| SHANGHAI/HONG KONG, June 23
SHANGHAI/HONG KONG, June 23 In a country where
owning a car has long been a symbol of luxury and success,
around 85 percent of Chinese car buyers still buy cars with
But people like Chinese accountant Grace Mi and her peers in
their 20s and 30s are changing the car financing game and are
the ones catching the attention of global carmakers looking to
boost revenue and defend margins in an increasingly competitive
These young people are willing to buy big-ticket items like
a car on credit - a behaviour unheard of some 15 years ago in
China - and have led carmakers to boost their financing units in
The push by automakers to steer more people to buy on credit
comes as part of their broader efforts to make up for sliding
margins on new-car sales in China where more companies are
cutting prices to entice buyers. Other key revenue sources
include maintenance and repairs, vehicle leasing and sales of
accessories and parts.
Mi, a 27-year-old accountant in Beijing, did not have enough
cash on hand to outright buy her dream car, a Nissan Sylphy,
with a price tag of about 150,000 yuan ($24,200). Instead, she
saved enough money for a down payment and took out a loan.
"I didn't want to take a penny from my retired parents," Mi
said, adding that owning a car had become increasingly important
for her personal and work life. "I didn't have to wait for years
to own a car."
Mi has been repaying 2,500 yuan, or one-fourth of her
monthly wage, since November for her Sylphy. While the loan
payments are not small, she says she doesn't feel burdened.
"Accountants are needed everywhere so I'm not worried about
job security. I don't think I am enslaved by the car loan."
MOVING TO CREDIT
Around 70 percent of car buyers in the United States and
other developed countries take out loans, according to a
Deloitte report in 2012 and the reason global carmakers are
trying to seize on the rise in auto financing in China is
because the sector is highly profitable.
The financing unit of Ford Motor Co contributed nearly
a quarter of the Deerborn, Michigan-based company's overall
profit last year while rival GM saw 12 percent of its profit
come from its finance unit.
"China's car market remains primarily a cash market, but it
is starting to move to credit," John Lawler, head of Ford's
operations in China, told Reuters in an interview. "It's a
demographic and generational phenomenon. Those people who
finance cars are primarily younger buyers."
China's central bank gave the sector a boost in early June
when it cut the amount of money auto financing firms need to set
aside as reserves in a bid to stimulate the economy which is
showing signs of slowing.
Global carmakers have been funding their financial units'
expansion by selling off their loans in the form of asset-backed
securities to beef up their operations in China. That frees up
money they can use to lend to Chinese consumers.
So far this year, the financing units of Ford, BMW
, Volkswagen AG, Nissan Motor Co Ltd
and Toyota Motor Corp have each issued around
800 million yuan ($128.85 million) of asset-backed securities.
GROWING SECTOR, RELATIVE LOW RISK
The country's automobile association forecast the auto
financing industry to more than double to 525 billion yuan
($84.55 billion) by 2025.
In an email to Reuters, GMAC-SAIC Automotive Finance Co Ltd,
the financing joint venture of General Motors Co in
China, said auto financing will be "integral in facilitating
sales" in the world's biggest auto market.
Bankers and analysts say the chances of car loan defaults
are limited in China because the country requires a large down
payment - 20 percent for new cars. Consumers here also have a
higher savings rate compared with other countries like the
"It is viewed as a future source of income rather than a
source of default and losses," said Patrick Steinemann, co-head
of Asia Industrials Investment Banking at Bank of America
Merrill Lynch in Hong Kong.
Indeed, GM's China chief, Matt Tsien, said financing has
proved a "steady business" in China.
"One of the characteristics in the Chinese market that's
very good for the financing business is that default rates tend
to be very low," he told Reuters in Detroit. "So the risks are
pretty good in that sense. People tend to pay up," Tsien said.
Such a rapid expansion in auto financing does have risks,
coming at a time when worries are mounting over the country's
corporate and government debt. These include the fact that,
relatively, Chinese consumers have a short credit history.
One executive at Toyota said the Japanese carmaker has
encountered some fraud cases involving fake IDs that first
appeared about a year ago in southern China and then began
spreading to other parts of the country.
Toyota uses a set of risk assessment tools modelled around
those used in other countries and refined to local practices in
China that are being used by global carmakers, two Toyota
executives said. Both declined to be identified because they
were not allowed to speak the media.
Toyota has further beefed up its loan assessment process and
on occasions turn to the old-style approach of home visits, they
"Home visits are still the most direct way of verifying
customer addresses, but due to time and labour requirements we
can only use it sparingly," one of the executives said.
(Additional reporting by Shanghai newsroom, Jane Lee, Norihiko
Shirouzu and Paul Ingrassia; Writing by Kazunori Takada; Editing
by Norihiko Shirouzu and Matt Driskill)