Ford, GM promote loans as 90% of drivers pay in cash

BEIJING - Pi Wenhui would have bought a 249,800 yuan ($36,600) Mazda if she had gotten a loan. She couldn't, so like 90 percent of Chinese drivers she paid cash - and bought a cheaper car.

Carmakers including Ford Motor Co, Nissan Motor Co, Beijing Automotive Industry Holding Co and Guangzhou Automobile Group Co are anticipating that will change as the government is set to introduce policies to encourage auto lending in the world's largest car market.

"We see a lot of potential in auto financing," Joe Hinrichs, Ford's president for the Asia-Pacific region, said in an interview at the Beijing Auto Show.

Automakers estimate sales growth in China will slow to as little as 10 percent next year from as much as 20 percent this year and 46 percent in 2009. Enabling more of China's 1.37 billion people to borrow for vehicles would have a "big stimulus impact" on sales, said Xu Changming, a research director at the State Information Center.

"For the next five to 10 years, auto financing will be the biggest thing for the industry and the most important booster," said Yale Zhang, a Shanghai-based director at CSM Asia, an auto consulting company.

US, India

In contrast to China, 85 percent of car drivers in the US take out loans and 65 percent of buyers in India borrow, according to the State Information Center, a government advisory body. The government may introduce policies to boost auto lending this year, including making it easier for car financing companies to raise capital by selling corporate bonds, the center's Xu said.

Guangzhou Auto, a partner of Honda Motor Co and Nissan in China, plans to open an auto-financing unit this quarter, General Manager Zeng Qinghong said. Beijing Auto will begin offering financing this year, President Wang Dazong said.

"We're counting on auto financing as a new way to generate growth," Wang said.

"There is a lot of room to develop the business in China."

Zhejiang Geely Holding Group Co is also planning to start an auto-credit business, Chairman Li Shufu said.

Currently, auto-financing companies in China mainly provide loans to dealers, 90 percent of which are independently owned, according to the China Automobile Dealers Association.

GM, Toyota

Ford, General Motors Co and Toyota Motor Corp's local financing units provide loans to consumers as well as dealers, including those that are unable to borrow directly from banks.

Chen Guangjun, general manager of the Beijing Zhong Ye Toyota dealership, said about 12 percent of his customers buy on credit. The outlet accepts applications that are ultimately handled by Toyota's financing unit.

Honda doesn't have a financing business in China, so dealers such as Beijing Fanlu Business & Trading Co introduce buyers to a bank if they need loans, General Manager Wen Hai said.

In China, 80 percent of auto loans come from banks, while in other countries 80 percent are from auto financing companies, the State Information Center's Xu said.

"The number of people using loans will rise," said Tao Ye, president of the company that owns Beijing Zhong Ye. "In particular, there are a lot of people who use financing to buy second cars."

The government is considering encouraging auto loans even as it targets a 22 percent reduction in overall new lending from a record $1.4 trillion last year.

Bloomberg News

(China Daily 04/29/2010 page16)