China’s car buyers seek credit

24 June 2014

BEIJING: Global carmakers are restructuring their financial units in order to take advantage of the growing propensity of Chinese consumers to buy vehicles on credit.

Chinas car market remains primarily a cash market, but it is starting to move to credit, John Lawler, head of Fords operations in China, told Reuters. Some 85% of buyers still prefer to pay up front.

Its a demographic and generational phenomenon, he added. Those people who finance cars are primarily younger buyers.

Major car brands have reacted by selling off existing loan portfolios in the form of asset-backed securities in order to free up money to lend to this new type of Chinese consumer. They have been further aided by Chinas central bank which, seeking to stimulate a slowing economy, recently cut the amounts that car finance firms are required to set aside as reserves.

As a result, the countrys automobile association is forecasting the auto financing industry will more than double to 525bn yuan ($84.6bn) by 2025. And GMAC-SAIC Automotive Finance, the financing joint venture of General Motors Co in China, expects that auto financing will in future be integral in facilitating sales.

This development is likely to be of most benefit to mass market brands as the luxury and premium sector continues to grow. A recent report by PricewaterhouseCoopers highlighted the double digit-growth of luxury marques during the first five months of 2014 – 40% at Mercedes-Benz, 25% at BMW and 19% at Audi – compared to 9% in the overall market.

Foreign luxury brands seem to appeal to young buyers as they perceive them as safer, more technologically advanced and better quality, Wilson Liu, head of PwCs China Automotive team, told the China News Service.

He also noted that a wider trend towards downsizing, driven by traffic congestion and stringent emission standards, was also evident in the luxury segment. Entry-level models are increasingly available and appealing to younger, first-time buyers, he said.

Data sourced from Reuters, China News Service; additional content by Warc staff

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