Ford Credit, the finance unit of Ford Motor, announced on Tuesday that it will start to provide loans to automobile buyers in China in the middle of next year.

The China Banking Regulatory Commission (CBRC) has approved company's application to form a wholly owned auto finance operation in China, it said.

Ford Credit, which established a representative office in Beijing in 1996, plans to invest US$60 million in the company initially. It will handle loans to customers and more than 100 existing Ford dealers in China under the name of Ford Automotive Finance.

"China is an important market for Ford, and Ford Credit's approach is to build a foundation that will support the company's commitment to China," said Mike Bannister, chairman and chief executive officer of the finance unit.

Last month, Ford started to build a 200,000-car plant in east China's Jiangsu Province jointly with Mazda and Chang'an Motor Corp. as part of a US$1.5 billion expansion plan.

Ford now has two joint ventures in China: one with Chang'an in western Chongqing Municipality and the other with Jiangling Motor in Jiangxi Province.

"Ford Credit expects to finance all of our brands (Ford, Mazda, Volvo, Jaguar, Lincoln, Aston Martin and Land Rover) in China in the future," said Kenneth Hsu, spokesman for Ford Motor China.

The finance arms of US General Motors, Japan's Toyota and Volkswagen of Germany gained CBRC approval to prepare auto finance operations in China at the end of last year.

Volkswagen Financial Services AG and Toyota will set up wholly owned auto finance branches in China, while General Motors Acceptance Corp. will form a joint venture with Shanghai Automotive Industry Corp.

However, the business has obstacles in China because of the lack of a sound credit system, which creates risks for financial institutions.

Volkswagen and GM said that they would launch their businesses in China later this year, but industry sources said that Toyota had applied to the CBRC to delay startup mainly because of the credit system problem.

"The problem is a great challenge for all of us, but Ford will employ both its own expertise and existing Chinese regulations to minimize risks from the car financing business," said Hsu.

Fear of bad loans has led many commercial banks to raise the threshold for auto financing. Some have even suspended the business.

Currently, fewer than 10 percent of total new car sales in China are financed, down from 30 percent a year ago.

In developed markets, more than 70 percent of automobiles are sold with the use of loans.

"Auto financing is a very lucrative business and has huge growth potential in China," said Yale Zhang, a Shanghai-based analyst with CSM Worldwide, a US auto industry consulting firm.

The business will probably extend to used and leased vehicles in China in the future with relaxation of the regulations, Zhang said.

"The automakers' finance arms are also expected to provide loans to brands of other producers, such as some Chinese firms that aren't able to handle financing," he said.

Ford Credit reaped a record net income of US$897 million in the second quarter of this year, up from US$401 million a year ago. It has some US$179 billion in managed assets and 19,000 employees around the world.

At present, Ford Credit provides vehicle financing in 36 countries to nearly 11 million customers and more than 12,500 automotive dealers.

Ford is lagging far behind rivals Volkswagen and GM in China's vehicle market. The company aims to increase its all-brand sales in China to 200,000 units this year from 120,000 last year.

Volkswagen, the Number 1 carmaker in China for many years, sold 697,000 vehicles last year and GM sold 386,700.

Ford's plant in Chongqing is producing Mondeo and Fiesta sedans under the Ford brand and will launch the Focus soon.

Its venture in Jiangxi makes Transit commercial wagons.

Ford will also introduce production of Volvo, Jaguar and Land Rover models through Chang'an Motor.

China remains the world's fastest-growing car market, despite the recent shrinkage in vehicle sales growth.

Analysts forecast that total sales of domestically made passenger cars will increase by around 30 percent to 2.6 million units this year.

Expected growth is down from 75 percent last year.

(China Daily August 4, 2004)