What are the prospects for China's auto finance market at present, and are there any good opportunities for development?

Overall Market: Stepping into a Stable Development Stage

Automotive finance first appeared in the United States in the early 1920s of the last century, when U.S. automobile manufacturers, in an effort to promote automobile sales, provided consumers with installment payment services by way of depleting their own capital flow, which opened up the prelude to automotive credit consumption. Since then, auto finance has blossomed in countries around the world, and has become the most profitable link in the automotive industry chain of developed countries, with a proportion of 24%.

In contrast, China's auto finance market started late, until 1993, the concept of installment car purchase; to 1998, the central bank issued a policy to encourage automobile consumer loans, auto finance market ushered in the outbreak; 2003-2004, the financial institutions of the increase in bad debt car loans, car loan insurance payout rate is high, the auto finance market fell into the stage of the trough; after 2004, the After 2004, the China Banking Regulatory Commission (CBRC) issued the Measures for the Administration of Automobile Loans, which standardized the automobile consumer credit business and brought the automobile finance market into a period of stable development.

From the birth to explosive growth, then to the stage of trough, and finally to the steady development, China's auto finance market has made great progress. In recent years, under the influence of multiple factors such as consumption upgrading and structural adjustment of the automobile industry, the demand for automobile finance has once again ushered in a rapid release, and the scale of the market has been expanding.

According to data from the CBRC, the compound annual growth rate of China's auto finance business loan balance was as high as 29% from 2013 to 2017. As of the end of 2017, the loan balance of auto finance business has reached 668.8 billion yuan, up 28.39% year-on-year; the Prospective Industry Research Institute expects the loan balance to increase to 769.1 billion yuan in 2018.

Specifically broken down, auto finance business loans can be divided into three categories: retail loans, dealer inventory financing, and financial leasing. At present, retail loans dominate, with installment payments as the main focus, and the balance of retail loans reached 560.3 billion yuan in 2017; dealer inventory financing follows, with a financing balance of about 102.5 billion yuan; in contrast, the financing lease model has been in a relatively awkward position, with a financing lease balance of only 6 billion yuan.

Overall, China's auto finance market has been significantly improved, but compared with the mature markets in developed countries, China's auto finance market penetration rate is still at a relatively low level, only 30% in 2017, while Japan, Germany, the United Kingdom, the United States auto finance penetration rate has reached more than 60%, which indicates that China's auto finance still has huge growth potential.

Segmentation: penetration rate will steadily increase

I. New car auto finance market

Since 2008, China's automobile sales have steadily increased, and reached 28.88 million units by 2017. Although the auto consumer market entered a slump in 2018, cumulative sales remained high. Data show that from January to November 2018, the country's cumulative automobile sales reached 25.42 million units, a year-on-year decline of 1.65%; it is expected that the annual sales may be around 28 million units.

The sharp growth in auto sales has laid the foundation for the high-speed development of auto finance, with the penetration rate of new car auto finance rising from 13% five years ago to 39% in 2017. With the popularization of auto consumer credit and the gradual improvement of the credit system, the penetration rate of new car auto finance is expected to exceed 50% by 2022.

In the new car auto finance market, loans are the mainstream method, with less financial leasing.In 2017, the loan penetration rate reached 35%, and the penetration rates of leaseback and direct leasing were 3% and 1%, respectively; it is expected that the loan penetration rate will be increased to 41%, and leaseback and direct leasing will be increased to 7% and 3% by 2022.

The prospect of the new car auto finance market is promising, on the one hand, China's auto consumption still has a certain amount of growth space, in 2017 China's 1,000 car ownership is only 140, less than one-sixth of the U.S. and one-quarter of Germany. As the auto consumption market matures, it will be conducive to the further popularization of auto finance.

On the other hand, with the rise of the new generation of consumer groups, a higher degree of acceptance of overconsumption, the purchase of better quality and configuration of the car with financial products will become the choice of more and more consumers, coupled with the fact that Chinese consumers are more favorable to the purchase of a new car, which will undoubtedly promote the rapid increase in the penetration rate of new car auto finance.

Second, used car auto finance market

In recent years, the domestic used car market policy and economic environment has gradually matured, as well as the rise of used car Internet platform, the used car market ushered in rapid development. According to the data of China Automobile Circulation Association, in 2017, the national used car trading volume reached 12.4 million units, up 19.35% year-on-year; from January to October 2018, the country's cumulative trading volume of used cars was 11.33 million units, up 13.02% year-on-year, which has not been affected by the downturn of the new car market, and still maintains a relatively fast growth.

The rapid expansion of the used car market has provided a new development engine for used car finance.In 2017, the penetration rate of China's used car auto finance market had reached 28%. With the fermentation of the favorable policy of canceling the restriction on relocation and the improvement of the acceptance of used car consumption, the penetration rate of used car auto finance is expected to increase further, and will reach 37% by 2022.

Similar to the new car auto finance market, the structure of the used car auto finance market is also dominated by loans, with the loan penetration rate reaching 18% in 2017. However, the development of financial leasing is better than the new car market, the leaseback penetration rate has reached 10%, and it is expected that by 2022, the leaseback penetration rate will increase to 18%, which is comparable to loans.