental companies, such as us, eHi, and Topone, the local branches of international car rental companies such as Avis and Hertz, and affiliates of state-owned automobile manufacturers in China such as Shouqi and Dazhong. Competition is based on, among other things, price, network coverage, fleet size, brand recognition, variety and condition of the vehicles, variety of products and quality of customer service.

China's car rental market is highly fragmented. There were over 10,000 car rental companies in China as of December 31, 2010, according to Roland Berger. As of December 31, 2011, the top five rental service providers in terms of revenue were us, Avis, eHi, Dazhong and Shouqi, which in aggregate accounted for 9% in 2010 and are expected to account for 11% in 2011 of China's total car rental revenues, according to Roland Berger. The fragmentation in China's car rental market is in contrast to significantly higher levels of market concentration in more developed markets such as the United States, where the top five car rental companies in aggregate accounted for 95% of the market in 2010, according to Roland Berger. As China's car rental industry develops and matures, its market concentration level is expected to increase over time, according to Roland Berger.

As measured by fleet size as of December 31, 2011, the top ten car rental companies in China were as follows:

CHART


Source: Roland Berger

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China's used car market

The volume of used car sales in China increased at a CAGR of 30% from 0.5 million vehicles in 2004 to 1.7 million vehicles in 2009, which represented 20% of the volume of new car sales in 2009 in China, according to Roland Berger. This percentage is significantly lower than that of more developed used car sale markets such as the United States, where the volume of used car sales was 350% of the volume of new car sales in 2009, according to Roland Berger. Most used cars are sold directly to dealers or through brokers, and no established national distribution network of used car dealers currently exists in China.

As China's automobile market continues to develop and mature, the used car market is expected to expand significantly and the ratio between the volumes of used and new car sales is expected to move toward that of more mature markets. The volume of used car sales in China is expected to grow at a CAGR of 26% from 2.6 million vehicles in 2010 to 8.1 million vehicles in 2015, far exceeding the estimated CAGR of 10% for new car sales for the same period, and is expected to reach approximately 45% of the volume of new car sales by 2015, according to Roland Berger.

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Business

Overview

We are the largest car rental company in China, commanding a leading position in the industry as measured by fleet size, network coverage and number of customers, according to Roland Berger. We also command the largest market share in terms of revenue in China's car rental market, according to Roland Berger.

We believe we are the first and only car rental company with a rental fleet of more than 10,000 vehicles in China's nascent but fast-growing car rental industry. Our fleet, comprising 25,845 vehicles covering most of the popular models in China, was as large as the aggregate fleet size of the next eight largest car rental companies and over three times that of the second largest car rental company in China as of December 31, 2011, according to Roland Berger.

We are dedicated to providing customers with enjoyable, affordable and reliable car rental services. Our network of 520 service locations covers 66 cities in all provinces and provincial-level municipalities of China. We strive to provide superior car rental services to our customers with 24/7 service at 52 major airports in China and in every city where we operate. Our products include short-term rentals, long-term rentals and leasing. As of December 31, 2011, we had a customer base of over 450,000. Over 920,000 members registered with us through our loyalty program for short-term rentals as of December 31, 2011, of whom approximately 48.5% had rented cars from us.

Our brand " GRAPHIC ," or "China Auto Rental," has become the most recognized car rental brand in China, according to a consumer survey conducted by Roland Berger in 2011. According to Baidu Index and Google Trends, two major keyword search popularity indices, our brand had the highest search volume among car rental companies in China and our total search volume on Baidu and Google was over four times and twice, respectively, that of our closest competing brand in China in 2011. Leveraging our strong brand, we employ a direct sales strategy and market through targeted Internet and traditional advertising. We believe our direct sales approach lowers our customer acquisition costs by bypassing third-party intermediaries and enhances service quality and customer retention by providing us with in-depth understanding of customer needs.

We have established a highly reliable and scalable IT platform, which fully integrates all aspects of our operations including transaction processing, customer management, fleet management and payment processing. Our IT platform allows us to collect, monitor and analyze vast amounts of customer, fleet and financial data on a real-time basis, which enables us to improve our operational efficiency and service quality. Our IT platform effectively supported our operations as our fleet expanded from 692 vehicles as of December 31, 2009 to 25,845 vehicles as of December 31, 2011, and we believe our IT platform is highly scalable for our future business expansion.

We have experienced substantial growth over the past three years. Our revenues increased from RMB54.0 million in 2009 to RMB143.0 million in 2010 and RMB775.8 million (US$123.3 million) in 2011. We incurred net losses of RMB3.2 million, RMB43.3 million and RMB151.4 million (US$24.1 million) in 2009, 2010 and 2011. Our adjusted EBITDA for 2009, 2010 and 2011 was RMB17.3 million, RMB26.3 million and RMB275.7 million (US$43.8 million),

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respectively. For a reconciliation of our adjusted EBITDA to our net loss, see footnote 1 on pages 9 and 10 of this prospectus.

Competitive strengths

We believe the following strengths have contributed to our success and differentiated us from our competitors.

Leading position in China's nascent but fast-growing car rental market

We are the largest car rental company in China in terms of fleet size, network coverage, number of customers and revenues, according to Roland Berger. As of December 31, 2011, we operated a rental fleet of 25,845 vehicles, which was as large as the aggregate fleet size of the next eight largest car rental companies and was over three times that of the second largest car rental company in China, according to Roland Berger. As of December 31, 2011, we were also the largest China car rental business in terms of revenue, commanding a leading market share of 4.2% in a rapidly growing yet highly fragmented market with over 10,000 car rental companies, according to Roland Berger. As of December 31, 2011, we had a customer base of 446,559 individual customers and 3,475 institutional customers across China.

As the market leader, we benefit from our economies of scale in many ways:

Procurement costs.  With the largest car rental fleet and a continued need to replenish and expand our fleet, we are able to leverage our purchasing power to obtain favorable prices from various business partners, including automobile manufacturers, vehicle repair and maintenance service providers and insurance companies.

Operating costs.  Our large fleet, nationwide geographic coverage and broad customer base enable us to achieve significant operational efficiency by lowering our average fixed costs and expenses such as marketing and overhead expenses.

Capital efficiency.  Our large scale of operation and strong operational performance enable us to finance our growth with an efficient and balanced capital structure encompassing both equity and debt financings, thereby providing us with increased funding flexibility and cost efficiency.

We believe our scale and market leading position reinforce each other. We attain greater economies of scale as our business expands, which tends to result in cost efficiency in procurement, operations and capital. We will leverage these cost efficiencies to continue providing competitive prices to our customers to retain and grow our customer base. A larger customer base in turn helps us achieve higher revenues and an even greater scale.

China's car rental market is at an early stage of development. It is expected to grow at a CAGR of 18% from a market size of RMB17 billion (US$2.5 billion) in 2010 to RMB39 billion (US$6.1 billion) by the end of 2015 and become increasingly consolidated, according to Roland Berger. As the incumbent market leader in this rapidly growing and steadily consolidating market, we believe we benefit from significant early mover advantages that will allow us to capitalize on growth opportunities and maintain our market leadership position.

Quality services and leading brand

Our large scale, substantial cost advantages and strong focus on customer experience enable us to provide quality services aimed at delivering convenience, flexibility and value to our

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customers. The following characteristics of our services have made us a preferred rental car provider for both individual and institutional customers in China:

Extensive network coverage.  Customers can pick up and drop off a car at any of our 520 service locations at or near airports, train stations and other transportation hubs, business districts, residential communities and tourist destinations in 66 of the most developed and populous cities in China.

Diverse products and services.  We provide comprehensive and flexible rental services to meet our customers' diverse needs. Our products include short-term rentals, long-term rentals and leasing. We also offer additional value-added services, including GPS navigation systems, child safety seats, 24/7 roadside assistance, vehicle delivery and one-way rentals.

Excellent vehicle condition and selection.  We believe we have the youngest rental fleet in China. As of December 31, 2011, over 80% of our fleet was less than 18 months old. We perform periodic maintenance on all of our vehicles to ensure safety and reliability. Our large fleet includes sedans, sport utility vehicles, and multi-purpose vehicles of 75 popular models in China to satisfy the diverse needs of our customers.

Superior customer service.  We offer 24/7 services at all of our airport service locations and in every city where we operate. Our call centers operate 24/7 to take reservations, answer customer inquiries, address complaints and provide membership services. We also offer 24/7 roadside assistance.

Our dedication to offering the best rental experience is rewarded with a large and rapidly growing customer base. Our customer base has increased from 36,439 as of December 31, 2009 to 118,158 as of December 31, 2010 and reached 450,034 as of December 31, 2011. We believe our consistently high-quality services further help us enhance customer loyalty and encourage repeat rentals.

Our brand is the most searched car rental brand in China. According to Baidu Index and Google Trends, two major keyword search popularity indices, our brand had the highest search volume among car rental companies in China, and our total search volume on Baidu and Google was over four times and twice, respectively, that of our closest competing brand in China in 2011. According to additional data available on Baidu Index, we also had the highest search volume in every province in China as of December 31, 2011. Our brand was also the most liked car rental brand among Chinese customers, according to a customer survey conducted by Roland Berger in 2011.

We have won numerous awards which underscore our strong brand and reputation, including the Best Practice Golden Award granted by Harvard Business Review in 2011, the 2011 Best Car Rental Company in China granted by the National Geographic Traveler magazine, and the 2011 Best Service Award jointly granted by the Brand China Industry Union and the China Chamber of International Commerce. We were also included in Forbes Magazine's 2009 China High-Potential Enterprises List and served as one of the official VIP car service providers for the 2008 Beijing Summer Olympics.

Strong business partnerships

We have leveraged our large scale, broad customer base and highly recognized brand to establish mutually beneficial partnerships with relevant industry players including automobile manufacturers, banks and other lending institutions, and insurance companies.

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We have partnered with major automobile manufacturers in China, including General Motors, Hyundai and Citroen. With a continued need to replenish and expand the largest rental fleet in China, we are an attractive partner to automobile manufacturers. Exposure to a large number of consumers through us also gives automobile manufacturers an efficient sales and marketing channel. Our partnerships with automobile manufacturers allow us to obtain favorable purchasing terms for vehicle acquisition. In addition, our partnerships with automobile manufacturers have generated new opportunities to increase our revenues, such as extended test drive programs, in which automobile manufacturers rent vehicles from us to allow potential car buyers to test drive the desired models for several days, and replacement rental services, in which dealerships provide replacement rental vehicles through us while their customers' own vehicles are under repair or maintenance.

We work closely with various banks and other lending institutions, including major domestic commercial banks such as Bank of China and Bank of Communications, trust companies such as Suzhou Trust and Kunlun Trust, and capital lease companies such as Minsheng Financial Leasing to gain access to diverse credit sources. Additionally, our leading brand and large customer base have made us an attractive partner for banks to cross-sell products. For example, China Merchant Bank offers membership in our customer loyalty program as a value-added service to their credit cardholders. Our strong relationships with a diverse group of lending institutions provides us with substantial credit support that contributes to our efficient and balanced capital structure. In addition, the banks and their large customer bases represent an appealing group of potential customers to us.

We have established close relationships with major Chinese insurance companies such as PICC and Ping An Insurance. The large number of automobile insurance policies that we purchase makes us a valuable customer to insurance companies. We typically are able to leverage our purchasing power to obtain favorable terms for our insurance policies. As China's insurance companies begin to provide replacement rental vehicles to remain competitive, our extensive network and high-quality services fulfill the needs of insurance companies to offer reliable and convenient replacement rental services to their policyholders. We are one of the primary providers of replacement rental services to PICC and Ping An Insurance. We intend to enhance our cooperation with PICC and Ping An Insurance while actively seeking opportunities to partner with other insurance companies to further explore the insurance replacement rental market and grow our short-term rental revenue.

Diversified business mix

We believe our diversified business mix in terms of products, services and customer base enables us to achieve both operational efficiency and revenue growth.

We accommodate our customers' business and leisure needs for car rentals with a wide range of products, services, vehicles and service locations. Our comprehensive menu of products and services offers our standard products of short-term rentals, long-term rentals and leasing, as well as many other value-added services. Our fleet is the largest in China's car rental industry, comprising 25,845 vehicles of 75 popular models and covering most vehicle classes and body types available in China. Our geographically diverse national network covers 66 cities in all of the provinces and provincial-level municipalities of China.

We have developed a diverse customer base. Our individual customer base reaches all of the major cities in China. Our institutional customer base encompasses government agencies and

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corporations ranging from small start-ups to Fortune 500 multinationals from a wide variety of industries. As of December 31, 2011, we had a customer base of 446,559 individual customers and 3,475 institutional customers. Our customer base has increased from 36,439 as of December 31, 2009 to 118,158 as of December 31, 2010 and reached 450,034 as of December 31, 2011. As of December 31, 2011, over 920,000 members registered with us through our loyalty program for short-term rentals, of whom approximately 48.5% had rented cars from us.

As a result of our diversified business mix, we benefit from complementary demand patterns. For example, for short-term rentals, leisure travelers, mostly individuals, generate more transactions on the weekends while business travelers generate more transactions during the week. Such complementary demand patterns improve the utilization rate of our short-term fleet and contribute to our overall margin. Additionally, our diversified business mix provides us with balanced sources of revenues. In 2011, no single customer generated more than 5% of our total revenues. Further, our diversified business mix enables us to explore cross-selling opportunities across our individual and institutional customer bases.

Highly reliable and scalable IT platform

We have constructed our integrated IT platform as an effective, reliable and scalable infrastructure that is capable of supporting our large-scale operations and fast expansion. The key functions of our IT platform cover all aspects of our operations which include, among others, transaction processing, customer management, fleet management, dynamic pricing and call centers.

Our IT platform enables us to provide our customers a straightforward and expedient rental process. Customers can easily make or change a reservation, make a rental payment and manage their membership accounts on our website, through our iOS and Android mobile applications, or through our call centers at any time of the day.

Our IT platform also enables us to effectively manage our business in a fully-integrated operating environment. We rely on our IT platform to securely and expediently process our vast amount of transactions. Our IT systems record and analyze customer information from different perspectives to help us plan marketing initiatives and improve our services. Our IT systems also track each vehicle's holding period, location, mileage and utilization rate to help us effectively manage our large fleet. Our payment processing is highly automated and securely integrated with our IT platform, which reduces our collection risk and improves our operational efficiency. In addition, our IT platform enabled us to implement dynamic pricing based primarily on rental term, location, vehicle availability, timing of booking, our competitiveness and target profits.

We strive to ensure the reliability and security of our IT platform. We maintain back-up units for our key operational equipment to ensure that a hardware failure anywhere will not disrupt our normal operations. Our two call centers are connected to function as one virtual unit and serve as each other's back-up for disaster recovery. We are therefore able to provide customers with superior 24/7 services without interruption. Our scalable IT platform effectively supported our operations as our fleet expanded from 692 as of December 31, 2009 to 25,845 vehicles as of December 31, 2011. We are able to scale up our IT platform to accommodate significant expansion of our business.

Our integrated IT platform empowers us to operate efficiently and deliver high-quality services to our customers, which we believe are core components of our competitiveness. We also

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believe that the extensive operational expertise we have accumulated in the design and operation of our IT platform creates a strong competitive advantage for us.

Experienced management team

We believe that excelling in the car rental business in China requires both in-depth industry expertise and extensive local knowledge and resources. Over the years, our management team has accumulated extensive knowledge of China's car rental industry and related automobile services sectors. Mr. Charles Zhengyao Lu, our founder, chairman and chief executive officer, has 17 years of entrepreneurial experience and is a pioneer in China's car rental industry. Under Mr. Lu's leadership, a majority of the key members of our management team have worked together for over 8 years in the automobile and consumer services-related sectors, including at Beijing Huaxia United Automobile Association Co. Ltd., or UAA Beijing, a leading automobile club in China. Our management team's extensive experience in automobile and consumer services-related sectors has greatly contributed to our institutional knowledge in areas such as marketing, fleet management and customer management.

Strategies

Our goal is to solidify and strengthen our leadership position in China's car rental market. To achieve this goal, we intend to:

Enhance market leadership position

We intend to further build on our market leadership position and increase our market share in China's rapidly growing and steadily consolidating car rental industry. We plan to further expand our fleet, optimize our fleet composition and diversify our business mix. We will continue to leverage our strong purchasing power to secure favorable terms from automobile manufacturers and offer competitive prices to customers. We intend to broaden and deepen our network coverage by strategically adding new service locations to further penetrate cities within our existing network, as well as selectively entering into lower tier cities that we believe to have high growth potential. We also intend to pursue additional strategic partnerships and acquisitions to achieve synergetic growth. Through these strategies, we intend to enhance our market leadership position and raise the barriers to entry for others.

Further expand customer base and improve customer loyalty

We plan to expand our customer base through direct sales and targeted marketing. We have established a strong brand in China's nascent but fast-growing car rental market, which enables us to employ direct sales and targeted marketing as a highly effective way to acquire new customers and build long-term customer loyalty. We intend to continue marketing directly to the general public through Internet and traditional advertisings. We also intend to promote our corporate programs, in which employees of a corporation join as a group to qualify for better car rental rates. In addition, we seek to work with more automobile manufacturers and insurance companies on replacement rental and extended test drive services. As we continue to provide consistently high-quality products and services, we also believe that we will be able to attract new customers through recommendations by our existing customers.

We intend to strengthen customer loyalty by continuing to provide consistently high-quality products and services and attractive membership programs. As we operate through more business cycles, we will acquire greater knowledge about our customers to tailor our services according to their needs, which will result in an enhanced rental experience for our customers.

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We also plan to continue to develop our membership programs to encourage repeat rentals. We believe that our diverse products and services, superior customer service and popular incentives will collectively strengthen customer loyalty.

Continue to improve operational efficiency

As the largest rental service provider and an early mover in China's car rental industry, we have accumulated significant operational experience and market intelligence that we believe few others in China's rapidly evolving car rental industry possess. Our large scale of operations provides us with an extensive database of customer information from which we derive customer rental patterns and preferences. We believe that such industry know-how enables us to improve our operational efficiency. For example, we implemented a dynamic pricing system in February 2012. The system enables us to price our products based on primarily rental term, location, vehicle availability, timing of booking, our competitiveness and target profits, which we believe will further improve our fleet utilization rate and maximize our overall return. We plan to further enhance our ability to collect and analyze market and customer information through our IT platform, which will help us improve fleet composition, services and pricing schemes.

Develop and enhance our used car sale business

We believe a well-managed used car sale business complements and creates synergies with our car rental business. We currently dispose of our used vehicles to brokers and dealers on an as-needed basis. We intend to launch a three-phase system for used car sale in April 2012, which will provide a more systematic and cost-efficient way for us to proactively sell our used vehicles to rental customers, brokers and dealers. Under this system, once a rental vehicle reaches the point where its estimated residual value becomes lower than its market value, it is available for direct purchase by rental customers through our rent-to-buy program at a price we consider favorable. Once a vehicle becomes 33 months old, it is placed in our own bidding system, where interested rental customers and dealers may purchase it at a price no less than its estimated residual value. Lastly, once a rental vehicle becomes 36 months old, which is our maximum holding period, it is retired from our fleet, placed into an auction forum, and sold at the best offer received.

We expect our used car sale business to diversify our vehicle disposition channels and enable an optimized vehicle disposition process. We believe our timely and efficient vehicle disposition will help maximize our used car sales proceeds, shorten the average holding period of our fleet, and enhance our purchasing power by increasing the volume of new vehicles we acquire. We believe these benefits will have a positive impact on both our customers' rental experience and our results of operations.

Our products

Our products include short-term rentals, long-term rentals and leasing. In addition, we also offer various value-added services such as GPS navigation systems, child safety seats, 24/7 roadside assistance, vehicle delivery and one-way rentals.

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Short-term rentals

We categorize rentals of 30 days or shorter as short-term rentals. We offer only self-drive short-term rentals in compliance with the business scope prescribed by Chinese laws and regulations applicable to the car rental industry. Our short-term rentals are designed to meet our individual and institutional customers' local and inter-city travel needs, as well as replacement rental and other special needs, for both business and leisure purposes.

As of December 31, 2011, we offered short-term rentals in all of our 520 service locations across 66 cities in China. We believe we have the broadest network coverage in China's short-term car rental market, and are well-positioned to capture growth opportunities in both the business and leisure car rental markets, which require a geographically extensive and easily accessible network of service locations.

Our short-term rental fleet has 75 popular models covering most vehicle classes and body types available in the market. We offer sedans, sport utility vehicles and multi-purpose vehicles to meet different rental needs. Our short-term rental fleet grew from 532 vehicles as of December 31, 2009 to 21,920 vehicles as of December 31, 2011, constituting the largest short-term rental fleet in China's car rental industry, according to Roland Berger. As of December 31, 2011, our short-term rental fleet comprised approximately 85% of our total rental fleet.

There is a growing demand from both individuals and institutions for short-term rentals in China. Chinese consumers increasingly utilize cars for local travel, including business and leisure trips and family visits, and self-guided vacation travel, which creates a growing demand for short-term rentals. In particular, the large and growing group of Chinese licensed drivers who desire the convenience of car travel but do not own a car represent a strong and sustained demand for short-term rentals. Chinese institutions of all sizes utilize short-term rentals to meet their needs for occasional business use of cars and ground transportation on business trips. Insurance companies and automobile dealerships in China have a growing demand for short-term rentals as they begin to offer replacement rentals to their customers. Our short-term rentals meet the needs of both individual and institutional customers by offering a cost-effective and convenient alternative to car ownership.

We charge our short-term rental customers basic rental rates, cost of basic insurance coverage, handling fees, and fees for value-added services, if applicable. In February 2012, we implemented dynamic pricing on our short-term rental rates, which will vary according to rental term, location, vehicle availability, timing of booking, our competitiveness and target profits. Our customers can make reservations for specific models of vehicles as opposed to only by vehicle class. Our customers are responsible for the cost of gasoline consumed during the rental period. We also offer various value-added services such as GPS navigation systems, child safety seats, 24/7 roadside assistance, vehicle delivery and one-way rentals.

A first-time customer must register as a member and provide government-issued identification and a valid Chinese driver's license for our verification. Our members can make reservations for short-term rentals through our website at www.zuche.com, our mobile client applications for iOS and Android operating systems and our 24/7 call centers, or by walk-in at one of our service hubs directly, all of which are connected and supported by our fully integrated IT platform. In 2011, approximately 73% of our reservations were made through our website and mobile applications.

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Prior to picking up a rental car, short-term rental customers are required to sign our rental agreement and prepay or deposit a required amount on a credit or debit card. During the return process, our staff follows standard procedures, including inspection of vehicle condition, mileage and gasoline level, damage assessment, if applicable, and customer confirmation and handover. Payment is typically net of the pre-paid or deposited amount. Unless approved by our headquarters, we normally do not allow any transaction to be settled in cash, which helps us maintain stringent financial control. We also retain a preset amount for up to 30 days as a deposit against any liabilities caused by the customer, such as traffic tickets or damage to the vehicle undiscovered during the return process.

Our short-term rental business has grown significantly since its inception. The number of short-term rental transactions increased from approximately 43,800 in 2009 to approximately 885,000 in 2011. As a result of the substantial growth in rental volume, our revenues from short-term rentals grew from RMB41.1 million in 2009 to RMB629.6 million (US$100.0 million) in 2011. Short-term rentals accounted for 76.2%, 75.8% and 81.2% of our total revenues for 2009, 2010 and 2011, respectively. As of December 31, 2011, we commanded the largest market share of 19.6% of China's self-drive short-term rental market in terms of revenue, according to Roland Berger.

Long-term rentals

We categorize rentals of over 30 days as long-term rentals. All of our long-term rental customers are institutional customers, including large corporations, small and medium sized enterprises, and government agencies.

As of December 31, 2011, we offered long-term rentals in all of the 66 cities in our network. We believe we have the broadest geographic coverage for long-term rentals in China. Our extensive national coverage allows institutional customers with national presence to enter into one umbrella rental service agreement with us to service their operations across China, making us a preferred long-term rental provider. We believe we have the fastest growing long-term rental fleet in China's car rental industry. Our long-term rental fleet increased from 160 vehicles as of December 31, 2009 to 3,898 vehicles as of December 31, 2011, making us one of the largest long-term car rental companies in China by fleet size, according to Roland Berger. As of December 31, 2011, our long-term fleet constituted approximately 15% of our total rental fleet. We also leverage our short-term rental fleet to provide temporary replacement rentals to institutional customers whose long-term rental vehicles are unavailable due to repair or maintenance.

The demand for long-term rentals is primarily driven by institutional customers' needs to have an alternative to car ownership that can satisfy their needs for car use while providing cost-savings in capital expenditure and administration resources. Corporate customers are also attracted to long-term rentals because of the associated accounting and tax benefits. For government agencies, the demand for long-term rentals has been and will likely continue to be driven by policy reforms to reduce car ownership by government agencies. We believe our long-term rentals satisfy the demand from all of these institutional customers.

We provide long-term rentals under individually negotiated contracts. Terms of long-term rental contracts vary based on rental length, vehicle type, locations, and other factors. Long-term rental rates typically include basic rental fees, cost of basic insurance coverage, and costs for repair and maintenance. We offer optional valued-added services such as GPS

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navigation systems and 24/7 roadside assistance. We generally require our long-term customers to make an upfront deposit and pay rental fees in periodic installments. Each long-term rental customer's payment plan, such as deposit amount or installment frequency, varies depending on our analysis of their creditworthiness. We typically collect payments from our customers on a monthly basis.

In terms of vehicle selection, we offer new vehicles of models designated by our customers for long-term rentals longer than 24 months, and new vehicles of makes and models in our short-term rental fleet for long-term rentals between 12 and 24 months. Customers may choose from existing vehicles in our short-term rental fleet for long-term rentals of less than 12 months. We believe we enjoy unique competitive advantages in the long-term rental market as many institutional customers are attracted to us by our large selection of vehicles, excellent vehicle condition, high quality service and competitive prices.

Our sales force markets our long-term rentals through on-site visits and direct calling, supported by our online sales channel. Our sales representatives work with customers to tailor long-term contracts to address customers' specific needs.

Revenues from long-term rentals recognized as operating leases grew from RMB12.7 million in 2009 to RMB143.7 million (US$22.8 million) in 2011, and accounted for 23.5%, 23.0% and 18.5% of our total revenues in 2009, 2010 and 2011, respectively. The remainder of revenues from our long-term rentals are recognized as revenues from direct financing leases in our consolidated financial reports due to application of U.S. GAAP. See "Management's discussion and analysis of financial condition and results of operations" for discussions in detail.

Leasing

We obtained the approval for our leasing business from the relevant government authority in April 2011 and began offering leasing to institutional customers in May 2011. Our leasing terms usually range from one to three years. Leasing differs from our long-term rentals in that at the end of the leasing period, customers purchase the leased car with a payment agreed upon at the beginning of the leasing arrangement. While leasing is a common service offered by automobile sellers in more mature markets such as the United States, PRC automobile sellers do not provide leasing services to institutional customers. Leasing provides institutional customers with significant accounting and tax benefits and requires less capital than direct car ownership. We believe the addressable leasing market in China is at an early stage of development and has high growth potential, driven primarily by the various benefits in tax, capital efficiency and financial reporting. We believe we are able to leverage our scale of operations, our large customer base and our diverse services to capitalize on the growth opportunities in the leasing market.

Our service network

Our network covers all of the provinces and provincial-level municipalities in China, which constitutes the largest service network in China's car rental industry, according to Roland Berger. We have rapidly expanded our geographic footprint from 67 service locations in 30 cities as of December 31, 2008 to 520 service locations, which include 234 service hubs and 286 service points, in 66 cities across China as of December 31, 2011. Our service network covers all of the tier one cities of Beijing, Shanghai, Guangzhou and Shenzhen, all of the provincial capital cities in China, as well as lower tier cities we consider to have great demand or high growth potential for car rental services. We operate at 52 major Chinese airports, including 45

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of the 50 largest airports in China. We have largely completed the strategic build-out of our nationwide service network, and intend to primarily focus on selectively adding new service locations to increase service penetration within our existing coverage. The following map sets forth the geographic coverage of our service network as of December 31, 2011.

MAP

We have strategically located our service locations throughout the areas where we operate to provide customers convenient access to our vehicles. Our service locations are generally located at or near airports, train stations, subway stations and other transportation hubs, major business districts, residential communities and tourist destinations.

Our service hubs, all of which are on leased properties and operated by us, are physical storefronts with parking facilities. Service hubs in the same city share all of the available rental vehicles in that city, thereby improving vehicle availability and selection to our customers. Revenue potential, accessibility and parking availability are the key factors we consider when we select sites for new service hubs.

Service points, on the other hand, do not have physical storefronts or parking facilities. We deliver rental cars to our customers at service points from the nearest service hubs. Service points are located at easily-identifiable and accessible locations, such as well-known buildings, intersections or other landmarks. We establish service points in strategically selected locations where a physical storefront is not available to us at the time, such as certain airports with no available commercial space, or where the transaction volume is not large enough to support the operation of a service hub. Service points supplement our service hubs and provide a flexible, cost-effective way to extend our network coverage. We monitor the transaction volume of each service point to determine whether we should replace it with a new service hub in the area.

We aim to provide best-in-class service throughout our nationwide network. All of our airport service locations offer 24/7 service, and at least one service location in every city where we operate is open 24/7. Our non-24/7 service hubs typically stay open until 9 p.m. everyday, which

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is later than general industry practice. We believe no other car rental company in China provides customers with this level of service across such an extensive network. The following table sets forth the details of our service network as of December 31, 2011.

 
 
  Number of service locations    
  Number of service locations
Cities
  Service hubs
  Service points
  Availability
of airport
services

  Cities
  Service hubs
  Service points
  Availability
of airport
services

 

Beijing

  26   16   ü   Hohhot   2   0   ü

Shanghai

  18   11   ü   Lanzhou   2   2   ü

Guangzhou

  13   6   ü   Luoyang   2   4   ü

Shenzhen

  10   5   ü   Nanning   2   3   ü

Nanjing

  8   7   ü   Xining   2   1   ü

Wuhan

  8   4   ü   Yinchuan   2   1   ü

Changsha

  7   8   ü   Zhuhai   2   3   ü

Chengdu

  7   14   ü   Anshan   1   3   ü

Zhengzhou

  7   1   ü   Dandong   1   4   ü

Chongqing

  6   11   ü   Daqing   1   4   ü

Xi'an

  6   14   ü   Jinjiang   1   2   ü

Hangzhou

  5   2   ü   Lhasa   1   0   ü

Jinan

  5   3   ü   Nantong   1   3   ü

Shenyang

  5   14   ü   Sanya   1   4   ü

Taiyuan

  5   2   ü   Tangshan   1   4   ü

Tianjin

  5   5   ü   Urumqi   1   0   ü

Dalian

  4   6   ü   Wenzhou   1   2   ü

Harbin

  4   10   ü   Yantai   1   1   ü

Shijiazhuang

  4   4   ü   Yiwu   1   3   ü

Xiamen

  4   2   ü   Dongguan   2   7   No airport

Fuzhou

  3   4   ü   Quanzhou   2   4   No airport

Guiyang

  3   3   ü   Zhongshan   2   2   No airport

Hefei

  3   2   ü   Dujiangyan   1   1   No airport

Kunming

  3   9   ü   Fushun   1   1   No airport

Nanchang

  3   6   ü   Huizhou   1   1   No airport

Ningbo

  3   3   ü   Jiaxing   1   0   No airport

Qingdao

  3   3   ü   Jilin   1   5   No airport

Wuxi

  3   3   ü   Kunshan   1   4   No airport

Changchun

  2   9   ü   Langfang   1   5   No airport

Changzhou

  2   10   ü   Suzhou   1   3   No airport

Foshan

  2   2   ü   Wujiang   1   0   No airport

Guilin

  2   1   ü   Xiangtan   1   5   No airport

Haikou

  2   2   ü   Yangzhou   1   2   No airport
 

In addition, we cooperate with Enterprise, the largest car rental company in the world, to provide Chinese customers who travel in the United States with Chinese-language reservation services and discounted prices from Alamo Rent A Car, one of Enterprise's car rental service brands.

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Our customers

We have a large, rapidly growing and loyal customer base consisting of individual and institutional customers.

Individual customers generally rent on a short-term basis for local travel, including business and leisure trips and family visits, and self-guided vacation travel. Our individual customer base consists primarily of Chinese urban consumers who have developed new consumption habits and are more receptive to car rental. In particular, many of our individual customers are licensed Chinese drivers who do not own cars. The number of our individual customers grew from 36,034 as of December 31, 2009 to 117,130 as of December 31, 2010 and reached 446,559 as of December 31, 2011.

Institutional customers utilize our short-term rentals, long-term rentals and leasing. Our institutional customer base consists of corporations of all sizes and government agencies. Our corporate customer base covers a wide variety of industries, including telecommunications, IT, and consumer goods, and includes many Fortune 500 companies such as China Telecom, General Motors and PICC. We work with an increasing number of insurance companies, automobile manufacturers and dealerships to provide replacement rentals and extended test-drive services. As China's reform of government car ownership progresses, a growing number of government agencies have become our customers. Our institutional customer base grew from 405 as of December 31, 2009 to 1,028 as of December 31, 2010 and reached 3,475 as of December 31, 2011.

We believe our high-quality products and services, superior customer service and targeted marketing initiatives have enabled the rapid growth of our customer base and strong customer loyalty. In particular, we believe our competitive prices, vehicle condition and network coverage are especially appealing to individual customers while our brand recognition, network coverage and high-quality products and services are the key factors attracting and retaining institutional customers. Our average number of rental transactions per customer was 1.2, 1.5 and 2.0, respectively, and our average number of days per rental transaction was 2.9, 3.1 and 3.6, respectively, in 2009, 2010 and 2011, calculated on an annual basis. As a result, our average rental days per customer per annum grew from 3.5 days in 2009 to 4.5 days in 2010 and 7.2 days in 2011.

Our customer service

Our "4 Any" service philosophy of "anyone, anytime, any car and anywhere" demonstrates our commitment to delivering superior customer service, which we believe is critical to our business.

We offer a broad range of products, including short-term rentals, long-term rentals and leasing, to meet the different personal and business needs of our individual and institutional customers. To enhance our customers' rental experience and increase our revenue, we also offer value-added services such as GPS navigation systems, child safety seats, 24/7 roadside assistance, vehicle delivery and one-way rentals.

Our short-term rental customers can make reservations for specific models of vehicles as opposed to only by vehicle class. Our long-term rental customers enjoy more freedom with vehicle selection. We offer new vehicles of makes and models designated by our customers for long-term rentals longer than 24 months, and new vehicles of makes and models in our short-term rental fleet for long-term rentals between 12 and 24 months.

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We offer 24/7 service in at least one service location in every city where we operate and at all of our airport service locations in 52 major Chinese airports, including 45 of the largest 50 airports in China, as of December 31, 2011. Our call centers are available 24/7 to process reservations and provide customer service. We also provide nationwide 24/7 roadside assistance to our customers.

We communicate rental transaction information to our short-term rental customers in a timely manner via instant text messages and emails. For long-term rental customers, we make periodic telephone inquiries about the performance of our vehicles and customer needs. We seek customer feedback on all aspects of our services once a transaction is completed. We strive to respond promptly and effectively to customer complaints at our service hubs, through our 24/7 call centers, and from our corporate Weibo site, a Twitter-like social media platform in China. Additionally, we email our members a weekly newsletter to maintain communication and inform them of new promotions.

Brand, sales and marketing

Brand

We have successfully established our brand recognition in China's car rental market through a combination of targeted marketing campaigns, direct sales and customer recommendations. Our strategy is to have our brand represent enjoyable, affordable and reliable car rental services to customers. We also strive to associate our brand with a keen awareness of corporate social responsibility.

Our brand " GRAPHIC ," or "China Auto Rental," has become the most recognized car rental brand in China, according to a consumer survey conducted by Roland Berger in 2011. According to Baidu Index and Google Trends, two major keyword search popularity indices, our brand had the highest search volume among car rental companies in China, and our total search volume on Baidu and Google was over four times and twice, respectively, that of our closest competing brand in China in 2011. According to additional data available on Baidu Index, we also had the highest search volume in every province in China as of December 31, 2011.

Our active engagement in charitable causes demonstrates our commitment to corporate social responsibility. For example, in response to the devastating earthquake in Sichuan in 2008, we and our employees donated to various disaster relief organizations, and we promptly dispatched our vehicles to transport the injured and relief supplies. We also organized a program to promote driving safety. Our brand carries the goodwill generated by our public interest contributions.

We have won numerous awards which underscore our strong brand recognition and reputation, including the Best Practice Golden Award granted by Harvard Business Review in 2011, the 2011 Best Car Rental Company in China by National Geographic Traveler magazine and the Best Service Award in the 2011 China Brand Awards jointly granted by Brand China Industry Union and the China Chamber of International Commerce. We were also included in the Forbes Magazine's 2009 China High-Potential Enterprises List and served as one of the official VIP car service providers for the 2008 Beijing Summer Olympics.

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Sales and marketing

The high fragmentation of China's car rental industry, our incumbent market leadership position and our strong brand allow us to bypass third-party intermediaries, such as travel agencies, and utilize direct sales to attract and retain customers and enhance our sales. We have adopted highly targeted marketing initiatives, including Internet and traditional advertising and customer loyalty programs.

We place Internet advertising primarily on leading search engines such as Google and Baidu to achieve high exposure and click-through rate. Our traditional advertising, consisting of television, billboard and digital media advertisements in homes, airports, subway stations and office buildings, directly targets potential customers such as business and leisure travelers, office workers and licensed drivers who rely on public transportation. We believe that by bypassing third-party intermediaries in our marketing efforts, we are able to pass cost savings in the form of more competitive prices to our customers and gain better understanding of our customers' needs to provide more responsive solutions.

We have also designed comprehensive loyalty programs to retain individual and institutional customers. For individual customers, we offer three tiers of membership—basic, gold and platinum. Members in all three tiers are granted rewards, which can be applied to future rental fees, for their expenditures with us. Higher tiers of membership offer more rewards, priority treatment in the rental process, and better vehicle upgrade opportunities. Individual customers can enroll in our basic membership program at no charge. Membership upgrades are based on the total number of a customer's rental transactions with us and the length of each rental in a given calendar year. Our registered members increased from 50,961 as of December 31, 2008 to 920,620 as of December 31, 2011, of whom approximately 48.5% had rented cars from us. For institutional customers, we offer a prepayment program whereby institutional customers receive rewards for making prepayments to us. These rewards can be applied to their future rental fees. Additionally, institutional customers who participate in our prepayment program enjoy the highest level of priority treatment in the rental process and vehicle upgrade opportunities.

In addition, we have benefited from word-of-mouth recommendations by the large number of customers who were pleased with our services. We intend to continue improving our services to encourage more recommendations and referrals, which we believe is an effective and cost-efficient way to promote our business.

Our fleet management and operations

Fleet size and composition

We operate the largest rental car fleet in China. As of December 31, 2011, we had 25,845 vehicles in our rental fleet, representing a rapid growth from 692 and 10,202 vehicles as of December 31, 2009 and 2010, respectively. According to Roland Berger, as of December 31, 2011, our fleet size was over three times that of our closest competitor and as large as the aggregate fleet size of the next eight largest car rental companies in China. As of December 31, 2009, 2010 and 2011, we had 532, 9,795 and 21,920 vehicles for short-term rentals, respectively, and 160, 407 and 3,898 vehicles for long-term rentals, respectively. We had the largest short-term rental fleet and one of the largest long-term rental fleets in China's car

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rental industry as of December 31, 2011, according to Roland Berger. Our vehicles are of various classes, such as economy, standard and luxury, and body types, such as sedans, sport utility vehicles and multi-purpose vehicles. As measured by manufacturer suggested retail price, or MSRP, economy vehicles, or those with an MSRP of less than RMB80,000 (US$12,710), standard vehicles, or those with an MSRP between RMB80,000 (US$12,710) and RMB150,000 (US$23,833), and luxury vehicles, or those with an MSRP of over RMB150,000 (US$23,833), accounted for 24.1%, 50.0%, 25.9% of our fleet, respectively, and sedans, sport utility vehicles and multi-purpose vehicles accounted for 92.2%, 3.2% and 4.6%, respectively, of our fleet, as of December 31, 2011.

Vehicle acquisition

Given the early stage of China's car rental industry, automobile manufacturers in China generally provide very limited financing for car rental companies. As a result, car rental companies, including us, acquire new vehicles through purchase instead of leasing under most circumstances.

We believe that we are one of the largest car purchasers in China. Leveraging our large scale and market leadership position, we have established strong relationships with major automobile manufacturers, including General Motors, Citroen, Peugeot, Hyundai and Kia, who were our top five vehicle suppliers. In 2011, 28.0%, 22.4%, 16.4%, 13.8% and 5.6% of our fleet vehicles were purchased from each of these suppliers, respectively. We also purchase vehicles from Toyota, Honda, BMW, Volkswagen, Audi, Mazda and Ford. We determine the variety and mix of makes and models of our fleet based on a broad analysis taking into account vehicle price, customer demand, utilization rates and financial return.

We negotiate our purchasing terms, including price and delivery terms, directly with automobile manufacturers, who then direct us to designated automobile dealerships for purchase and after-sales services. Our large purchase volume allows us to secure favorable terms from these manufacturers. As of December 31, 2011, our average per vehicle purchase price was approximately RMB90,000 (US$14,300) for our short-term rental fleet and approximately RMB147,000 (US$23,356) for our long-term rental fleet. Our cost savings from favorable purchasing terms enable us to offer customers competitive rental prices, which in turn helps us attract more customers and build a more prominent brand. As our scale grows, we expect to continue to leverage our strong purchasing power and enjoy cost savings.

As China's car rental industry grows and matures, we expect capital leases from automobile manufacturers to become an increasingly available means for vehicle acquisition for car rental companies. We believe this trend will partially be a result of overcapacity in the automobile manufacturing industry and manufacturers' need to work with large, creditworthy partners such as us to secure large orders. For example, certain of our acquisitions of Citroen vehicles have been made through capital leases. For our future vehicle acquisitions, we intend to consider both purchasing and capital lease options, where available, to minimize our vehicle acquisition costs and improve our results of operations.

Vehicle financing

We require a substantial amount of capital to fund our vehicle acquisition and business expansion. Our solid operational performance and strong support from Legend Holdings have

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enabled us to obtain credit support from major banks and lending institutions in China for our vehicle financing. We believe our ability to obtain strong credit support is an important competitive advantage and will continue to strengthen our market leadership position.

At present, we meet our financing needs mainly through borrowings from financial institutions, capital leases and capital from our shareholders. As of December 31, 2011, loan facilities and capital leases accounted for approximately 75.3% and 0.1%, respectively, of our total outstanding debt.

Vehicle maintenance

We outsource vehicle maintenance and repair work for our fleet to third-party service providers, including automobile dealerships and their designated automotive service providers, and independent automotive service providers. We select automotive service providers based on assessments by our local teams, subject to review and approval by our headquarters. We evaluate service providers regularly to ensure they have sophisticated diagnostic and repair equipment, experienced mechanics, and reputable standing sufficient to meet automobile manufacturers' warranty requirements. We intend to improve our operational efficiency and achieve better cost-savings by providing our own automotive services, either organically or through joint ventures with third parties, in several tier one cities.

Vehicle disposition

Due to the lack of repurchase or guaranteed depreciation programs from automobile manufacturers in China, we bear the risk of effective depreciation when disposing of our rental vehicles. Historically, we sold used vehicles to dealers and brokers primarily through bidding and auction processes to ensure that we received the best prices.

Going forward, we intend to dispose of our rental vehicles more frequently and earlier in their life cycle. In April 2012, we expect to adopt a three-phase disposition system consisting of our rent-to-buy used car sale program, bidding or auction. Under this system, once a rental vehicle reaches the point where its estimated residual value becomes lower than its market value, it is available for direct purchase by rental customers through our rent-to-buy program at a price we consider favorable. Once a vehicle becomes 33 months old, it is placed in our own bidding system, where interested rental customers and dealers may purchase it at a price no less than its estimated residual value. Lastly, once a rental vehicle becomes 36 months old, which is our maximum holding period, it is retired from our fleet, placed into an auction forum, and sold at the best offer received.

We expect our used car sale business to diversify our vehicle disposition channels and enable an optimized vehicle disposition process. We believe our timely and efficient vehicle disposition will help maximize our used car sales proceeds, shorten the average holding period of our fleet and enhance our purchasing power by increasing the volume of new vehicles we purchase. We believe these benefits will have a positive impact on our customers' rental experience and our results of operations.

We believe that our extensive nationwide network, complete records of vehicle provenance and usage, and reputation and trustworthiness will facilitate the successful execution of our vehicle disposition strategy. In addition, we believe that the strong demand for used cars and

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future growth of the used car market in China will provide a favorable market environment for our vehicle disposition strategy.

Risk control

We have implemented various measures throughout our rental process to minimize the risk of theft. Our rental vehicles are outfitted with advanced anti-theft systems. We utilize our customer identification system, which is connected to the national identification database, to verify the legal identity of each individual customer. In addition, we implement rigorous risk management policies, such as limiting each customer to one rental vehicle at any time and requiring credit proof through credit or debit cards. As a result of our effective risk control, we have lost only eight vehicles since our inception.

Our information technology operating platform

We designed and developed our IT platform with a focus on effectiveness, reliability and scalability. The effectiveness and reliability of our IT platform has been constantly tested and improved by our large scale of operation. We are able to conveniently scale our IT platform to accommodate future expansion.

Our IT platform is a browser-based operating environment connecting one central data center to four kinds of service terminals, namely, our website at www.zuche.com, our mobile client applications for iOS and Android operating systems, our 24/7 call centers and our service hubs. Each service terminal is equipped to perform searches, rental transactions and member services.

Our IT platform integrates and centralizes all of the information management of our operations. The key functions of our IT platform include:

Transaction processing—manages the booking, amendment and cancellation of reservations, vehicle pick up and return and payment settlement. Information about every rental transaction is recorded, analyzed and made available to all departments, providing us with a comprehensive knowledge base to improve the customer experience and optimize our operational processes.

Customer management—records and analyzes various information about each customer, such as demographics, rental history and preferences, which enables us to improve our services and enhance customer satisfaction.

Fleet management—manages the life cycle of each rental vehicle from acquisition to maintenance and disposition, and tracks the operating metrics of each rental vehicle such as usage, mileage, insurance coverage and maintenance requirements.

Financial management—processes rental payments and allows our headquarters to monitor and manage the accounting of each branch office. Our payment processing is highly automated and securely integrated into our IT platform, enabling us to reduce our collection risk and improve our operational efficiency.

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Fleet deployment—monitors vehicle location and availability on a real-time basis. Our deployment team is enabled to manage our fleet more effectively to meet customer demand and increase our utilization rate.

Dynamic pricing—enables us to conduct dynamic pricing based on analysis of rental term, location, vehicle availability, timing of booking, our competitiveness and our target profits, which improves our results of operations.

Call centers—utilizes unified communications and call center solutions provided by Avaya Inc. to provide 24/7 services with rental transactions, membership administration and emergency roadside assistance. Our two call centers, located in Beijing and Langfang city, Hebei province, are connected to function as one virtual unit and ensure effective back-up for disaster recovery. Our call centers can house up to 3,800 seats to accommodate our business expansion.

We intend to continue investing in our IT platform to meet the needs of our growing business, such as utilizing our database and further data mining to conduct more robust analysis of car rental statistics and improve the results of our operations.

Intellectual property

Our copyrights, trademarks, trade secrets and similar intellectual property are critical to our success. We rely on copyright and trademark law, trade secret protection, as well as non-competition and confidentiality and/or license agreements with our employees, suppliers and other business partners, to protect our proprietary rights.

As of December 31, 2011, we registered in China the trademark for our " GRAPHIC " brand and three other trademarks. We are in the process of registering the trademark for our " GRAPHIC " brand and four other trademarks in China. As of December 31, 2011, we also registered five domain names, including www.zuche.com, which contains the phonetic spelling of "rent a car" in Chinese.

While we actively take steps to protect our proprietary rights, such steps may not be adequate to prevent the infringement or misappropriation of our intellectual property. This is particularly the case in China, where laws may not protect our proprietary rights as fully as in the United States. Infringement or misappropriation of our intellectual property could materially harm our business.

Competition

The car rental industry in China is highly competitive and fragmented. We believe the key competitive factors in this industry include pricing, network, fleet composition, brand recognition, customer service, industry knowledge, and relationships with business partners. There were over 10,000 car rental companies in China as of December 31, 2011, according to Roland Berger. We compete in the short-term rental market with local car rental companies such as eHi Car Service and Topone and with international car rental companies such as Avis. We compete in the long-term rental market with state-owned enterprises such as Shou Qi and Dazhong and international companies such as Avis.

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Insurance

We are required by applicable Chinese laws to maintain insurance coverage against liabilities for third-party bodily injuries, death and property damage resulting from accidents involving our rental vehicles. We satisfy this statutory requirement by maintaining insurance policies for all of our fleet vehicles at amounts stipulated by law with national carriers such as Ping An Insurance and PICC. We require that our customers bear a portion of insurance premiums for accident damage that we have purchased from third-party insurance companies.

We also purchase additional commercial insurance coverage to supplement the mandatory insurance against liabilities to third parties. In addition, we purchase commercial insurance to insure against other risks and liabilities arising from our operations. Our additional commercial insurance policies provide coverage for losses of or damage to our vehicles and bodily injuries of drivers and passengers in our rental vehicles. We believe that the amount and nature of our insurance coverage are adequate in light of the risks involved.

We do not maintain insurance coverage for our office equipment or premises. Consistent with customary practice in China, we do not maintain business interruption insurance or key employee insurance for our directors and executive officers. See "Risk Factors—Risks related to our business and industry—We have limited insurance coverage, which could expose us to significant costs and business disruption."

Employees

As of December 31, 2009, 2010 and 2011, we had 256, 1,712 and 3,384 full-time employees, respectively. We have entered into labor contracts with all of our full-time employees. In addition, as of December 31, 2011, we engaged 385 p