Chinese Car Buyers Opt for Auto Loans

Chinese car buyers opt for auto loans

Car loans in China are soaring as automakers' captive loan operations make financing easily available.

GMAC-SAIC Automotive Finance Co., for example, generated $944 million in auto loan originations in the last three months of 2010, up 97 percent over the year-earlier period.

That's a huge increase for a market that still relies primarily on cash transactions.

Last year, only 10 percent of car buyers in China received loans to purchase a car -- only a fraction of the 80 percent rate in developed markets, said Susanne Gehrling of GMAC international operations.

So there is plenty of room for growth for lenders such as GMAC-SAIC Automotive, a three-way joint venture set up in 2004 by Ally Financial Inc., Shanghai Automotive Group Finance Corp. and Shanghai General Motors.

Ally Financial, an independent bank, was formerly known as GMAC Inc.

Chinese borrowers typically favor a 36-month loan. Young car buyers are especially willing to seek financing, Gerhling says.

"GMAC has seen an increase in use of auto finance as more young buyers come into the market who are more aware and open to financing," she notes.

Car loans initially gained a foothold in China's prosperous coastal cities. Now, car buyers in 2nd and 3rd-tier cities are seeking financing, too.

"These areas now comprise our fastest growing geographical segment, as customers in these regions aspire to have cars," Gehrling says.

Luxury car buyers are more open to obtaining loans than their mass-market peers, says Jenny Gu, an analyst with J.D. Power and Associates.

Gu says 17 percent of Mercedes-Benz car buyers got loans last year, compared with 10 percent of all car buyers.

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