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Underdeveloped auto financing keeps cool in financial crisis

By Hao Zhou (chinadaily.com.cn)
Updated: 2008-10-20 17:37

As the financial crisis penetrates much wider and deeper into the Chinese economy, the world auto financing industry, which had notably boosted the North American, European and Russian auto markets, is suffering the stormy weather. However, the underdeveloped Chinese auto financing market seems indifferent to the global financial crisis.

In a mature auto market, auto financing covers 60 to 80 percent of total transactions, meaning that 6 to 8 out of 10 cars are purchased by loans. However, less than 7 percent of cars were sold in China through loans last year, according to statistics from Sinotrust, a leading automobile industry research company.

Figures from Chinese commercial banks revealed Chinese consumers' personal loan balances recorded 3.3 trillion yuan ($480 billion) in total last year. Nonetheless, loans used for purchasing cars only accounted for 110.7 billion yuan, even less than 3 percent of housing loans.

In such a low-penetration, auto financing market, the raging financial crisis is unlikely to sweep Chinese auto financing like in the US, where the largest automaker General Motors is reportedly considering a merger with its struggling smaller rival Chrysler.

But that doesn't mean auto financing providers are enjoying better lives in China. Experiences from the North American, European and Japanese auto markets suggested that auto financing service providers can only make profits when the auto financing penetration reaches 25 percent in the overall auto market.

However, even the best-operating financer, Ford Automotive Finance (China) Ltd, only sold about 10,000 cars by providing loans to buyers, less than 20 percent of the total Ford cars sold in China.

Struggling Auto Dealers

Although individual car buyers will not be directly impacted by the tightening loan policies under the financial crisis, those auto dealers troubled by overstocks and limited cash flows find it difficult to gain loans from banks and auto financing providers.

In past years, about a third of Chinese auto dealers made profits, another third maintained a balance, and the others were in the red, said Luo Lei, deputy secretary-general of the China Automobile Dealers Association. But nowadays, only 20 percent can make a living, and the remainder are all suffering losses.

"We are keen on only two things," said Huang Kun, board chairman of Beijing Jingbaohang, an authorized BMW AG and BMW Brilliance auto dealer in Beijing.

"One is the carmakers' further plans in the Chinese auto market, such as their outlook on the Chinese market and how many new marques they would introduce to China, and the other is how many buyers will come to us next year."

On October 9, China's central bank lowered the benchmark deposit and loan interest rates again, twice in a single month, which was regarded by financial experts as signal of softening monetary policies in the near future.

"Whatever, whether we can make profits depends on the automakers' willingness to let us share profits," said Huang.