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Automakers bank on financial services amid downturn

By Hao Zhou (chinadaily.com.cn)
Updated: 2008-09-19 16:14

As the booming Chinese passenger car market encountered a month-on-month downturn in July, many car makers have resorted to auto financial services in an effort to turn the tables around.

Dongfeng Honda Automobile Co Ltd has tied up with Shenzhen Development Bank Co Ltd to launch several experimental auto financial services in Shenzhen. Customers inclined to buy the Dongfeng Honda's CR-V, Civic, or Civic Hybrid can apply for credit purchase with the car as mortgage. There is no requirement for the presence of a third party guarantor.

Dongfeng Yueda Kia Motor Co Ltd also joined hands with China CITIC Bank's Credit Card Center to launch an installment payment service named "Super Cool 003 Plan" in 11 Chinese cities, including Beijing, Shanghai and Guangzhou.

The plan included the Sportage, the 2008 Cerato, and the Cerato-euro. Customers planning to buy one of these three models could apply for a loan between 40,000 yuan ($5,848) and 200,000 yuan ($29,240), with the car as mortgage and no need for a third party guarantor.

Customers that choose to pay by 12 installments don't have to pay loan interests or commission charges. However, those to pay by 24, 36, and 48 installments would have to pay an extra 7 percent, 11 percent, and 16 percent respectively of the car price as commission. Dongfeng Yueda Kia's plan will end on October 17 .

"Auto finance companies not only provide credit loan services for auto buyers, but also for automakers, logistics companies, auto dealers, and repair and maintenance service providers," said consulting manager Jiang Chonglong from Arthur D. Little management consultancy.

Practices have shown that customers preferred these favorable loan policies to direct price cuts. As for the automakers, the money that is used to make up loan interest will be far lower than the profit losses suffered from price cuts.

Conservatively, the total value of the China's auto finance market is estimated to reach 550 billion yuan ($80.4 billion) by 2025, said Wei Deming, the general manager of Shanghai GM Automotive Financing Co Ltd.