Ford Credit, the finance unit of Ford Motor, announced on
Tuesday that it will start to provide loans to automobile buyers in
China in the middle of next year.
The China Banking
Regulatory Commission (CBRC) has approved company's application
to form a wholly owned auto finance operation in China, it
said.
Ford Credit, which established a representative office in
Beijing in 1996, plans to invest US$60 million in the company
initially. It will handle loans to customers and more than 100
existing Ford dealers in China under the name of Ford Automotive
Finance.
"China is an important market for Ford, and Ford Credit's
approach is to build a foundation that will support the company's
commitment to China," said Mike Bannister, chairman and chief
executive officer of the finance unit.
Last month, Ford started to build a 200,000-car plant in east
China's Jiangsu Province jointly with Mazda and Chang'an Motor
Corp. as part of a US$1.5 billion expansion plan.
Ford now has two joint ventures in China: one with Chang'an in
western Chongqing Municipality and the other with Jiangling Motor
in Jiangxi Province.
"Ford Credit expects to finance all of our brands (Ford, Mazda,
Volvo, Jaguar, Lincoln, Aston Martin and Land Rover) in China in
the future," said Kenneth Hsu, spokesman for Ford Motor China.
The finance arms of US General Motors, Japan's Toyota and
Volkswagen of Germany gained CBRC approval to prepare auto finance
operations in China at the end of last year.
Volkswagen Financial Services AG and Toyota will set up wholly
owned auto finance branches in China, while General Motors
Acceptance Corp. will form a joint venture with Shanghai Automotive
Industry Corp.
However, the business has obstacles in China because of the lack
of a sound credit system, which creates risks for financial
institutions.
Volkswagen and GM said that they would launch their businesses
in China later this year, but industry sources said that Toyota had
applied to the CBRC to delay startup mainly because of the credit
system problem.
"The problem is a great challenge for all of us, but Ford will
employ both its own expertise and existing Chinese regulations to
minimize risks from the car financing business," said Hsu.
Fear of bad loans has led many commercial banks to raise the
threshold for auto financing. Some have even suspended the
business.
Currently, fewer than 10 percent of total new car sales in China
are financed, down from 30 percent a year ago.
In developed markets, more than 70 percent of automobiles are
sold with the use of loans.
"Auto financing is a very lucrative business and has huge growth
potential in China," said Yale Zhang, a Shanghai-based analyst with
CSM Worldwide, a US auto industry consulting firm.
The business will probably extend to used and leased vehicles in
China in the future with relaxation of the regulations, Zhang
said.
"The automakers' finance arms are also expected to provide loans
to brands of other producers, such as some Chinese firms that
aren't able to handle financing," he said.
Ford Credit reaped a record net income of US$897 million in the
second quarter of this year, up from US$401 million a year ago. It
has some US$179 billion in managed assets and 19,000 employees
around the world.
At present, Ford Credit provides vehicle financing in 36
countries to nearly 11 million customers and more than 12,500
automotive dealers.
Ford is lagging far behind rivals Volkswagen and GM in China's
vehicle market. The company aims to increase its all-brand sales in
China to 200,000 units this year from 120,000 last year.
Volkswagen, the Number 1 carmaker in China for many years, sold
697,000 vehicles last year and GM sold 386,700.
Ford's plant in Chongqing is producing Mondeo and Fiesta sedans
under the Ford brand and will launch the Focus soon.
Its venture in Jiangxi makes Transit commercial wagons.
Ford will also introduce production of Volvo, Jaguar and Land
Rover models through Chang'an Motor.
China remains the world's fastest-growing car market, despite
the recent shrinkage in vehicle sales growth.
Analysts forecast that total sales of domestically made
passenger cars will increase by around 30 percent to 2.6 million
units this year.
Expected growth is down from 75 percent last year.
(China Daily August 4, 2004)