Auto finance companies are deeply involved in the industry to promote consumption

Source: Economic Daily

In recent years, with the transformation and development of the mainland auto market, auto finance companies have ushered in many policy dividends, which have played an active role in promoting automobile consumption. The China Banking Association recently released the "China Auto Finance Company Industry Development Report (2023-2024)" (hereinafter referred to as the "Report"), which deeply analyzes the development of the auto finance industry and proposes relevant measures to improve the auto finance market, aiming to further promote the high-quality development of the auto finance market and better serve the real economy.

The scale of assets remained stable

In 2023, China's auto industry will usher in an unprecedented peak of development. According to data from the China Association of Automobile Manufacturers, the annual production and sales of automobiles in 2023 will both exceed the 30 million mark, an increase of 11.6% and 12.0% year-on-year, respectively, and the annual production and sales will both hit a record high. In this process, auto finance companies, as an important part of the industrial chain, have injected financial vitality into the production and sales of automobiles with their professional financial services and flexible financial products.

The automobile industry is the pillar industry of the national economy and plays an important role in promoting the transformation and upgrading of the manufacturing industry. Since last year, the mainland auto industry has continued to maintain a steady and upward trend, coupled with the policy side to give the auto industry multiple benefits, including the trade-in of consumer goods, rich auto financial services, etc., the consumption potential of the auto market has been continuously released. In March this year, the People's Bank of China and the State Administration of Financial Supervision issued the Notice on Adjusting Relevant Policies for Auto Loans, which mentioned that the maximum proportion of loans for self-use of traditional power vehicles and self-use new energy vehicles is determined by financial institutions. In addition, the Ministry of Commerce, the Ministry of Finance and other departments issued the "Implementation Rules for Automobile Trade-in Subsidy", which refines the financial subsidies for automobile trade-in from the aspects of subsidy declaration, review and issuance, so as to reduce the cost of car purchase for individual consumers and enhance consumer confidence in automobile consumption.

With the boom in the auto market, the asset scale of auto finance companies has also achieved steady growth. According to the data, as of the end of 2023, the asset scale of 25 auto finance companies in the country reached 964.818 billion yuan, which remained stable overall.

While supporting the real economy, auto finance companies have maintained good regulatory and management indicators, laying a solid foundation for the sustainable and high-quality development of the industry. According to the latest statistics, as of the end of 2023, the average liquidity ratio of the auto finance industry reached 228.57%, much higher than the average level of banking financial institutions. The average capital adequacy ratio of the industry was 24.57%, an increase of 1.26 percentage points from the end of the previous year, and the average non-performing loan ratio of the industry was 0.58%, a decrease of 0.13 percentage points from the end of the previous year, which was significantly lower than the average level of banking financial institutions.

Financing channels continue to expand

The expansion of financing channels is an important reason why auto finance companies can continue to deliver financial water to the real economy. In recent years, the financing channels of auto finance companies have extended from a single bank loan to a more diversified direction.

In 2023, auto finance companies are issuing asset-backed issues

In terms of securities and financial bonds, 15 auto finance companies issued 38 asset-backed securities with a total issuance scale of 179.977 billion yuan, and 5 auto finance companies issued 8 financial bonds with a total issuance scale of 13.3 billion yuan, of which 2 were green financial bonds with a total issuance scale of 2 billion yuan.

In addition, auto finance companies are also actively exploring innovative financing channels, such as overseas financing, revolving structure ABS, Yindeng Center credit asset transfer, syndicated loans (including ordinary and green), panda bonds, green bonds, etc. In terms of shareholder capital increase, a total of 7 auto finance companies completed capital increases from 2021 to 2023, of which 3 completed capital increases in 2023, demonstrating the firm confidence of auto finance company shareholders in the long-term development of auto finance companies.

Specifically, since last year, auto finance companies have combined the company's business development plan and comprehensively used a variety of financing methods to accelerate the "blood replenishment" and consolidate the company's working capital foundation. In January this year, Chery Auto Finance's first sustainability-linked syndicated loan was signed, which is another exploration of diversified financing models by Chery Auto Finance after the first syndicated loan was launched in May last year. At the same time, with Guotai Junan as the lead underwriter and bookrunner, BYD Auto Finance's "Shengshi Rongdi 2024 Phase II Personal Auto Mortgage Green Asset-Backed Securities" was recently issued in the interbank bond market.

In order to adapt to and broaden the financing needs of auto finance companies, the Administrative Measures for Auto Finance Companies issued by the State Administration of Financial Supervision and Administration in July last year mentioned that auto finance companies should objectively assess the value of auto add-ons and stipulate the financing limit for a single type of add-ons when carrying out auto add-on loans and financial leasing business. The financing amount of auto add-ons shall not exceed 80% of the total selling price of the add-ons; If the total selling price exceeds RMB 200,000, the financing amount shall not exceed 70% of the total selling price.

Auto finance companies are becoming more and more diversified in their financing channels and methods. At present, auto finance companies have preliminarily established a diversified financing structure consisting of interbank loans (call loans), shareholder deposits, issuance of asset-backed securities and financial bonds, and shareholder capital increase support.

Li Guangzi, director of the Banking Research Office of the Institute of Finance of the Chinese Academy of Social Sciences, said that compared with commercial banks, auto finance companies cannot absorb deposits, and the overall cost of funds is high. In 2023, although the asset scale of auto finance companies will remain stable, the net profit will decline to a certain extent. At the same time, the performance of different auto finance companies is significantly differentiated. In this context, in the future, auto finance companies still need to further improve the level of management refinement and improve the efficiency of capital use.

Open up new space for business growth

Auto finance companies are expected to open up new space for business growth. One of them comes from the field of new energy vehicles. Chen Shihua, deputy secretary of the China Association of Automobile Manufacturers, said that since the beginning of this year, the economic operation of the automobile industry has started steadily, achieving a good start, and automobile production and sales have continued to grow. Among them, new energy vehicles continue to maintain rapid growth, and the market share is stable at more than 30%.

In the interview, the reporter found that auto finance companies are increasing support for new energy vehicles in combination with the characteristics of new energy vehicle policies. According to the report, a number of auto finance companies have launched exclusive products and risk control systems for new energy vehicles. For example, BYD Auto Finance's new energy vehicle lending exceeded 100 billion yuan in March 2023 and reached 142.174 billion yuan by the end of 2023.

The latest data shows that on the retail side, a number of auto finance companies are exploring and researching new products and new businesses, and increasing support for new energy vehicles. In 2023, 25 auto finance companies across the country will issue a total of 6,368,500 retail loan vehicles, of which 5,430,400 will be new car loan vehicles, accounting for 18.04% of mainland car sales in 2023. The number of new energy vehicles loaned was 1,656,300, a year-on-year increase of 42.93%.

In addition to the field of new energy vehicles, the used car finance business has become one of the important growth areas for auto finance companies. The target set out in the Action Plan for Promoting Large-Scale Equipment Renewal and Trade-in of Consumer Goods is to increase the number of used car transactions by 45% by 2027 compared to 2023.

Auto finance companies continue to increase financial support for the used car market. According to the statistics of the China Banking Association, in 2023, the balance of second-hand car loans will be 62.18 billion yuan, an increase of 16.992 billion yuan or 37.60% from the end of the previous year. In 2024, auto finance companies' investment in used car finance business will continue to grow.

Liu Chen, a researcher at the Bank of China Research Institute, said that in the past few years, the mainland auto market has gradually changed from an incremental market to a stock market, and consumers' requirements for car performance and price have further increased the growth pressure on automobile consumption. It is in this context that after the introduction of this round of trade-in policy, many places have taken positive actions to introduce specific plans according to local conditions, which is expected to play an important role in both quantity and quality. From the perspective of volume, the number of cars in mainland China in 2023 will be large, and the corresponding replacement demand and potential are huge. At the same time, the automobile industry chain is long, and the full release of automobile consumption will also drive the demand for automobile repair, maintenance, modification and other services. From a qualitative point of view, with the improvement of domestic residents' living standards, the trend of consumption transformation to green and intelligent has been strengthened, and the functions of automobile autonomous driving and intelligent interaction have been gradually improved in recent years, all of which show that the automobile industry is accelerating its transformation to a high-quality development stage.

Next, auto finance companies have a lot to do in promoting auto consumption and serving the transformation of the auto industry. Liu Chen said that from the perspective of the development process of the traditional automobile manufacturing power, various institutions represented by commercial banks, auto finance companies and leasing companies have formed a complete financial system and diversified financial services by providing various financial services such as corporate loans, consumer loans, financial leasing and commercial insurance, which have played an important role in promoting the good development of automobile enterprises and enhancing the competitiveness of the automobile industry chain. For auto finance companies, it is necessary to provide more diversified services and launch more customized products tailored to different customer needs to meet the changing needs of consumers. At the same time, it is also necessary to make use of its own platform advantages and financial resources to strengthen cooperation with all parties to promote the expansion of the automobile market and service upgrades. (Economic Daily reporter Wang Baohui)