General Motors will embark on a major venture into the car financing business to increase its market share in the booming Chinese passenger vehicle market following World Trade Organisation membership.
As part of the WTO agreement China will have to open its doors to overseas non-banking financial institutions and the People' Bank of China (the central bank), is drafting rules to bring the nation in line with WTO regulations. The bank is expected to make an announcement concerning new regulations sometime this month.
GM's financing division, General Motors Acceptance Corporation (GMAC), opened an office in Shanghai two years ago. GMAC China executive, Scott Reno, said his firm is planning their first Chinese joint venture with a prominent local partner. It will provide a number of services including car loans, mortgages, insurance, licensing, and other after-sale services. Mr Reno told SCMP.com that they have applied to the central bank for a licence but have yet to decide on the local partner.
Other motor giants like Volkswagen, Ford, and Fiat are reported to be considering similar financing ventures through their joint mainland operations.
Vehicle financing is a relatively new idea to most Chinese car buyers. In fact, mainland banks did not even provide the service until 1998. And what services the banks do provide have mostly been limited to loans and mortgages that are subject to very strict terms.
The Construction Bank of China is one example. A prospective car buyer needs to have full-time employment and assets that can be converted to cash easily. For a loan, the person needs to make a cash deposit equal to at least 20 per cent of the car's value. The loan has to be paid back within five years in the case of an individual buyer and three years in the case of a corporation or organisation.
