Mon, Sep 05, 2016 - Page 16 News List

Chinese consumers take credit for boom in car loans

Reuters, BEIJING

Chinese households, traditional savers with an aversion to debt, are rapidly warming to the idea of borrowing to buy a car, as automakers push financing deals to boost sales and margins in an increasingly competitive market.

Nearly 30 percent of Chinese car buyers bought on credit last year, up from 18 percent in 2013, according to analysts from Sanford C. Bernstein and Deloitte, helping a rebound in the car market after last year’s stumble.

That is welcome news for Beijing, which wants consumers to borrow and spend more to shift its slowing economy away from heavy industry and investment-led growth.

Beijing resident Wang Danian said he planned to buy his first car on credit, saying it was the smart move.

“I can use my cash to do other things,” the 28-year-old said while looking at an FAW Besturn X80 sport utility vehicle. “If I use all my savings at once to buy a car, and then something happens, I can’t manage the risk.”

Six consumers interviewed by reporters said they would all consider loans, lured by low-fee and interest-free deals, with half saying they would prefer to buy on credit and save cash for other items.

“I’d estimate after the manufacturer came out with the low-interest deal that about 30 percent of potential cash buyers switched to buying on credit,” said a salesman at a Volkswagen dealership in eastern China’s Jiangsu Province surnamed Zhao (趙).

That is still a far cry from the more than 80 percent of cars bought on loans in the US, but Deloitte predicts China will reach 50 percent by 2020.

Global automakers have struggled to encourage this trend for some time; Volkswagen AG established its finance subsidiary in 2004, but was held back by strict regulations on underwriting loans and sources of funding.

As the government gradually relaxed those restrictions over the last seven or eight years, financed purchases have grown, with Mercedes-Benz saying thaqt more than 30 percent of its cars in China are now bought on credit, and it reported 31 percent year-on-year growth in net lending as of the end of July.

China’s auto market struggled last year due to the nation’s slowest economic growth in 25 years and a stock market rout, but rebounded in October when the government cut sales tax on smaller cars. By July, vehicle sales were rising at their fastest monthly rate in three and a half years.

“While the government’s tax reduction was the most obvious explanation for the rebound in Chinese car sales at the end of last year, soaring auto financing penetration represented another, lesser noticed, driver of the boom,” Bernstein said in April.

More Chinese automakers jumped into the loans market last year, with Guangzhou Automobile Group (廣汽集團) and Geely (吉利汽車) setting up financing firms.

Several Chinese automakers also reported a significant impact from financing activity on their accounts for the first half.

SAIC Motor Corp (上汽集團), China’s largest automaker, said its net operating cash flow dropped by 16.6 billion yuan (US$2.48 billion) from the same period last year, as money was diverted to its financing unit for consumer loans.

Dongfeng Motor Group (東風汽車) reported a 3.6 billion yuan year-on-year fall in net cash flow due to an increase in loans and receivables of its financial business.

Great Wall Motor (長城汽車) recorded a 140 percent increase in interest income, mainly because of its finance subsidiary.

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