So perhaps a little financing might help? Hyundai Motor will start providing auto loans from this month to Chinese consumers to boost its market share in the world’s largest car market.
Hyundai has set up an auto financing venture in China with its Chinese partner Beijing Automotive Industry Group to attract young Chinese consumers who are showing growing interest in buying new cars with borrowed money.
“Only 10 per cent of car purchases are financed by loans in China, a ratio that the industry estimates will triple by 2017,” says Ted Chung, chief executive of Hyundai Capital.
Hyundai is now the third-biggest selling carmaker in China after General Motors and Vokswagen with an 8.9 per cent market share after entering the market in 2002 in partnership with Beijing Automotive. Analysts expect Hyundai’s move to help the South Korean carmaker expand its customer base and compete better with its bigger rivals, which already offer financing services in China.
Hyundai was once the fastest-growing carmaker in China but limited production capacity has slowed its growth there in the past couple of years. Hyundai’s sales in China increased 6.7 per cent to 757,000 units last year after increasing 23 per cent in 2010 and 94 per cent in 2009. But concerns over tight supply should ease as Hyundai recently opened its third China plant while Kia plans to start production at its third plant in China in 2014.
China’s car market, which grew 45 per cent in 2009 and 32 per cent in 2010, has slowed dramatically since the end of tax incentives introduced as part of the government’s 2008 stimulus package. The country’s car sales increased only 4.1 per cent to 12.5m units in the first eight months of this year with the country’s economy growing in the second quarter at the slowest pace in three years. Hyundai aims to increase its China sales by 6.8 per cent to 790,000 units this year while Kia plans to raise sales by 6.4 per cent to 460,000 units.
Providing loans will certainly help Hyundai boost margins: it can reduce cash discounts to customers while attracting more buyers looking for more expensive models with loans. But proper risk control will be the key to long-term success. Non-performing loans surged in the 1990s due to a lack of risk control measures, forcing Chinese authorities to suspend new car loans in 1996-98. Such risks will become bigger with the world’s second-largest economy slowing down.