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Auto leasing industry still facing bottlenecks

(theautochannel.com)
Updated: 2007-04-28 09:13

In 1990, the auto leasing industry started to develop slowly in China. In 2000, it entered a stage of rather fast development. By 2006, the number of vehicles for leasing in China approached 100,000, with a business turnover of almost 10 billion Yuan. However, CCID Consulting, China's leading research, consulting and IT outsourcing service provider, and the first Chinese consulting firm listed in Hong Kong, recently found that China's auto leasing industry is still facing development bottlenecks.

Firstly, China's policies play an important role in its industry development. Unsound laws and regulations often result in auto leasing companies not being able to receive effective protection of their legitimate rights and interests in their normal business operations. For example, it is difficult to put into practice the models of inter-city vehicle operations and networked operations of auto leasing. There are few clear policies for handling problems such as compensation for losses caused by traffic accidents, compensation for when renters escape without paying, or a write-off system for vehicles. The central and local governments adopt all kinds of restrictive measures concerning purchase of automobiles and road transportation operation administration.

Secondly, operation factors in. These include 3 issues: lack of funding, lack of internal standardization and risk prevention mechanisms, and heavy tax burdens.

The first problem is funding. Currently, nearly all leasing companies in China raise their own funds. There is lack of support from financial institutions, which results in over using of vehicles, which have serious wear-and-tear that need to be updated. Even some companies have seen their financial expenses increased and debt ratio too high due to blind growth through borrowing loans. To a certain extent, this has also restricted the pace of growth. In foreign countries, most auto leasing companies have an automaker background. Some are partners, while some are shareholders of leasing companies. But in China, few automakers directly take part in auto leasing.

The second is that the internal standardization and risk prevention mechanisms are not sound. For example, there is no strict examination of customer groups and the system of customer credit tracking is not sound.

The third is increased tax burdens. Currently, the auto tax in China consists of purchase, ownership and use tax fees.

Finally, there is a lack of corresponding cooperation between social security and the relevant industries. For example, a credit system and a credit pursuit system have not been established. To a certain extent, this has increased the transaction cost and risks of auto leasing. For domestic auto leasing enterprises, it is still rather difficult to establish a sound rescue and insurance guarantee system.

In fact, with the staging of a series of international activities in China such as the Olympics Games and F1, as more and more people change their consumption ideas, and as automobile rental fees fall, renting procedures are simplified and the quality of services are improved, auto leasing is now greeting good growth opportunities in China as a new form of financing services in the road transportation industry, a new way of outings and a new marketing channel for automakers. The concerned departments and enterprises must adopt effective countermeasures and greatly promote the growth of China's auto leasing industry. The concerned departments may adopt the following countermeasures: implement preferential fiscal and taxation policies for the auto leasing industry, establish an automobile industry credit system in pilot cities and actively introduce financial support and insurance mechanisms. For their part, enterprises may adopt the following countermeasures: form strong- strong alliances, achieve operations of scale as soon as possible, actively join hands with related industries to pursue common development, pay attention to the expansion of the business vehicle leasing market, and use information technology to lower operational risks.