Sun, Nov 16, 2003 - Page 11 News List

GM to offer financing in China

GROWING MARKET The American automaker has applied for a license to handle vehicle financing, becoming the first foreign firm to offer such services

AP , DETROIT

A guard stationed at the Great Wall in Beijing inspects the General Motors Hy-wire, the world's first driveable fuel cell vehicle, as it makes an appearance in China on Friday. The Chinese market is key to GM's growth strategy as the company earlier this week signed a contract that enables GM to export 4,500 Cadillac, Buick and other GM vehicles valued at US$1.3 billion, to China over the next two years.

PHOTO: REUTERS

General Motors Corp has become the first foreign automaker to apply for a license to handle vehicle financing in China, where the market for new cars is growing rapidly, the company said.

GM said its financing arm, General Motors Acceptance Corp, and Chinese partner Shanghai Automotive Group Finance Co applied this week for financing authority with the China Banking Regulatory Commission. The automaker gave no timeframe for the application process.

Also this week, GM, Ford Motor Co and DaimlerChrysler AG all reached trade pacts with China that allow them to export thousands of vehicles to Chinese markets. The Big Three and other automakers already build some vehicles in China.

In keeping with a pledge it made when it joined the WTO in 2001, China last month published regulations for foreign companies to offer auto loans. It provided further details earlier this week.

For now, most auto purchases in China are done in cash.

"We see great market potentials in the auto financing segment in China," said Richard Clout, executive vice president of GMAC's international operations. "We expect auto financing will grow 60 to 80 percent in the coming years."

Other major automakers are studying the new rules. They require, among other things, that a lender's total guaranteed loans not exceed 200 percent of its registered capital. Also, 60 percent of the company's staff must have work experience in the finance field or studied finance in college or at a vocational school.

If the regulatory commission rejects an application, a company must wait six months to reapply.

Ron Iori, spokesman for Ford's financing division, said the company was working with Chinese authorities to understand specifics of the regulations.

"We'll have to study the details before we move forward," he said.

Len Trevino, an associate professor of international business at the University of Southern Mississippi, said one challenge for new lending businesses in China is dealing with that country's tightly controlled currency.

"For GM or another US company, you're talking about hard currency versus soft manipulated currency," Trevino said. "That could cause problems with the valuation of loans. If there's a big mismatch, you could get blown out of the water."

The Big Three and every other major automaker are trying to increase their presence in China, which this year is expected to pass Germany as the world's third-largest vehicle market behind the US and Japan.

GM, the world's largest automaker, estimates China's total passenger vehicle sales will grow 29 percent to 4.4 million this year. That compares with roughly 17 million vehicles expected to be sold in the US.

GM said its new deal with China, which includes exporting Cadillacs and other whole vehicles as well as components and assemblies, is worth about US$1.3 billion.

The automaker said it sold 305,000 vehicles in China through October, 40 percent more than the same period last year. GM's Chinese market share is about 8 percent.

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