Multiple parties launched "0 down payment" installment products to escalate the melee of auto finance

Reporter Jiang Muyun and He Shasha report from Shanghai and Beijing

Recently, the People's Bank of China and the State Administration of Financial Supervision and Administration jointly issued the Notice on Adjusting Relevant Policies for Auto Loans (hereinafter referred to as the "Notice") to optimize the maximum disbursement ratio of auto loans and make "zero down payment" auto installment possible. Based on this, many auto finance companies and commercial banks have launched "zero down payment" installment products.

In the interview, a number of industry insiders told the "China Business Daily" reporter that after the "notice" was issued, a number of financial institutions followed up, aiming to further stimulate consumers' demand for automobile consumption. At the same time, the price advantage of products can also enable institutions to gain greater competitiveness in the field of auto finance.

The reporter also noticed that before the issuance of the "Notice", some financial leasing companies also had similar "0 down payment" or ultra-low down payment auto finance products. Therefore, in the eyes of industry insiders, the emergence of "0 down payment" car installment is bound to squeeze related financial leasing companies. In the fierce competition, banks have a natural price advantage, while auto finance and financial leasing companies must rely on their own vehicle source advantages and automobile channel advantages to carry out differentiated competition.

Test your risk control capabilities

Under the previous regulatory policy, the maximum proportion of loans for self-use of traditional power vehicles and self-use new energy vehicles was 80% and 85% respectively. The "Notice" clarifies that under the premise of compliance with laws and regulations and controllable risks, financial institutions can independently determine the maximum proportion of loans for self-use traditional power vehicles and self-use new energy vehicles according to the borrower's credit status and repayment ability, and the maximum loan issuance ratio can reach 100%.

At the same time, the two departments also encourage financial institutions to strengthen the innovation of financial products and services in combination with new cars, second-hand cars, car trade-ins and other sub-scenarios, and appropriately reduce or exempt the liquidated damages arising from the early settlement of loans in the process of car trade-in, so as to better support reasonable automobile consumption demand.

After the issuance of the "Notice", a number of auto finance companies were the first to respond and launched "zero down payment" products. For example, China FAW Group recently announced through its official website that in order to better support the group's main business, innovate and use sufficient financial tools, and promote automobile consumption, FAW Auto Finance has comprehensively adjusted the down payment ratio of auto loans and launched "zero down payment" financial products. Dongfeng Motor Finance has also launched products such as 5-year "0 down payment" ultra-long financing and 50% down payment with zero interest for two years.

Recently, a number of commercial banks have also begun to follow suit. For example, Tesla released a "zero down payment" car purchase plan for the Model 3 and Model Y models on April 24, and according to official information, the cooperative financial institutions of the plan include China Merchants Bank, Ping An Bank, WeBank, China Construction Bank, Bank of Communications, Bank of China, etc. Taking the Model 3 down payment plan priced at 231,900 yuan as an example, consumers can apply for 60 installments of repayment, with a down payment of 0 yuan and a monthly payment of 4,348 yuan.

The industry generally believes that the "zero down payment" financial scheme can further stimulate the vitality of the automobile market, but this product also puts forward higher requirements for financial institutions to control costs and asset quality.

A person from a joint-stock bank told reporters that the reason why his institution has not followed up on the "Notice" is that the corresponding risk control policy is still being formulated.

In this regard, Kuang Zhicheng, founder of Auto Finance Daquan APP, pointed out that after the launch of the product, institutions will face customers who really have "zero down payment" needs, as well as customers who are actually willing to accept part of the down payment. Kuang Zhicheng predicts that the risk control standard of some institutions' "0 down payment" products may be higher than the original low down payment products, and the actual risk control pass remains to be seen.

Huang Chengwei, founder and CEO of Checafeyuan, told reporters that before the issuance of the "Notice", the state also made higher requirements for risk control in the "Measures for the Administration of Auto Finance Companies" and the "Measures for the Supervision and Rating of Auto Finance Companies". In particular, risk management accounts for 35% of the total score in the Measures for the Regulatory Rating of Auto Finance Companies, and the business scope varies greatly depending on the rating, which further increases the risk control requirements for auto finance companies. If financial institutions want to successfully carry out "zero down payment" auto finance products, they must improve their risk control capabilities.

Fitch Ratings also said that on the one hand, the removal of the minimum down payment requirement will promote greater integration of China's auto finance market with other developed markets around the world, and on the other hand, the relaxation of down payment requirements may also reduce customer price sensitivity, thereby easing open price competition among automakers. However, the move could also expose auto finance companies and banks to some borrowers with lower credit levels. As a result, the new auto loan policy may test the ability of auto finance companies to manage risk, as they will need to adjust their credit models for the additional risks that may arise from new loans under the new rules. However, with banks' average exposure to auto loans likely to remain in the low single digits, Fitch Ratings expects the policy change to have little impact on asset quality.

Competition intensifies

Previously, there were also "zero down payment" auto finance products in the market, which were usually provided by financial leasing companies. Different from installment loans, in the financial leasing model, "zero down payment" or "ultra-low down payment" is due to the fact that there is only a leasing relationship between the consumer and the financial leasing company, and the consumer only needs to pay the rent on a monthly basis, and the down payment and purchase tax are borne by the financial leasing company. So after the issuance of the "Notice", will the auto installment products launched by more financial institutions also squeeze the business space of auto financial leasing?

Huang Chengwei told reporters that there is no difference between "0 down payment" car installment and car financial leasing in essence, both of which are to reduce the down payment ratio to stimulate consumption, expand business volume and enhance competitiveness. The "zero down payment" car installment of financial institutions will cause business squeeze on the car leaseback business, but it will have little impact on the car direct leasing business.

"In fact, the domestic car leaseback has been implementing the wrong concept of 'car financial leasing = low down payment car loan', and taking low down payment and zero down payment as the only core competitiveness, which has caused the car leaseback to deviate from the origin of automobile financial leasing and become a quasi-credit business. Once financial institutions can carry out 'zero down payment' business, the auto financial leasing and leaseback business will lose its sole competitiveness, and the business will inevitably be squeezed by financial institutions. In the real direct leasing business, more of the core competitiveness lies in giving full play to the flexibility of the direct leasing business and focusing on asset management capabilities. Huang Chengwei further said.

Kuang Zhicheng also believes that before the issuance of the "Notice", "0 down payment" or ultra-low down payment has always been a major competitive advantage of financial leasing companies, and the emergence of "0 down payment" installment products will indeed squeeze financial leasing. However, since the customer base of financial leasing is also different from that of banks or auto finance, the actual degree of squeeze will not be very large.

In addition, when other consumer demand is still sluggish, financial institutions continue to seek more high-quality assets in the field of consumer loans, and are more "eyeing" auto finance. It can be seen that banks have been increasing their investment in the field of auto finance in recent years, and many banks have mentioned in their financial reports the importance of the new energy vehicle track in the context of the "double carbon" goal. The above-mentioned bank personnel also told reporters that the current price of new energy vehicle financial products is very "volume", especially some auto finance companies and financial leasing companies naturally have a better ecological link with the main engine factory, and some banks are more out of consideration for seizing market space when launching preferential interest rate products, rather than making a profit.

Kuang Zhicheng told reporters that under the fierce competition, the bank's five-year low-interest rate products have occupied a major position in the market, and the market share of auto finance companies has declined in recent years. Judging from the actual market situation, in order to increase competitiveness, on the one hand, it is necessary to rely on the sales volume of OEMs, and on the other hand, it is possible to further explore the SP model or other fields such as second-hand cars to carry out differentiated competition. In contrast, financial leasing has been more impacted by the competition, and some enterprises are transforming to loans and other fields.

Regarding the advantages and disadvantages of banks, auto finance companies and financial leasing companies in the field of auto finance, as well as how to carry out differentiated competition, Huang Chengwei told reporters that banks have low capital costs, sufficient funds and high capital stability, so they naturally have the advantage of price war, and auto finance companies are basically at a disadvantage in terms of funds. Auto finance companies and financial leasing companies need to achieve differentiated competition according to their own advantages, for example, auto finance companies can enjoy the discount of the main engine factory, have the advantage of vehicle source, automobile channel, can operate financial leasing business, and have a deeper understanding of automobile customers. Financial leasing companies can focus on relying on direct leasing business and give full play to the advantages of product flexibility, service diversification, and asset management capabilities.

Specifically, Fitch Ratings said that in response to increasing competition, some auto finance companies have begun to test the waters of the riskier segment, offering consumers higher loan-to-value ratios and longer loan terms. Some of the financial institutions owned by automakers have also expanded their business scope to include leasing products and non-own-brand products with lower down payment requirements.