French car maker PSA Peugeot Citroen is expected to embark on an auto financing business in China with its local car venture and a major Chinese bank during the first half of this year.
PSA Peugeot Citroen, its car venture with China's Dongfeng Motor Corp, and the Bank of China - one of China's four biggest State-owned commercial banks will form an auto financing venture based in Beijing, according to Liu Weidong, general manager of Dongfeng Peugeot Citroen.
Liu said Bank of China would hold a 50 percent stake in the auto financing venture, with the French carmaker and Dongfeng Peugeot Citroen controlling 25 percent each.
The auto financing venture will have a registered capital of 500 million yuan (US$61.7 million) and operational assets of more than 5 billion yuan (US$617.2 million), he said.
"We are now in final preparations for the auto financing business," he said.
The move will make PSA Peugeot Citroen the sixth foreign automaker to offer car loans in China after General Motors (GM), Volkswagen, Toyota, Ford and DaimlerChrysler.
"We hope auto financing will help us boost sales, but we will mainly provide wholesale loans to car dealers in initial stage and will cautiously extend to retail sales due to the lack of a sound credit system in China," Liu told China Daily.
"We don't expect our car financing business will make profits within three years, although it will be lucrative in the future."
Dongfeng Peugeot Citroen, based in Central China's Hubei Province, aims to sell 200,000 vehicles this year, up from 140,000 units last year.
Currently, less than 10 percent of car sales in China use loans, down from more than 20 percent in 2003, according to statistics from CSM Worldwide Corp, the US auto industry consultancy. This is a sharp contrast to the 70 percent in developed markets.
Fearing bad loans, Chinese commercial banks started to enhance the threshold for auto financing in 2004.
"There will not be a big jump in the auto financing business in China over the next two to three years unless the nation's economy is overheating again," said Yale Zhang, CSM's analyst based in Shanghai.
China is the world's No 3 vehicle market after the United States and Japan.
GM's auto financing venture with Shanghai Automotive Industry, the first foreign vehicle producer's China auto financing branch launched in August 2004, won 11,631 retail contracts by the end of last year. However, the US automaker's vehicle sales in China exceeded 665,000 units in 2005.
Atsuyoshi Hyogo, chairman of Honda Motor (China) Investment Co Ltd, told China Daily yesterday that the Japanese carmaker now had no plans to open auto financing business in China.
PSA Peugeot Citroen's car venture with Dongfeng now makes the Citroen Fukang, Elysee, Picasso and Xsara as well as the Peugeot 307. It plans to launch a Peugeot 206 and two new Citroen models this year.
(China Daily January 11, 2006)