BEIJING Shanghai resident Jiang Qinxia is just the kind of guy that global automakers like General Motors hope will jumpstart their foray into China's fledgling and potentially lucrative consumer auto financing business.
As an upwardly mobile junior manager, Jiang, 26, recently drove home a new 105,000 yuan ($15,500) Buick Excelle after taking out 50,000 yuan loan from GMAC-SAIC, a three-way tie between Ally Financial, a SAIC Motor (600104.SS) affiliate and GM's car venture with SAIC.
"I don't mind paying a little bit more to get a car just as I need it," said Jiang. "I will recommend that to my friends as it's fast, easy, and most of all, I don't have to borrow money from my parents or friends."
Even as China's auto sales sizzled last year at the height of the global meltdown, just 10 percent Chinese car buyers used loans for their purchases, industry executives say. That compares with over 80 percent in the United States -- a huge gap that has foreign automakers seeing the retail auto financing business as a way to turbocharge sales.
China's strong "cash culture" and lack of comprehensive credit rating tools are seen as major hurdles for the 35 billion yuan ($5.2 billion) a year industry, according to Sheng Ye, associate research director at industry consultancy Ipsos' Greater China region.
Massive defaults that resulted in credit crunches like ones that hit Taiwan and South Korea remain another risk.
Still, foreign names like GM, PSA Peugeot Citroen (PEUP.PA) and Toyota (7203.T) are hoping to sell vehicle financing services to a new generation of young, upwardly mobile Chinese who, unlike their parents, don't feel a need to pay for everything with cash and aren't afraid to borrow.
"These people are very different from their parents' generation. They work hard, play hard and have no qualms about snatching up the latest iPhones or other fancy gadgets on credit," said Ipsos's Ye.
"As more and more youngsters get behind the wheel, the size of retail financing could easily double in as soon as five years."
Vehicle financing began in China's affluent big cities, but has been expanding slowly into smaller ones and rural areas lately as China's wealth trickles down.
The interest charge for buyers of selected Buick models in China is zero for a one-year loan, but rises to 7.69 percent for three years and 8.33 percent for four, according to GMAC-SAIC. That compares with the country benchmark lending rate of 5.31 percent for loans with duration of one to three years.
"Going forward, we expect financing to play an increasing role in making automotive purchase more affordable for consumers," Frederick Livingood, general manager of 6-year old GMAC-SAIC, told Reuters.
Other automakers are equally optimistic.
PSA Peugeot Citroen's Chinese auto financing arm started its retail business in September 2008 and expects 10-12 percent of its buyers to use financing service in five years, up sharply from 4 percent now, said Michel Arnaud, head of the unit.
Warren Buffett-backed Chinese battery and car maker BYD (1211.HK) recently set up a consumer financing venture with a Societe Generale (SOGN.PA) affiliate.
Other homegrown players like Beijing Automotive Industry Holding and Guangzhou Automobile have also set their eyes on auto financing.
The stakes are significant in a market that passed the United States last year to become the world's largest, with over 13 million vehicles sold. Sales are on track to rise another 15 percent this year, even as most other global markets remain depressed.
As business from cash-rich buyers starts to slow, credit could be an important tool to keep the industry's growth humming, said Klaus Paur, director at industry consultancy TNS's North Asia automotive division.
"At the moment, it's easy for car manufacturers to sell cars and they don't need that yet," he said. "But over the time this will change and it won't be as easy as it is today."
The trend would follow another fast growing market, India, where auto financing has long been a convenient a tool. Industry players -- from home-grown Tata Motors (TAMO.BO) and Mahindra & Mahindra (MAHM.BO), to multinationals like Volklswagen AG (VOWG.DE) -- all have their own captive financing arms.
Like anything else involving credit, auto financing will carry risks for the new players in China.
In the early 2000s, many banks pulled out of the business on record defaults due to lack of national credit databases and lax lending practices, industry executives and observers recalled.
Lack of comprehensive credit rating tools could hamper the industry in its early stages, as lenders are forced to do costly and time-consuming background checks.
"The system for finding those who decided not to pay and for repossing the vehicles to get any kind of residual value is still premature," said John Bonnell, a senior director of strategic advisory services for J.D. Power Asia Pacific.
Recent signs indicate Beijing may be moving to promote the business, including possibly allowing GMAC-SAIC to become the first car financing firm to issue bonds in China. Others, including Toyota's financing unit, hope to follow.
Yale Zhang, a Shanghai-based analyst with IHS Automotive, said the potential was huge.
"It's difficult to say exactly when auto financing will take off in China. But when it does, it could grow exponentially, way beyond anyone's expectation."
(Additional reporting by Janaki Krishnan in Mumbai; editing by Doug Young and Lincoln Feast)