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Special Report

July 28, 2015
 

Auto Finance and Leasing innovation will fuel the next round of growth

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Written by: Suhail Nasir
mobile-world-magazine-global automotive forum-jack perkowski
 

With the constant increasing of Chinese car population and the slowdown in overall sales growth, competition between Auto companies has become more and more fierce, which has resulted in a new type of car financing based on financial leasing.

In China, automotive rental markets are in their early stages. The rise of financial leasing will be another important growth factor and will certainly contribute to the future development of the Automotive Industry.



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In the Panel discussion “Auto Financing and Leasing,” held on the afternoon of June 9th, Tang Yunke, Vice President of China Financial Leasing Co., Ltd. and Deputy Secretary-General of China Youth Entrepreneurs Association; Matt Gibb, Deputy Oakland County Executive, Oakland County, Michigan, USA; and Jack Perkowski, Chairman of JFP Holdings, Ltd. held an in-depth discussion about this topic.

Chinese automotive financial penetration rates are lower overall, auto finance and leasing are facing many challenges

 In the mature car markets of Western countries, the financial penetration rate of new cars and used cars is about 70%. Chinese automotive financial penetration rates are lower overall. For new cars, the rates are only at 15% while the rates of used cars are even lower. Mr. Tang believed that the situation is related to the level of market administration, degree of openness of financing and capital market as well as the development of the whole auto industry.

Although new car financing is a big part of future growth, China still has a long way to go to integrate financial leasing. This is partially due to the mercy of laws, policies and the preference of cash transactions. But for Chinese consumers, ownership is the core problem. To some extent, financial leasing means “paying for others’ cars”. This consumption habit has resulted in buying a car as the first choice for most consumers and ultimately restricted the development of financial leasing.

“Two big challenges are the consumers’ attitudes and regulatory issues.” Jack Perkowski gave his opinions on the challenges China faced in financial leasing, “American automotive financing companies can finance by securitizing their product mix, but in China it is difficult to achieve that due to some realistic limits.”

Besides, in China, the unstable pricing and constant depreciation of OEMs, including some international companies, has also affected the development of financial leasing. If the pricing is unstable, financial business will be affected. Wayne W. J. Xing, Ph.D., CEO of CBU Analytics, China gave an example. He pointed out that giving a 20% discount the year after the down payment during car renting or financing would become a headache for all of us. We have to consider the salvage value in order to find a better way of automotive financial leasing.

Auto Finance and Leasing Innovation will Fuel the Next Round of Growth

 Changing consumer attitudes and loosening credit policy is the key to supporting the penetration rate and growth of the automotive rental market. Innovation of automotive rental will be paramount to boosting the automotive industry.

 In Matt Gibb’s opinion, automobile renting is another representation of the private transportation concept. Automobile renting will come naturally when no parking places are available and there is a rigid demand for automobiles. Financial leasing has become an expansion of consumer personality and has altered the culture of automobile expenditures.

In terms of the outlook of the auto financing market, Jack Perkowski noted that there have been rapid developments of auto manufacturing, including the manufacturing of components, auto integration and manufacturing over the past 20 years. Automobile financial leasing and used car purchases have experienced great changes and developments. “Car financial leasing and second-hand car financial leasing will become important trends in China.”

Tang Yunke thinks that the financial assets of Chinese automobile consumption will at least double within five years, from the present RMB700 billion to RMB1.5 trillion. In the next five years, the financial leasing of Chinese automobiles, especially those with a lease term of more than one year, will increase from tens of billions to hundreds of billions. In the longer run, automotive financing will become half of the whole industry. That is to say, it could stand up to commercial banks’ automotive credit business as an equal. “The business model of a combination of the Internet and financing will lead reconstruction of the whole industry, and become a new economic growth engine to drive a new round of growth.”

-Published on page#-40 July-2015 edition of MOBILE WORLD Magazine





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