2014 China auto finance report
Innovation in the auto finance industry
As a follow-up to the 2012 China auto finance report, in which we focused on main business areas of auto finance such as wholesale loans to dealers and retail loans to consumers, this year's report takes a closer look at the innovation of the auto finance industry and explores the development of several major emerging models in China, including car rental/leasing, used car finance, car insurance and Internet finance.
Currently car rental service in China is still in an early stage with a low penetration rate, however, with its great market potential, it is expected to enter into a rapid growth phase in the next few years. On the other hand, the development of the car rental business is not without stumbling blocks, facing uncertainties such as market regulations, integration with the used car market, and residual value estimation.
In the area of used car finance, the market is developing in a slow manner mainly due to constraints such as higher credit risk compared with that for new car loans, a smaller market scale, high operation cost with low margin as a result of small single loans, and the lack of valuation agencies specialized in used cars. In the long term however, along with the shortening of the car replacement cycle and the increase in the residual value of used cars, the trading value and volume of used cards as well as the business attractiveness to financial institutions are expected to grow gradually.
The report also examines the development of the car insurance business, pointing out that the current market is highly concentrated with PICC, Ping An and CPIC which account for two thirds of the market share. Although the market is growing rapidly, most companies are still faced with the issue of inadequate earnings.
Other forecasts suggest that the automotive industry value chain will move towards the aftermarket end increasingly. More enterprises will become the players in the aftermarket and Internet finance will have a profound impact on auto finance.