Mr. Li Yi, 28 years old and an IT company employee, has dreamt of
owning an automobile for years. Not having enough money saved to
make his dream come true, he had planned to look to the banks for a
loan. But now he sees a new alternative source of finance on the
horizon. "I think I'd be best to wait a while as foreign companies
in the auto finance business are to be allowed into the Chinese
market. This may well bring me some interesting new options to
check out," said Mr. Li.
The release of details of the Draft Rules for the Management of the
Auto Finance Industry has shown that the country is now set to
allow foreign "non-financial institutions" to engage in auto
finance business in China. Industry insiders consider the countdown
has already started for the opening up of the auto finance
sector.
China is bound to live up to a WTO entry commitment to "allow
foreign non-banking financial institutions to enter China's
consumer credit market in auto finance, where they may carry out
business free from restrictions on access to the market or other
differential treatment." The first foreign auto finance enterprises
are expected to open their doors for business in China later this
year.
China has the fastest growing auto market in the world. 2002 was
yet another record year for both auto manufacturing and auto sales.
A total of 1.02 million new cars were sold from January through
November, 55 percent up on the corresponding period in the previous
year.
America's General Motors estimates that by the year 2010 China will
have grown into the third largest auto market in the world, lying
behind only the United States and Japan. It also predicts that by
then, 50 percent of autos will be sold through auto finance
deals.
Research into where the profits are made in the auto industry has
shown that less than 40 percent of lifecycle profits are
attributable to manufacturing. Over 60 percent are generated in
distribution and after sales service. Fundamental changes have
taken place in the global auto sector with financial services now a
more profitable business activity than manufacturing.
Globally auto manufacturers sell about 70 percent of their
production through auto finance deals while the figure in China is
still a meagerly 10 to 15 percent. Is this to be the Shangri-La of
the world of auto finance?
The major auto manufacturers usually have their own auto finance
subsidiaries to provide their customers with convenient and
affordable access to loans, insurance etc. These companies are
moving up into top gear as they prepare for the drive into China's
auto market. The new draft rules have effectively given them the
green light they need.
The foreign auto finance giants such as the General Motors
Acceptance Corporation, Ford Credit and the German Volkswagen
Auto-financing Service Company are all on the starting grid having
already submitted applications.
Ford Credit, the auto financing subsidiary of Ford, set up an
office in Beijing in 1995. Volkswagen followed on in 1998 and GM in
1999.
"What we can offer the consumer is more than just another
traditional bank loan. We have a full package which also includes
maintenance and recovery services," said a vice chairman of the GM
China Group.
German Volkswagen has been researching the opportunities and risks
inherent in auto financing in China for a little longer. Dr Robert
B|chelhofer, president of the company's Asia-Pacific Region thinks
that Volkswagen is well prepared to provide its brand of auto
finance services in China.
Auto financing has previously always been the reserve of the banks
and insurance companies in China. The domestic auto manufacturers
never did get involved historically.
"I
see the banks as our main competitors. China's auto manufacturers
haven't yet learned how to sell autos," said one representative of
a foreign auto finance company, who preferred to go unnamed.
Domestic auto manufacturers have been anticipating the imminent
impact of the foreign auto giants' commercial expertise and
strength. Bidding to sharpen their competitive edge in the fight
for market share, they are now seeking to forge their own alliances
with banks and insurance companies. Chinese-funded banks have also
been active in promoting innovative and creative solutions.
Dongfeng Motor Corporation has pioneered an auto credit sales
business operating as a non-banking institution under the umbrella
of a subsidiary auto financing company.
Jiangling Auto-financing Company and China's FAW Group-Volkswagen
Credit Corporation have followed suit. Huachen Auto Corporation
offers an auto finance option to distributors of its Zhonghua sedan
and even provides assistance with the cash flow necessary to
maintain their stock levels. The Shanghai Auto Credit Corporation
is well prepared, having signed a deal with the Shanghai Branch of
the Ping An Insurance Corporation.
In
July 2002, China's Everbright Bank linked up with the Dongfeng
Liuzhou Motor Corporation to launch a new auto sales and finance
service. The bank provides comprehensive financial services
including finance, clearing, consumer credit, account management
and financial advice. The Shenlong Motor Holding Corporation and
the Shanghai Cherry Motor Corporation have also entered into
similar cooperative relationships.
The Industrial and
Commercial Bank of China (Shanghai branch) sponsored the
founding of the "Auto Finance Service Network Association" early in
2002. The association has recruited around 100 members drawn from
the ranks of the auto distributors, insurance companies, auction
companies, second-hand auto sales companies and auto renting and
leasing companies. It embraces just about every possible link in
the auto financing chain.
has set up auto financing service
subsidiaries in Beijing and Shanghai to provide personal loans for
car purchase. The Bank of China's Shanghai Branch is busy preparing
to set up its own auto financing service center.
Zhou Liqun, program director of the National Auto Consumers Policy
Research Project, predicts that as China further opens up the auto
finance market, dedicated auto finance companies will come to play
a leading role in the auto market.
(China.org.cn by Alex Xu, February 8, 2003)