Fridays in the summer are not great for focusing on the news. The beach calls; barbeques beckon. You can also feel the afternoon nap starting.
Well, I hope you didn’t miss this nugget of news out of China on Friday: the country’s auto industry is on fire. Still.
Sales numbers for China roared again in June, hitting 1.14 million vehicles, up 36.5% (yes, you read that number right) from the year earlier. Sales of passenger vehicles rose 48.4% to a record 872,900 units. If you thought for a moment that perhaps AutoFinanceNews.net had just published the sales numbers for the US, you’re not off the mark. China’s SAAR numbers are closing in on the US’s. Analysts project that in 2009 car sales in China will top cars sales in the US. Car sales in China are expected to hit 11 million in 2009. Care to guess what the year-over-year increase would be? Do I have a vote for 5%? How about 10%? Maybe a 15%? Try 17.3%. In case you are wondering, car sales in the US are down 28% year-over-year.
Cost is playing a big part in the China boom. The Wall Street Journal wrote:
Car sales in China have benefited from favorable tax policies on small cars and subsidies for purchases in rural areas.
When you are talking about cost, financing is not far behind. It is difficult for me to understand how any US auto financing venture today – and I mean an auto financing venture that is committed to auto finance, not just to providing car loans when its credit committee feels like it – is not honed in on the China market. When it comes to car adoption, China is the US in the 1950s, when cars became a part of the American culture. The opportunity in China is absolutely mind-boggling and it far exceeds any in the world today. I just hope this point isn’t lost to an afternoon nap in the hot summer sun.
One condition is at least 2/3 of debts converted to equity. As far as I know now, the committed debt conversion ratio is far below that target.
Part of the reason financing isn’t booming the way auto sales are in China is that the customers and credit attitudes are just different from those in other countries. Until 1987, there were essentially no credit cards in China, and the government has fostered a saver’s culture for decades. So people tend to buy outright or put down the vast majority of the purchase price.
Younger people are warming to more “conventional” financing arrangements like we have here, but the majority of buyers still don’t want to owe on a car. Or anything else. Debt has a certain social stigma that it doesn’t necessarily have here. Cash purchasing also often means a discount, the inverse of financing, which equates to paying more over the long term.
Because of the relatively recent mass adoption of easy credit, many buyers also lack a qualitative credit history.
Then there are the cars that most people can afford. Better off buyers can purchase western cars or western cars made in China – Citroens, Buicks, etc. But most buyers are buying Chinese-made cars, which are cheap to buy out of savings but may or may not hold up long term – I certainly wouldn’t want to enter into a 72-month term on some old Isuzu Rodeo or Daihatsu Charade clone.
But – the time to get firmly established is now. Because eventually, with consumer culture raging in China, people will develop credit histories and they will relax their attitudes about borrowing on big-ticket items like cars.
Exactly.
Many people predict that 08 was the last year for the US sales to be #1 worldwide. The most recent Shanghai auto show had the world premiers by a number of manufacturers including Porsche. Auto finance is in its infancy, still much infrastructure work to do, complicating matters is the need for a domestic partner. Finance product offerings will be basic for many years, volume will grow exponentially.
I agree. The numbers out of China are fantastic and even basic offerings could be rich ones, Mike. A change in rules from the Chinese government would certainly help speed things along, though.