The pace of penetration of China’s auto-finance market has reached 35 per cent, a jump from the 20 % last recorded in 2014. However with auto-related financing still significantly lagging behind developed markets, there can be significant opportunities ahead for auto finance providers, according to a different 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 total volume of 車貸 outstanding that happen to 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 remain strong this coming year regardless of the slowdown from the economy, making car financing strategy all the more potent.
“China’s autofinance penetration is way below other mature markets,” said Zhang Junyi, senior conulstant at Roland Berger and Wang Wei, chairman of Credit First, that are the report’s authors.
They noted that car financing in US and Germany tend to be at 81 and 64 per cent, respectively. Even India, like a developing market, has reached global levels.
“As an important market for car sales, the gaps in China’s amount of development against these markets are significant . Nevertheless it could mean significant potential and room for development ahead,” Zhang said.
Overall, there are actually 25 autofinance companies in China. Roland Berger said the majority of them were designed by foreign automakers whenever they set up their carmaking joint ventures.
And this includes BMW, Volkwagen and Toyota rank as the biggest players on the market by registered capital.
More domestic car makers are at the same time of playing catch up. Since this past year, domestic carmakers added seven financing companies to the market.
Most companies happen to be funding their business through the shareholders’ own capital or bank borrowings. While growing, autofinance companies funded some 35 billion yuan from asset backed securities this season.
“China car loan ABS have performed well in 2016. The cumulative default rate and cumulative net losses of auto loan receivables have already been low up to now,” said Standard & Poor’s within a report on Monday.
The writer noted investors are interested in asset backed securities for short tenors and how the repayments are structured.
Drawn with the sector’s growth potential, commercial banks are also accelerating their techniques to compete versus the autofinance companies although banks mostly still target dealers to provide financing in the wholesale level.
Bank of Communications and Everbright Bank began to put in place dedicated autofinancing centres to do business with dealers that are most challenged by liquidity issues.
“It’s tough business to become dealer. They must respond to the alternative energy trend and set up new partnerships. Dealers themselves have entered the third wave. Previously, their strategy was flag planting, gaining market share by large mergers and acquisitions. When dealers insist they may remain focused about the dexrpky33 business, providing autofinancing then becomes a key way to obtain business on their behalf,” Zhang said.
Further to funding first-hand sales, Zhang noted a lot of other opportunities to capture value over a car’s useful life, for example financing second-hand purchases, 汽車貸款 and evencar insurance, which can be now majority covered with three insurers, including PICC, Ping An and China Pacific.
Against every new car that may be sold, Roland Berger estimates second-hand cars saw a turnover of just .2 – .3 per car in China this past year. The figure is again far below western market levels, wherein a ratio of two or three second-hand cars against every new car being offered will be the norm.
The report’s authors said as a next step, financial technology or “fintech”combined with the car sharing apps, may be an accelerator to help you answer the service gaps which exist 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 can beat backchallengers including Uber who threaten car sales.