CICC
Dec. 3, 2009
Research Division for Automobiles and Auto Parts
Analyst: Luo Wei
Auto Financing Steps into Fast Growth Period
(Monographic Study on Auto Financing)
Recent Developments of Auto Financing:
In developed countries, auto financing has become a major model of auto consumption and an important source of earnings of auto conglomerates. In 2008, auto loans at US auto financing companies represented close to 70% of the total volume of auto sales, and more than 90% of auto purchases were made on credit. Credit system in developed is relatively perfect, and personal credit is relatively eased up. Before the breakout of financial crisis, residents in US and Europe could have easy access to auto purchase on credit, thus greatly promoting the development of auto consumption loans. From the experi
ence of large auto manufacturers, ratio of revenues gained from auto financing to auto sales tends to increasingly rise, at between 5% and 15%. Given the profitability in auto sales is relatively less stable in recent years, auto financing is contributing more to overall earnings, and earnings auto makers gained from auto financing generally account for about 1.5% of their sales revenues. Auto financing has become one of the key sources of earnings of auto companies.
China enjoys wider space for development of auto financing. Auto financing in China experienced its first round of fast growth period between 2001 and 2004. Auto consumption loan outstanding in 2003 represented even up to 22.4% of auto sales production. However, regulatory system banks imposed on auto credit was still imperfect in this round of growth, causing substantial surge in bad loans on auto financing. As a result, banks started drastically tightening auto credit in 2004 and 2005, followed by an all-the-way decline of auto loan ratios, even down to 8.5% in the end of 2008. According to statistics of the Ministry of Public Security, of vehicle registration of new cars, car purchase on credit is less than 10%, so low that it is not only far lagged behind developed countries such as European countries, US and Japan, even lower than Russia, Brazil and India, the other three of the four “BRIC countries”. Therefore, there is bigger space of developing auto financing in China.
Auto financing has stepped into the period of fast growth. As the post-80 generation, who have greater
intention for marginal consumption model and tend to be more adaptable to credit consumption, has gradually entered employment, demand for auto purchase with loans is expected to see fast growth in the next 3 – 5 years, and the faster development of professional auto financing companies and their opened financing channels will make it possible, it is estimated that the compound growth rate will reach 20% in a 8-year period from now. By 2016, the scale of auto credit will reach 500 billion yuan. By then, the overall earnings of auto financial companies are expected to reach 3.9 billion yuan.
Impact on Listed Firms:
Fast development of auto financing boosts a steady growth in auto sales. Fast development of auto
financing has enabled the consumers who now cannot afford to buy the car to make purchase with installment, which means the demands for the next 3-5 years period can be currently over-relieved more and more, being conducive to a steady growth of auto sales in the current year.
Auto financing operations are expected to be another growth engine for earnings of auto makers. At present, even the credit penetration at GMAC-SAIC is merely around 10% of the sales of Shanghai GM, and it is much lower at other auto financing companies; from the level of earnings, auto financing operations contribute less than 3% to the auto makers, and earnings from auto financing operations ac
count for less than 0.3% of the sales revenues of auto makers. Therefore, there is bigger space for growth.
Listed companies such as Shanghai Automobile, Dongfeng Automobile Group and FA Fuwei that hold equity of auto financing companies will benefit from the development of auto financing operations. Shanghai Automobile holds 98.95% of equity of Shanghai Automobile Financial Company and also 50% of equity of GMAC-SAIC; Dongfeng Group holds 35% of equity of Dongfeng Nissan Auto Financing Company and its unit DPCA holds 25% of DPCAFC; FA Fuwei holds 6.41% of equity of FA Financial Company. It is estimated that driven by the fast growth of domestic auto financing market, revenues and earnings at the above financial companies will be on the rise, becoming another drive for earning growth at Shanghai Automobile, Dongfeng Automobile Group and FA Fuwei.
Risk Reminders:
Substantially tightened credit by the state has brought credit costs to be long at high levels; increasing defaults on auto credit impede the development of the market; auto financing is developing at a pace slower than expected due to the absence of government’s incentive policy.
Table of Content
Mature auto financing provides boost to sales and earnings of foreign automobile industry (4)
Auto purchase on credit is a mainstream approach abroad (4)
Tendency towards eased credit enabled auto credit to embrace for fast development (4)
汽车金融
Auto financing operations are one of the principal contributors to earnings of auto makers (9)
Development of auto financing tends to be mature and is expected to embrace for the second opportunity (13)
China’s auto credit enjoys bigger space for development (13)
Competitiveness of auto financing companies has gradually been enhanced (16)
Auto financing operations will step into a fast growth period (23)
Large auto groups will benefit from the development of auto financing (26)
Appendix: Overview of Major Auto Financing Companies Overseas (29)
List of Graphs
Graph 1: Ratio of loans at US auto financing companies to the volume of auto sales (4)
Graph 2: Correlation between the pace of US auto sales growth and the growth of auto loan outstanding (4)
Graph 3: Pace of M2 growth in US (5)
Graph 4: Development history of the US auto .. (5)
Graph 5: Trends in the movement of down payment and loan maturity (6)
Graph 6: Spread of the US interest rates on new cars and the rates of 3-5 year US treasury bonds (6)
Graph 7: Continuous drop in ratio of monthly payment to income and ratio of car price to income (7)
Graph 8: Auto financing business models in developed countries (8)
Graph 9: Ratio of financial operations at Ford Motor to overall earnings (9)
Graph 10: Ratio of revenues and profits from financial operations to overall auto sales revenues (9)
Graph 11: Ratio of financial operations at Toyota Motor to overall earnings (10)
Graph 12: Ratio of revenues and profits from financial operations to overall auto sales revenues (10)
Graph 13: Ratio of financial operations at V olkswagen to overall earnings (11)
Graph 14: Ratio of revenues and profits from financial operations to overall auto sales revenues (11)
Graph 15: Ratio of financial operations at General Motor to overall earnings (12)
Graph 16: Ratio of revenues and profits from financial operations to overall auto sales revenues (12)
Graph 17: Ratio of China’s auto loan outstanding to sales production (13)
Graph 18: Ratio of auto loans to cash in various countries (13)
Graph 19: Auto sales and growth rate in China (14)
Graph 20: Private auto portfolio in China and its ratio to China’s overall portfolio (14)
Graph 21: Auto consumption credit outstanding and the pace of growth in China (15)
Graph 22: Comparison between the pace of growth of auto credit outstanding and the pace of growth of industrial production (16)
Graph 23: Composition of principal parts of auto financing in China (17)
Graph 24: Composition of principal parts of auto financing in US (17)
Graph 25: Introduction to major auto financing companies (18)
Graph 26: Wholesale credit procedures for dealers (19)
Graph 27: Retail credit procedures for personal customers (20)
Graph 28: Comparison between auto financing companies and banks in credit features (21)
Graph 29: Featured service at auto financing companies (22)
Graph 30: Featured auto credit service at banks (23)
Graph 31: Requirements for application for issue of financial bonds by auto financing companies (24)
Graph 32: Composition of China’s population in different age groups (25)
Graph 33: Estimated scale of China’s auto financing market in 2016 (26)
Graph 34: Business data of China’s auto financing companies (27)
Graph 35: Historic financial data of Ford Motor Auto Finance Company (29)
Graph 36: Historic financial data of General Motor Acceptance Corporation (30)
Graph 37: Historic financial data of AmeriCredit (31)
Graph 38: Toyota Motor and historic financial data of its financial Operations (32)
Mature auto financing provides boost to sales and earnings of foreign automobile industry
Auto purchase on credit is a mainstream approach abroad
At present, auto purchase on credit has become a major auto consumption model in US. In 2008, loans at US auto financing companies represented close to 70% of auto sales volume. If coupled with bank loans, the credit rate was above 90%. Credit system in developed countries is relatively sound and credit practice is eased. Prior to financial crisis, residents in Europe and US could have easy access to car purchase on credit, thus substantially promoting the growth of auto consumption loans. As auto credit operations are highly developed, the pace of loan outstanding growth and auto sales growth have an extremely positive correlativity.
Graph 1: Ratio of loans at US auto financing companies to the volume of auto sales
Graph 2: Correlation between the pace of US auto sales growth and the growth of auto loan outstanding  Loans at auto finance companies Ratio of loans to sales volume In billions USD Auto sales growth  Growth of auto loan outstanding
Tendency towards eased credit enabled auto credit to embrace for fast development.
Tendency towards eased credit enabled auto credit to embrace for fast development. Originated in early 20th  century in US, auto credit broadly experienced three major historic stages – infant stage (from early 20th  century to the end of the Second World War), developing stage (1950s – 1990s), and mature stage (post 1990s). From World War 2 to the end of 1980s, credit climate in US was relatively lax, which propped up the development of auto credit at a fast pace. During this golden period for the US auto financing to develop and expand, auto credit outstanding jumped to 290 billion USD in early 1990s from 6 billion USD in the end of 1950s.
Graph 3: Pace of M2 growth in US
Graph 4: Development History of the US auto credit markets  M2 supply in US In billion USD M2 Growth
Mature  Stage In billions USD Starting  Stage Developing Stage
Credit  outstanding Growth