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Volkswagen to Expand Car Loans Business
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Volkswagen Finance (China) Co Ltd, German carmaker Volkswagen AG's auto-financing arm in China, plans to aggressively expand its business coverage this year.


Klaus-Uwe Schaffrath, general manager of the auto-financing firm based in Beijing, said it intends to provide loans to car buyers in 25 Chinese cities by the end of this year, up from 12 in July.


Meanwhile, the company will double its partner dealers from Volkswagen and its two joint ventures in China to 200, Schaffrath told China Daily.


Cars sales from its partner dealers, both financed and paid in cash, will account for 70 percent of Volkswagen's total sales in China this year, he said.


"Our (outstanding) loans will grow gradually with bigger business coverage," he said.


He said Volkswagen Finance (China) now has more than 3,000 contracts since it began operation in September 2004 with an equity capital of 500 million yuan (US$62.5 million).


But he didn't reveal the size of its outstanding loans.


Many other global carmakers have also begun offering car loans in China such as General Motors (GM), Ford, DaimlerChrysler, Toyota and PSA Peugeot Citroen to cash in on the lucrative and potentially huge business in the world's No 2 vehicle market.


GM's auto-financing joint venture with the Shanghai Automotive Corp (SAIC) had sealed more than 22,000 deals with local buyers by the end of June. The venture, which opened for business in August 2004, is the first foreign-funded specialized auto-financing institution.


Schaffrath predicted that 30 to 40 percent of new car sales in China per year would be financed by 2010, up from less than 10 percent at present.


The auto-financing business remains small in China mainly because the country lacks a sound credit system and most local customers are unused to paying for cars in instalments.


Commercial banks in China began tightening controls on auto credit and some even halted the business in 2004 to prevent bad loans from bloating.


In contrast, more than 70 percent of new cars are sold through loans in developed auto markets such as Europe and the United States.


"We expect China's central bank will set up a sound credit system soon and we will be able to access it," Schaffrath said.


Volkswagen Group China said earlier that the carmaker's 2006 sales would rebound from consecutive tumbles over the past two years.


In the first half of this year the group's China sales surged by 30.2 percent to 345,375 cars.


Volkswagen runs two car ventures with First Automotive Works (FAW) and the SAIC.


The venture with FAW makes the Jetta, Bora, Sagitar, Golf and Caddy as well as the Audi A6 and A4. The venture with the SAIC builds the Santana, Polo, Passat, Gol and Touran.


Sales of all made-in-China vehicles grew by almost one-fourth to 4 million units from January to July this year, including 2.1 million cars, according to industry data. Full-year vehicle sales are forecast to reach 7 million units.


(China Daily August 11, 2006)


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