Volkswagen’s move into financing car loans in China will boost sales of upmarket models in the world’s fastest-growing car market, a senior executive told the Reuters news agency.

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But Burkhard Breiing, chairman of the VW Financial Services board of management, added that the going will be tough, in part because of the lack of consumer credit data and high default rates.


“It will be a slow start relative to other markets,” he told Reuters at the China venture’s launch in Beijing. “We develop everything ourselves, including the credit risk control mechanisms. It is our wish that in China the infrastructure will be in place in the future. The government has understood it, but it takes [a] long [time],” he reportedly said.


Reuters noted that China has no central credit rating agency, no laws to repossess cars from errant borrowers and a rising pool of non-performing car loans. Chinese newspapers regularly report on people defrauding car dealers with fake identification papers and running away with the goods after the first payment.


Still, VW Financial reportedly expects the number of cars financed in China to grow to about 40 to 50% of cars sold per year by 2010, compared to 10% now, Breiing told Reuters. That compares to between 60 and 80% in mature European countries.

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Breiing, who declined to discuss Volkswagen’s sales in China, reportedly said the financing venture that has start-up capital of 500 million yuan ($US60 million) was expected to break even in five years.


“Customers who have the flexibility which we provide usually go for a higher priced car. That is a huge help for the manufacturers,” he told Reuters.


Klaus-Uwe Schaffrath, general manager of VW Financial’s China business, reportedly said the Chinese default rate was between 3 and 5%, according to independent studies, which he called “very high”.