GMAC-SAIC leverages bond issue to fuel expansion plans, auto sales

General Motor's Shanghai-based auto finance unit will issue 1.5 billion yuan ($224.82 million) in financial bonds next week to encourage auto sales of Buick, Chevrolet, Cadillac and Saab in the world's largest auto market.

The company, GMAC-SAIC Automotive Finance Company Limited, is a joint venture of Ally Financial Inc., Shanghai Automotive Group Finance Co and Shanghai General Motors Co., Ltd.

Part of the money raised from sale of bonds will be used to replenish capital the company needs to expand its business, GM said Friday in a statement posted on the website of China Foreign Exchange Trade System and National Interbank Funding Center.

A key service of GMAC-SAIC Automotive Finance, China's first auto finance company, includes providing loans to prospective car buyers.

As of the end of 2009, the company's outstanding loans surpassed 18 billion yuan ($2.70 billion) with its loan services serving more than 200,000 car buyers.

China's auto lending sector was opened in 2004, and currently 10 companies in China are plying the trade - the majority of them run by foreign automakers.

At present, only 10 percent of car buyers seek to obtain lending services for auto purchases, compared with 70 percent of the world, on average, and 80 percent of US auto buyers.

High-interest rates are a major reason keeping potential car buyers away from car loan companies.

With no consumer credit-rating system in China, auto lenders are hard pressed to get accurate credit information on potential customers.

If those risks were eliminated, lenders would be in a position to cut interest rates, and auto credit consumption would definitely grow, Chen Zheng, an auto analyst with China Securities, told the Global Times.

China's 10 auto finance companies extended 45 billion yuan ($6.74 billion) in auto loans last year, said GMAC-SAIC Automotive Finance Company, which also predicted that number might expand to 525 billion yuan ($78.69 billion) by the year 2025.

"Leading auto groups around the world all have their own auto lending firms, most of which are major profit contributors to these auto groups," said GMAC-SAIC Automotive Finance Company said in the statement. Auto loan companies contribute 30 percent to 50 percent on average to their parent companies, GM said.