Lack of financing puts majority of dealers in red

Many auto dealers in China are suffering from financing problems and some might be in danger of bankruptcy this year, according to a recent survey of dealers across the country.

A majority of dealers were unprofitable in 2008 with about 60 percent in the red, said the survey by Lianxin, an independent research company. It polled 1,252 dealers of 21 domestic and foreign brands.

Wang Kun, an official in charge of the research, said the large-scale losses resulted from a number of factors, such as the global economic slowdown and dealers' weakening financing capability.

China last year posted the lowest growth in car sales in 10 years as consumers' economic confidence was dampened.

Wang said financing capability is vital to a car dealer in such a depressing market.

A 4S (sale, spare parts, service and survey) store needs a capital flow of up to 10 million yuan a month, so loans have become an increasingly popular way of financing.

Since last July, several car dealers or 4S stores in Zhejiang and Shanghai have shut down when they failed to repay the loans.

However, 2009 is likely to be a year of hardship: Many car dealers may find access to loans more difficult because banks will impose stricter inspection on the company's capital flow before offering credit.

The survey showed 79.8 percent of dealers worry that banks may increase the criteria for loans, and 92 percent feared that downgrading by any financial institution may make others follow suit.

The survey also showed only 17.3 percent of dealers were "satisfied" or "relatively satisfied" with their fiscal capability. Over 70 percent said they had used private financing with a higher interest rate.

Reshuffling is also a buzzword in the car market this year, the survey found.

Most dealers agree the market is unlikely to pick up in the first half of this year.

Over half of the dealers said they would not refuse acquisitions or mergers and 39 percent "anticipate to be merged".

Source:China Daily