Cash-strapped car dealers find new rescue channel. But is it dodgy?
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EDITOR’S note:
Internet Plus, a concept heralded in a government policy report delivered by Premier Li Keqiang at the annual session of the National People’s Congress in March, aims to push the boundaries of China’s traditional industries into the digital age. Companies across the country are being encouraged to adopt new concepts and new thinking ushered in by the Internet and the connected society. Shanghai Daily is exploring this new horizon in a series of articles examining where we are headed.
Internet plus & auto industry
When the somewhat staid traditions of the auto industry collides with the creative verve of China’s Internet Plus strategy, expect the unexpected.
Like loans to car dealerships shifting from regulated banks to murky peer-to-peer lending online. Like carmakers selling Internet-powered mobility plans that may actually hurt their own auto sales. Like emissions cheaters detected by big data monitoring and automatically tagged by computers.
Sound implausible? Watch this space.
FOR many car dealers stuck with unsold stockpiles and cash flow problems, the simplest solution used to be to just borrow more money.
Banks were once compliant lenders, but the longer the slowdown in nationwide car sales persists in China, the more their generosity wanes.
Those still lucky enough to get loans have to run through more paces, usually taking two weeks or more, and the amount of credit they are offered often falls short of what they need.
But where there’s a need, there’s a market. Car dealers are now looking at a swifter borrowing channel, the online peer-to-peer lending platform called Chain Car Financial.
The only collateral requirement standing between them and the cash is paperwork proof of vehicle registration certificates or Customs clearance documents.
In exchange for proof of new car models valued at 20 million yuan (US$3 million), a dealer can borrow up to 14 million yuan of cash, at annualized interest rates of between 15 percent and 20 percent for loans of 90 days or less. The platform is aggregating funds from individual investors, paying them annual rates of 7-10 percent, which is 32 times higher than standard bank deposit rates.
“We now signed up three dealers as our major clients and plan to tie up with second-hand car dealers as our next step,” said Xi Rifang, chief operating officer of the platform.
She said the platform has already made loans of 200 million yuan since it began operation three months ago.
But is this a sustainable business model? Market watchers and some investors have their doubts.
In the first place, the collateral is based on paperwork, not possession of actual cars. That could leave a gray area in case of default.
“I can’t tell from the contract which dealer I’m funding,” one investor wrote on the bulletin board of Online Lending House, a site where people discuss the credibility of lending platforms. “To be an attractive lending platform, either you provide a high rate of return or you have provide a fast mechanism for withdrawal of funds. Chain Car seems to lack both.”
Even more odd is the platform’s backing. Its start-up was funded by state-owned Guangda International Construction Engineering General Co, a building company that has little interface with either the car industry or Internet finance.
Analysts worry that the initial success of such a platform is driven more by borrower need and investor greed than by any thought-out investment strategy. What’s more, these platforms operate in an essentially unregulated market.
“Too many of these services have been wandering around in the gray zone without clear guidelines to define what can be done and how to get things done,” said Zhang Yexia, senior researcher at Shanghai Ying Can Investment Management Consulting Co. “That makes the business of Chain Car Finance normal among its peers, but investors have to be fully aware of hidden risks.”
According to Zhang, both borrowers and lenders should always be wary of any system that promises easy cash.
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