Ford offshoot approved for auto loan services
By Gong Zhengzheng (China Daily)
Updated: 2004-08-04 08:45

Ford Credit, the finance unit of Ford Motor, said yesterday that it will start to provide loans to automobile buyers in China in the middle of next year.

The company's application to form an wholly-owned auto finance operation in China has been approved by the China Banking Regulatory Commission (CBRC), it said.

Ford Credit, which established a representative office in Beijing in 1996, plans to invest US$60 million in China initially.

The company will offer loans to customers and more than 100 existing Ford dealers in China under the name of Ford Automotive Finance.

"China is an important market for Ford, and Ford Credit's approach is to build a foundation that will support the company's commitment to China," said Mike Bannister, chairman and chief executive officer of the finance unit.

Last month, Ford started to build a 200,000-car plant in East China's Jiangsu Province jointly with Mazda and Chang'an Motor Corp as part of a US$1.5-billion expansion plan.

Ford now has two joint ventures in China - one with Chang'an in western Chongqing Municipality and the other with Jiangling Motor in eastern Jiangxi Province.

"Ford Credit expects to finance all of our brands (Ford, Mazda, Volvo, Jaguar, Lincoln, Aston Martin and Land Rover) in China in the future," said Kenneth Hsu, the spokesman of Ford Motor China.

The finance arms of US General Motors (GM), Japan's Toyota and Volkswagen of Germany, gained CBRC approval to prepare auto finance operations in China at the end of last year.

Volkswagen Financial Services AG and Toyota will set up wholly-owned auto finance branches in China, while General Motors Acceptance Corp will form a joint venture with Shanghai Automotive Industry Corp.

However, the business has obstacles in China because of the lack of a sound credit system, which creates risks for financial institutions.

Volkswagen and GM said that they would kick off their businesses in China later this year.

But industry sources said that Toyota had applied to the CBRC to delay the start of the business mainly because of the credit system problem.

"The problem is a great challenge for all of us, but Ford will employ both its own expertise and existing Chinese regulations to minimize risks from the car financing business," Hsu told China Daily.

Many commercial banks in China have raised the threshold for auto financing and even suspended the business for fear of bad loans.

Currently, less than 10 per cent of total new car sales in China is financed, down from 30 per cent a year ago.

In developed markets, more than 70 per cent of automobiles are sold with the use of loans.

"Auto financing is a very lucrative business and has huge growth potential in China," said Yale Zhang, a Shanghai-based analyst with CSM Worldwide Corp, an US auto industry consulting firm.

The business is expected to extend to used and leased vehicles in China in the future with relaxation of the relevant regulations, Zhang said.

"These automakers' finance arms are also expected to provide loans to brands of other producers, such as some Chinese firms which have no ability to do the business," he said.

Ford Credit reaped a record net income of US$897 million in the second quarter of this year, up from US$401 million a year ago.

It has some US$179 billion in managed assets and 19,000 employees around the world.

At present, Ford Credit provides vehicle financing in 36 countries to nearly 11 million customers and more than 12,500 automotive dealers.

Ford is lagging far behind rivals Volkswagen and GM in China's vehicle market.

The company aims to increase its all-brand sales in China to 200,000 vehicles this year from 120,000 last year.

Volkswagen - the No 1 car maker in China for many years - and GM sold 697,000 and 386,700 vehicles respectively in the nation last year.

Ford's plant in Chongqing is producing Mondeo and Fiesta sedans under the Ford brand and will launch the Focus soon.

Its venture in Jiangxi is making the Transit commercial wagon.

Ford will also introduce Volvo, Jaguar and Land Rover into its production in China with Chang'an Motor.

China remains the world's fastest-growing car market, despite recent growth decline in vehicle sales.

Analysts forecast that total sales of domestically-made passenger cars will increase by around 30 per cent to 2.6 million units this year.

Expected growth is down from 75 per cent last year.

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