China's plan to cut down payments for cars likely to fall flat, analysts say
The revision is likely to be the first in rules for the management of car loans since 2017, few industry officials and analysts saw it as a game-changer.
China's efforts to boost auto sales by cutting down payments on car loans stand to be frustrated by a price war and consumer caution, chiefly benefiting a few brands favoured by younger buyers, such as Tesla and Nio, analysts said. Authorities pitching the move as a way to boost the economy said this week they would set car loan terms and quotas "reasonably", but stopped short of revealing the new levels.
The revision is likely to be the first in rules for the management of car loans since 2017, few industry officials and analysts saw it as a game-changer, however. "It won't move the needle much," said Christopher Beddor, deputy director of China research at Gavekal Dragonomics. "Household auto demand is likely to slow this year, and tweaking minimum down payments for purchases isn't likely to change that."
Some firms are already offering zero down payments for car leasing deals in a price war that has drawn in more than 40 brands since last year.
Chinese consumers are also reluctant, in general, to take on new loans, besieged by worries about job security and weak income growth that have weighed on the broader economy, the analysts said.
"The bottom line is that the policies they're using to stimulate consumption simply don't cut it, and there doesn't seem to be a political appetite for stronger measures," Beddor said.
"So we will need to see faster household income growth in order to get a meaningful acceleration in consumption."
China's central bank and financial regulators did not immediately respond to facsimile questions seeking comment on when the cuts would be announced.
SLIPPING SALES
Sales in the world’s largest auto market have slipped into single-digit or even negative growth in recent years, down from the last high of 15.9 per cent, in 2016.
Sales of new energy vehicles (NEV), viewed as a bright spot, have also started slowing sharply, to an annual gain of 36.2 per cent in 2023 from 90 per cent in 2022. The price war began last year, after China ended a 13-year subsidy scheme for NEV purchases in 2022. New brands entered the market and EV makers such as Tesla and BYD leveraged falling production costs to take market share from automakers focused on internal combustion engine cars.
China unveiled a $72-billion package of tax breaks over four years for electric EVs and other green cars as it tried to boost auto sales last year, without returning to subsidies. Current rules set a minimum downpayment of 15 per cent for NEVs, 20 per cent for internal combustion vehicles and 30 per cent for used cars. However, some auto financial leasing firms are offering plans for buyers to drive off in a new car without putting down any cash.
Such plans, different from car loans, typically involve automakers as a third party, to enable consumers to rent a car from financial leasing firms and pay rent in instalments, with the car owned by the leasing firm until the rent is paid off. Tesla's website, for instance, offers a five-year leasing plan with a 0 per cent down payment for the rear-wheel drive version of its Model 3 sedan being sold for 245,900 yuan ($34,000).
That cost is just 2.3 per cent more than a buyer would pay with a car loan offer of a 15 per cent down payment and a term of 60 months, Reuters calculations show. Still, the rule changes could draw in some buyers still on the sidelines, said Cui Dongshu, secretary general of the China Passenger Car Association. "The lower requirements would be a big boost to young people who normally have insufficient savings," he said, particularly those hankering for cars with internal combustion engines that are subject to a purchase tax of 10 per cent of the sticker price.
Sales of both new and used cars could benefit from the changes, said Daniel Zhou of Zhongsheng Group, China's largest dealer group by revenue. The firm has seen a growing trend of both higher penetration ratio of auto financing and financing amounts in the past couple of years industrywide, added Zhou, its chief strategy officer.
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.
RECOMMENDED STORIES
SBI 444-day FD vs Union Bank of India 333-day FD: Know maturity amount on Rs 4 lakh and Rs 8 lakh investments for general and senior citizens
Power of Compounding: Salary Rs 25,000 per month; is it possible to create over Rs 2.60 crore corpus; understand it through calculations
New Year Pick by Anil Singhvi: This smallcap stock can offer up to 75% return in long term - Check targets
Power of Compounding: How many years it will take to reach Rs 2 crore corpus if your monthly SIP is Rs 3,000, Rs 4,000, or Rs 5,000
Retirement Calculator: 40 years of age, Rs 50,000 monthly expenses; what should be retirement corpus and monthly investment
04:19 PM IST