SHANGHAI -- General Motors launched China's first auto financing venture on Wednesday to drive growth in a market expected to be the company's largest this year after the United States.
GM's venture with Shanghai Automotive Industry Corp. has made its first customer loan, beating foreign rivals in a race to enter a largely untapped $22 billion market.
Volkswagen is still waiting for a license, while Ford Motor Co. and Toyota Motor Corp. have initial approval to start making car loans. All hope car financing will fuel the next stage of explosive growth in China, especially as car sales slow.
GM expects that in 10 years, up to half of all Chinese car buyers will be financing their purchases. But executives have said the industry needs serious legislative support.
China has no central credit rating agency, no laws to repossess cars from errant borrowers, and -- after just a few years -- a swelling pool of non-performing auto loans.
Christian Weidemann, the venture's general manager, said that's why it takes 10 to 15 minutes to approve a car loan in the West, and up to 10 days in China. Bankers even physically check on borrowers at their workplaces to verify their identity.
"We don't want to be trapped like other banks and be faced with losses. Doing a proper job takes some time," he said.
The venture between the two firms' financing units has $60.4 million in registered capital and will primarily raise funds by borrowing from Chinese banks.
China's banks have offered car loans since 1998, but pared back rapidly after bad debt soared, prompting warnings from Beijing.
GM executives say efforts to clamp down on excessive credit have all but smothered the market for now, although it could recover toward year end.
Only 2 percent to 4 percent of car purchases are financed through loans, down from 18.5 percent at the end of last year, said Weidemann.
Outstanding auto loans stood at $22.15 billion at the end of June, about 10 percent of all consumer debt issued by financial institutions, according to the central bank.
"The last thing we're going to be is reckless. We're going to start off slowly and cautiously," said William Muir, global president of credit arm General Motors Acceptance Corp. (GMAC).
"We're going to have a better expense structure than the banks, and we're going to use that to provide better service," Muir said.
Auto financing has proved a big money spinner for GM in the United States and Europe. GMAC earned a record $860 million in the June quarter, around 64 percent of total GM earnings.
But China represents a return to basics: selling cars.
"We kind of wish many more markets around the world were like China," said Muir. "This is really the way we like to see General Motors make its money."
Analysts say providing credit will not immediately boost sales in a car market that consultant McKinsey expects to be the world's largest after the United States by 2010.
That's why GM and its partners are spending $3 billion to double capacity to 1.6 million units in the next three years, hoping to catch rival Volkswagen, a mid-sized player on the global stage but dominant in China, the world's fourth-largest market.
GM says it commands about 10 percent of the Chinese auto market -- including all vehicles from cars to trucks -- vs. Volkswagen's 12 percent to 13 percent. The German company maintains it has one-quarter of the key sedan segment.
China profits comprised around 9 percent of the $1.34 billion GM made in total in the second quarter.
Car sales in China are expected to rise 10 percent to 20 percent this year, much slower than last year when they nearly doubled to 2 million units. Sales rose 1.6 percent in July from June.
Muir said GMAC may some day offer other financial services in China, such as insurance products and house mortgages.