DaimlerChrysler AG plans to announce Wednesday the launch of an auto-financing program in China to match rivals in the country's increasingly competitive market.
"Today might be a challenge to evaluate credit risk but you have to start it, you have to get into it," Juergen Walker, chairman of the management board at DaimlerChrysler Financial Services AG, said in an interview.
Sales for DaimlerChrysler and other automakers were hurt early this year after the Chinese government told domestic banks to rein in lending for car buyers to halt runaway fuel consumption and to cool the economy.
Regulators also worry about risks to domestic banks and fear rising default rates, as there is no national system to track borrowers' credit history.
"Everybody is convinced that this is a huge market," Walker said of China. "If you are not playing the game, you will be forced out of it."
With sales of about 5 million vehicles a year, China's automobile market ranks third in the world after the United States and Japan.
Other foreign car manufacturers have been offering financing since early last year, said Yale Zhang, an auto-industry analyst at CMS Worldwide. General Motors Corp.'s GMAC was the first, he said.
Globally, DaimlerChrysler finances the purchase of 1 out of every 3 cars it sells. Auto financing accounts for 25 percent of its profit, Walker said. The automaker also will finance its dealer inventories.
To start a financing program in China, DaimlerChrysler needs to set up a system to check credit histories of potential customers. The company will deploy an in-house team to do background checks, including home visits. Buyers in China also will put down as much as 20 percent of a car's price in cash as part of DaimlerChrysler's strategy to minimize risks, Walker said.
The executive said a car-financing program will boost brand loyalty and could reduce the amount of time needed to arrange a car purchase to five days from two weeks.
Most Chinese buyers pay cash for cars, with 10 percent taking out loans. More than 20 percent were taking out loans before lending policies were tightened.
DaimlerChrysler has been struggling to catch rivals in China's market, even though Chrysler's Jeep unit has been producing vehicles with a Chinese partner since the 1980s. The automaker says it sold 48,000 vehicles in China in 2004 and will sell more this year. Rivals Volkswagen AG and General Motors sold more than 200,000 vehicles each this year.
DaimlerChrysler officials hope to step up their China sales with the opening of a plant near Beijing by the end of the year that will produce Mercedes-Benz E Class sedans and Chrysler's popular 300C for the Chinese market.
In general, many auto companies have faced quality-control issues when manufacturing cars in China. "You have here challenges to bring the standard up, but we do not start production until that standard is reached," said Till Becker, chairman and chief executive of DaimlerChrysler's North East Asia region.
Becker also said plans by the government to raise taxes on cars with gas-guzzling engines would hurt sales. "All higher taxes have negative impact on sales. That is for sure," he said. There are no plans to export cars from China to other markets, he said.