There are several reasons why a company may enter the auto financing industry in china. First, multinationals now have an advantage compared to the past following the reduction of the barriers that could limit their operations in the Chinese market, including granting permission to them by the Chinese government to operate in China’s auto financing industry. The market environment in China is promising because of the experienced thriving of the auto industry, hitting the 6-million unit mark by 2006. The further slashing of car tariffs following WTO agreements may further consumption of vehicles as they become cheaper to consumers. Additionally, there is potential for growth in the auto financing industry as the government implements efforts to boost consumption from the credit, i.e., consumer credit. Consumption of the automotive is expected to go higher with the urban incomes crossing the $3000 mark to $5,000 between 1997 and 2008-a 75% increase. A GDP per capita of $9000 has been reported in Shanghai, Guangzhou, and Beijing.
There is more than one promising option for auto financing in China. China’s banks have already been indicated as a viable better option because of the available deposits they could use in the industry. Although multinational corporations are another auto financing option for the China market following the elimination of trade barriers (as China is now a member of WTO), they are not better placed as there would be expected competition from the local industry. Another probable better option for the auto financing institution is for the automakers to launch an auto-financing services subsidiary, which is the most promising because the automaker is versed in automotive sales and the market. If the automaker is a local operator in China, the company will likely be more versed in the local market than international firms through competition.
Any company willing to venture into auto financing can explore the market through consumer lending. There have been indications that Chinese consumers’ aversion to debt is waning, with analogous evidence from extrapolation promising a better future. With services such as remarketing of vehicles already existing in Beijing and Shanghai and the Shanghai Credit Information Services being a reliable source of credit information for many Chinese, this option seems likely to expand, and companies need to exploit it. There is also a likelihood that rules and regulations limiting insurance companies when investing in loans or underwriting loan risks will be loosened. In addition, laws restricting liens or security interests in autos registered for personal use may also be improved with time. One place where consumer credit and the systems have been more advanced is Shanghai. A company willing to venture into the auto financing business can consider this a place to carry out its primary operations. In addition, a company venturing into the auto financing business can exploit the east urban markets as the consumers in these populations realize more wealth and embrace nontraditional attitudes towards buying on credits. This is in line with the target of launching car credit financing as an option by the operator.
One of the potential changes in the market is that the government will seek to embrace consumer credit. Companies willing to offer these services will benefit more by indicating that customers could be more receptive to debt purchases. Therefore, companies need to increase their credit auto financing services and retain the cash services for the conservatives. Companies also need to try out more than one financing option to accommodate as many customers, even those of different financial statuses. Because changes in prices of automobiles may appear to be tricky (and more so when it falls further in the future) for the lenders as some customers have had to default when the prices of the vehicles (of similar models) they are purchasing go down, companies need be willing to avail alternatives. These alternatives include repossession and remarketing of such commodities. Since China has eliminated a restriction on the models that should be produced, automakers can start offering and aligning auto financing services with their business for all models. Customers will be willing to look at the quality, and diversity will also be meaningful. Auto finance and mortgages are other potentials for investment by firms ready to excel in China. Companies, therefore, must be prepared to invest in risky businesses with long-term investment benefits and profit to align them with the market trend, where the market is precarious and lacks short-term gains. To excel in the auto financing business in China, companies can also try to take advantage of the market changes by forming partnerships with the government and its lending institutions to overcome the challenge of financing operations and gain other benefits. Joining other partners on the network can also help. These include those companies with long-term experience in auto lending and automobile manufacturing firms. However, companies must focus on customer preferences more than ever and improve quality and cost following the opening of the Chinese market to comply with the WTO regulations. The need for auto financing is small because it was permitted only in 1998 but may expand with time.
Ilkka Ronkainen(n.d.). Car financing in China. 166-171.