BEIJING - On November 2 DaimlerChrysler became the fifth foreign automaker to offer finance deals to car buyers in China.
DaimlerChrysler Auto Finance (China) Ltd. will make loans in the passenger and commercial vehicle sectors. It also will offer insurance.
China only allowed foreign firms to begin making car loans last year.
General Motors was the first foreign automaker to open a financing arm in China. It has made 8,000 retail loans since beginning operations in August 2004, said Christian Weidemann, director of financial services for the GM China Group.
Volkswagen, Toyota, and Ford Motor Co. all have financing arms in China.
D/C aims to make 3,000 retail loans in 2006, its first full year of operation. It will start with only 20 dealers spread over three cities: Shanghai, Guangzhou, and Beijing.
Car loans grow
There's plenty of room to expand consumer car loans in China. Only about 10 percent of buyers use loans in China, compared with 50 percent in Europe and the US, said Alwin Epple, a board member of DaimlerChrysler Financial Services.
That is partly due to a cultural aversion to credit among Chinese consumers.
Also, the Chinese government last year imposed stricter lending criteria including a 20 percent down payment requirement on car loans from local banks after loan defaults began to rise.
China lacks a nationwide credit rating system, one of the reasons for the growing default rate. Wolf Bay, managing director of DaimlerChrysler Financial Services, said D/C will take a "very prudent approach" to lending, at the same time working with the government to improve the credit evaluation system.
D/C also will make higher credit provisions for China - up to 3 percent compared with 1 to 1.5 percent for its global loan portfolio.
"We are convinced we will see default rates in China become similar to the rest of the world," Bay said.
Currently D/C builds Mitsubishi and Jeep-badged SUVs and minivans at Beijing Benz-Daimler-Chrysler Automotive.
The automaker will begin producing E- and C-class sedans at a new plant in the Beijing suburbs at the end of this year, said Till Becker, chairman and CEO of Daimler-Chrysler Northeast Asia.