A car dealer advertises preferential car loans to attract buyers in Nanjing. (Photo provided to China Daily)
1980s generation likely to lead borrowing boom
China's car loan market will almost double in the next three years despite challenges, according to industry experts.
"We expect the average loan penetration rate to hit 34 percent for volume brands and 45 percent for more expensive imported ones by 2018," said Mei Songlin, vice president and managing director of China Operations for J.D. Power Asia Pacific.
Mei said people who take out loans to buy cars account for 18 percent of China's passenger car market, while the figure stands at 61 percent in the United States.
Yang Xu, a senior auto finance researcher at the same consulting firm, said the percentage of people who use car loans in China grew more than 30 percent year-on-year from 2008 to 2014.
Based on the trend of the past years, Yang estimated car loans in China will hit 670 billion yuan ($109.8 billion) by the end of 2015 and exceeded 1 trillion yuan by 2020.
Accounting firm Deloitte is even more optimistic and expects the market value to reach 1.8 trillion yuan by the end of this decade.
Analysts said the growing popularity of loan-based consumption is mainly due to the fact that the post-1980s generation has become the mainstay of the car consumer market.
A recent Volkswagen and Ipsos report based on a survey of 3,511 people who purchased cars using loans in 19 Chinese cities shows that 58 percent were born in the 1980s, followed by 30 percent in the 1970s.
The report said Chinese consumers in previous generations used to stay away from debt, with the idea of "out of debt, out of danger" deeply rooted in their minds, explaining why loans of any form were not popular in the country.
According to the report, things are now changing as credit cards and housing loans have become part of daily life for those born in the 1980s.
The report also noted that those who have experience of installment payments were more likely to apply for car loans.
Hurdles
Despite the apparent increase in loan popularity, challenges remain, with complicated procedures regarded as the main problem.
The Volkswagen and Ipsos report found that from three main ways to get car loans, customers were more satisfied with credit cards than either commercial banks or automakers' finance companies.
The reason is that for existing credit card users, their credit records are available so their applications take less time to be approved, said the report.
Complicated procedures are also irritating for car dealers. A recent study from J.D. Power shows that car dealers were less satisfied with car loan services in 2015 than a year ago, with ratings out of 1,000 falling from 817 to 794.
Some even threaten to replace their current car loan providers with new ones if they fail to cut the application time and offer better services.
Mei said complicated formalities are a major problem at financial agencies. "There is much room to improve their service, but that also indicates great potential of the market."
Inadequate promotion is another problem that hinders the growth of the auto finance market.
In the Volkswagen and Ipsos survey, 45 percent of respondents said they did not realize they could use car loans until car sellers mentioned them.
Zhang Xueyong, a financial professor at the Central University of Finance and Economics, said carmakers' finance companies could play a bigger role than commercial banks in this aspect.
"Those finance companies have a closer relationship with carmakers than commercial banks, they can offer more professional services, so they can boost car consumption in a more efficient way."
Zhang also suggested that professional auto finance companies join Internet companies. "Going online will be a major trend of auto finance," said Zhang, adding that doing so will help improve customer experience, reach more potential customers, cut costs and improve efficiency.
