The pace of penetration of China’s auto-finance market has reached 35 per cent, a jump from the 20 per cent last recorded in 2014. Though with auto-related financing still significantly lagging behind developed markets, there can be significant opportunities ahead for auto finance providers, according to a new report by Roland Berger and Credit First Financial Leasing.
China sold a record 24.5 million vehicles last year. But against the high sales figures, the whole number of 車貸 outstanding which can be taken out from autofinancing companies stand with a low of just 392 billion yuan. With supportive government policies available, vehicle sales are poised to keep strong this year in spite of the slowdown within the economy, making car financing strategy much more potent.
“China’s autofinance penetration is far below other mature markets,” said Zhang Junyi, senior conulstant at Roland Berger and Wang Wei, chairman of Credit First, who happen to be the report’s authors.
They noted that car financing in US and Germany are in 81 and 64 per cent, respectively. Even India, as being a developing market, has reached global levels.
“As a significant industry for car sales, the gaps in China’s degree of development against these markets are significant . But it could mean significant potential and room for development ahead,” Zhang said.
Overall, you can find 25 autofinance companies in China. Roland Berger said most of them were designed by foreign automakers when they put in place their carmaking joint ventures.
One of them BMW, Volkwagen and Toyota rank as the biggest players in the market by registered capital.
More domestic car makers are during this process of playing catch up. Since last year, domestic carmakers added seven financing companies towards the market.
Some companies have been funding their business with the shareholders’ own capital or bank borrowings. While growing, autofinance companies funded some 35 billion yuan from asset backed securities this year.
“China car loan ABS have performed well in 2016. The cumulative default rate and cumulative net losses of auto loan receivables are already low so far,” said Standard & Poor’s in a report on Monday.
The author noted investors are attracted to asset backed securities for short tenors and exactly how the repayments are structured.
Drawn with the sector’s growth potential, commercial banks were also increasing their methods to compete from the autofinance companies although banks mostly still target dealers to offer financing at the wholesale level.
Bank of Communications and Everbright Bank began to setup dedicated autofinancing centres to work with dealers who happen to be most challenged by liquidity issues.
“It’s tough business as a dealer. They need to react to the sustainable energy trend and set up new partnerships. Dealers themselves have entered your third wave. Previously, their strategy was flag planting, gaining market share by massive mergers and acquisitions. When dealers insist they are going to remain focused around the dexrpky33 business, providing autofinancing then turns into a key way to obtain business to them,” Zhang said.
Further to funding first-hand sales, Zhang noted lots of other possibilities to capture value more than a car’s useful life, including financing second-hand purchases, 汽車貸款 and evencar insurance, which can be now majority dominated by three insurers, including PICC, Ping An and China Pacific.
Against every new car that is sold, Roland Berger estimates second-hand cars saw a turnover of just .2 – .3 per car in China a year ago. The figure is again far below western market levels, where a ratio of a couple of second-hand cars against every new car for sale will be the norm.
The report’s authors said as a following step, financial technology or “fintech”combined with the car sharing apps, could be an accelerator to aid answer the service gaps which one can find in China.
Roland Berger said BMW’s DriveNow pooled car leasing service or Daimler’s Moovel carpooling app launched from Germany are examples to China’s players on how they may beat backchallengers like Uber who threaten car sales.