China to allow GMAC, other car lenders, official says

WASHINGTON December 11, 2002; Blair Pethel wrting for Bloomberg reported that China will let foreign automakers such automakers such as General Motors Corp. and Ford Motor Co. offer financing to consumers, a breakthrough amid complaints from banks and insurers over delays in opening the financial-services market.

The move, which China's chief trade negotiator said will be implemented shortly, will boost automaker profits in the world's largest potential car market.

"I would think that early next year the regulation will be in place and the auto companies will establish their financing enterprises," said Long Yongtu, China's vice minister of foreign affairs and chief trade negotiator, in an interview in Washington.

General Motors Acceptance Corp., Ford Financial Services and similar companies are still awaiting access to China one year after it joined the World Trade Organization. Chinese lenders still finance foreign auto sales, which are soaring.

China, with 1.3 billion consumers, has been using regulations to protect its companies against competition by companies such as Citigroup Inc. and General Motors that offer banking, insurance and other financial services, U.S. and European groups say.

Long said China has had to implement, eliminate or change thousands of laws, rules and regulations to meet its WTO commitments to open trade in a range of goods and services. "We are moving as quickly as we can," he said.

The process for allowing in auto lenders is almost complete, Long said. "Auto-financing companies are coming soon, because we have already put out a draft regulation to solicit comments from the community," he said.

Auto sales have risen more than 35 percent in China this year, Long said.

Sales Increases

David Cole, executive director of the Center for Automotive Research in Ann Arbor, Michigan, said the move will help China's economy as well as profits and sales for automakers.

"This certainly helps tear down the walls in China," he said. "It will rather dramatically increase the potential market, because now you don't have to save up before you buy, you can buy as you go. It's an indication of the commitment in China to economic growth and movement to a more market-based economy."

Cole said the automakers will need to decide how they will structure their lending, traditionally one of their more profitable businesses. Keeping borrowing costs low will increase the market, while setting higher borrowing costs will increase profits more quickly, he said.

General Motors shares rose 48 cents, or 1.3 percent, to $36.65 as of 3:30 p.m. New York Time. Ford shares were up 7 cents, or 0.7 percent, to $9.52. DaimlerChrysler AG sold at $33.26 a share, an increase of 60 cents, or 1.8 percent.

Foreign makers have benefited from the increase after selling 750,000 vehicles in China in 2001. That number, from the U.S.-based Motor and Equipment Manufacturers Association, is less than 10 percent of U.S. sales for the year.

Waiting for Clarification

Volkswagen AG said it expects to sell half a million cars in China this year, up 40 percent from 2001. General Motors' auto sales in China are expected to almost double this year to 110,000 vehicles, according to the world's largest automaker.

The China sales won't increase revenue for the General Motors' financing operation, whose products accounted for 14.5 percent of its $177 billion in global sales for 2001.

General Motors Acceptance and China signed a memorandum almost a year ago outlining the terms of an agreement, said GM spokeswoman Toni Simonetti. "We're glad now this is going the next step further," she said.

For Ford, whose financing operations contributed almost 20 percent of its $162 billion in 2001 sales, Long's timetable comes as "good news," said Ford spokesman Ken Zino.

"We've been waiting for clarification on how we do business in China," he said. "This is all brand new and part of the ongoing process of implementing the WTO agreements."

DaimlerChrysler, the world's largest maker of luxury cars, said it isn't waiting for the rules to be clarified: It's getting its financing arm up and ready for business now in expectation of being able to start operations soon. Almost 10 percent of the company's earnings of $152.9 billion came from financing in 2001.

"We are preparing for things in China, because we have noticed that things are changing," said Joerg Schlake, a DaimlerChrysler spokesman in Berlin. "We have prepared for this by establishing a representative financing office in China."

Schlake said it has been "impossible" for carmakers to do financial services business in China.

He welcomed Long's commitment for 2003, saying, "It's about time."