Credit purchase boosts China's auto sales

One day in July, the reporter walked into one of Guangzhou Honda Automobile 4S shops in Beijing. Just beside the front entrance, a sample car - Guangzhou Honda City - was placed there and on it laid a billboard for advocating the method of buying car with a loan. "This car is worth nearly RMB110, 000 yuan, but now you just need to pay 30 percent of the total cost as a down payment plus relevant taxes, amounting to some RMB46, 000 yuan all together, the car will be yours. If you choose 18-term installment, you just have to pay some RMB4, 000 yuan each month without any interests or commission charges", the salesman calculated for the reporter with his calculator as he noticed the latter might be interested in the car. "It would be a good decision to buy this car with a loan now and we delivered over 20 orders of this kind of cars last month!" he then added. After that, the reporter visited several 4S shops, including FAW-Toyota, Shanghai Volkswagen and Guangzhou Toyota. All of them were having sales promotion for buying cars with a loan. It's clear that in July, a traditional off-season for car market, every dealer has treated car loans as an important part in sales promotion.

The automobile industry has maintained a high speed of growth from 2000 to 2009. However, only 8 percent of consumers choose to buy their cars by loan. The car loan market definitely has an attractive prospect of development.

In China's automobile consumption credit market, traditional bank is undoubtedly one of the important participants. "From 2000 to 2009, the automobile industry has maintained a high speed of growth. However, only 8 percent of consumers choose to buy their cars by loan. The car loan market definitely has an attractive prospect of development." said Xu Xiaohua, General Manager of CITIC Bank Headquarters' Auto Finance Center. Accelerating the development of potential car consumption credit market will directly benefit the bank.

In addition to banks, auto financing company is another important participant of automobile consumption credit market. The year 2009 witnessed the founding of Chery- HuiShang Bank Auto Financing Co., Ltd, invested by Chery Corporation and HuiShang Bank. According to Wang Shirong, General Manager of Chery- HuiShang Bank Auto Financing Co., Ltd, the auto financing company is an important part in the automobile industrial chain. On the one hand, it can provide credit services for distributors who need money. On the other hand, consumers can get car loans from the company as well. "Our primary goal is to promote the sale of cars. Auto financing company can make the car sale more smooth and therefore support the running of the whole industrial chain." said Wang Shirong. He also stated that according to international experience, auto financing has become the most profitable part in the automobile industrial chain. In foreign countries, the revenue of auto financing company has already accounted for 30 percent to 50 percent of their mother company on an average.

Which is on earth more economical for consumers, bank loan or auto financing company loan? "Talking about interest rate, car loans from banks currently have a lower interest rate than auto financing company. However, banks usually have higher qualification requirements for the loan applicants. If the consumer chooses to use their credit cards to apply for loan, the line of credit will be relatively limited. In contrast, auto financing company doesn't require so many qualifications and has simple approval process and a wide range of products though its interest rate is a little bit higher." introduced a salesman from a 4S shop, "Consumers can choose different loan channels and products according to their needs".

"Banks and auto financing companies are all indispensable parts of automobile consumption credit area. Banks' advantages lie in their extensive service points, substantial low-cost capital sources and higher risk-proof ability. Auto financing companies usually have car manufacturers' backgrounds, professional knowledge and stronger distributor channel-controlling ability." Xu Xiaohua believes. In China's automobile consumption credit market, which has just started not long ago, both banks and auto financing companies have their specific advantages. The competition between them is not severe yet. Therefore, it's more important for them to push the extension of China's automobile consumption market hand by hand.

An important force in driving sales growth

The concept of credit consumption has deeply rooted in consumers' mind gradually which drives more people to buy cars by loan.

"Cars are now transforming from luxury goods to popular consumption products. More and more people now intend to buy cars of their own, this means that the rate of purchasing cars by loan will certainly rise." Wang Shirong thinks. Meanwhile, more and more people, especially young consumers start to accept credit consumption concept, which provides possibility for purchasing cars by loan. It also makes many industry insiders believe purchasing cars by loan will be an important force in driving car sales increase.

In fact, it was disclosed by CITIC Bank that at the end of June this year the auto financing center of the bank had issued 7006 loans on car consumption, amounting to RMB880 million yuan. In April and May, the bank has issued more than RMB100 million yuan of car loans each month. Wang Shirong also expressed that Chery-Huishang Bank Auto Financing Co., Ltd's personal loan business had increased from fifty or sixty each month to five hundred or six hundred each month. "Automobile consumption credit will enter the rapid development stage from previous exploratory stage." said Wang Shirong.

"If I choose to buy cars by loan, I hope that the interest rate and commission charge can be lower and the relevant procedures can be simpler and more convenient", said Xiao Wang, a common consumer. His remark is kind of typical. Based on consumers' demands, car manufacturers cooperated with banks or auto financing companies to launch "zero interest and zero procedure fee" activities for special types of cars. Experts point out that since auto financing companies lack low-cost financing channels, and the cost of capital is high that leads to high price of products, which increases the cost of consumers. In the future, auto financing companies may expand their capital sources by various financing channels like asset securitization so as to lower their operation cost.

With the encouragement of government policies, joint efforts of car manufacturers, banks and auto financing companies, the gradual improvement of credit system as well as consumers' increasing acceptance of credit consumption, automobile consumption credit will be bound to further promote