The Chinese automobile finance market to reach $149.6 billion in 2016

Reportlinker Review series of posts featuring Innovations, Social and Economic Megatrends to understand the World of Tomorrow. Each post is illustrated with statistics for one industry.

Reportlinker’s Chinese Auto Finance Market Review in a nutshell

  • Growth the largest among Millennials
  • Customers taking out credit to minimize risk
  • Chinese auto market grows for fifth month

The Chinese automobile finance market is forecasted to reach $149.6 billion in 2016, a 17.6% increase from last year with future growth expected.

Mature markets such as Japan, Europe and the U.S. have a penetration rate of more than 50% while the Chinese market is 35%.

More than 80% of the Chinese market is dominated by auto finance companies and banks. These companies issued $45.7 billion in customer loans and $12.5 billion in dealership loans in 2015.

Of the 25 auto financing companies, many were from foreign automakers. SAIC-GMAC, Volkswagen Finance, BMW Automotive Finance, and Toyota Motor Finance are the top foreign companies.

Traditionally the Chinese have shied away from debt, but Millennials are the demographic most likely to use auto financing.

According to analysts from Sanford C. Bernstein and Deloitte, 30% of vehicles were purchased in 2015 using financing, up from 18% in 2013. This compares to the United Kingdom and the U.S. where the majority of vehicles are financed.

By 2020, Deloitte forecasts 50% of Chinese autos will be financed.

Those who use financing do so to minimize risk.

“I can use my cash to do other things” Millennial Wang Danian told Reuters. “If I use all my savings at once to buy a car, and then something happens, I can’t manage the risk.

Wang was financing his first vehicle, an SUV.

Customers also are attracted to no interest, low monthly payment deals. Relaxed government restrictions have made financing easier.

Financing, however, has a downside. There is no system for checking a customer’s credit worthiness in China, and many automakers have lost revenue caused by customers defaulting on loans.

Auto Sale Surge

Meanwhile, vehicle sales in China grew 23% in July, according to the China Passenger Car Association, the fifth consecutive month to see increases. Units sold reached 1.6 million while deliveries grew to 12.4 million.

Customers have been enticed to buy since the Chinese government began offering discounts for vehicles purchased with small engines. Dealership discounts of up to 20% also have increased consumer traffic.

During the first half of 2016, sales of SUVs outpaced those of cars, accounting for more than half of sales, and this remained true in July.

Brands manufactured by Chinese companies as well as compact SUVs saw the most sales.

Key Statistics – Chinese Auto Finance Market (source: Research in China)

  • Last year in China, more than 9.42 million used cars were traded.
  • There is much potential in this market because the trade volume of used cars compared to that of new ones is a ratio of 0.38; this a larger gap when compared with other countries.
  • Less than 20% of the Chinese auto finance market is held by financial leasing companies, and internet finance companies.