Chinese consumers take credit for boom in car loans

dimeji akinloye

September 4, 2016 3:35 AM

That is still a far cry from the more than 80 percent of cars bought on loans in the United States, but Deloitte predicts China will reach 50 percent by 2020.

A man takes a look at BMW cars at a dealer shop in Beijing, China, September 11, 2015. REUTERS/Kim Kyung-Hoon

Nearly 30 percent of Chinese car buyers bought on credit last year, up from 18 percent in 2013, according to analysts from Sanford C. Bernstein and Deloitte, helping a rebound in the car market after a sticky 2015.

That is welcome news to China's government, which wants consumers to borrow and spend more to shift its slowing economy away from heavy industry and investment-led growth.

Beijing resident Wang Danian said he planned to buy his first car on credit, saying it was the smart move.

"I can use my cash to do other things," the 28-year-old said while looking at an FAW Besturn X80 sport utility vehicle. "If I use all my savings at once to buy a car, and then something happens, I can't manage the risk."

Six consumers interviewed by Reuters said they would all consider loans, lured by low-fee and interest-free deals, with half saying they'd prefer to buy on credit and save cash for other items.

"I'd estimate after the manufacturer came out with the low-interest deal that about 30 percent of potential cash buyers switched to buying on credit," said a salesman at a Volkswagen dealership in eastern China's Jiangsu province who gave his name as Mr. Zhao.

Global automakers have struggled to encourage this trend for some time; Volkswagen established its finance subsidiary in 2004, but was held back by strict regulations on underwriting loans and sources of funding.

As the government gradually relaxed those restrictions over the last seven or eight years, financed purchases have grown, with Daimler's Mercedes saying more than 30 percent of its cars in China are now bought on credit, and it reported 31 percent year-on-year growth in net lending as at the end of July.

China's auto market struggled last year thanks to the slowest economic growth in 25 years and a stock market rout, but rebounded in October when the government cut sales tax on smaller cars. By July, vehicle sales were rising at their fastest monthly rate in three and a half years.

"While the government's tax reduction was the most obvious explanation for the rebound in Chinese car sales at the end of 2015, soaring auto financing penetration represented another, lesser noticed, driver of the boom," Bernstein said in April.

dimeji akinloye