How long can the huge profits of auto finance last?

If selling cars is not profitable, what will the profit growth of the automotive industry chain rely on? Auto finance may be the answer to this question. Earlier, a research report released by market research company JDPower showed that auto finance has accounted for 10% of dealers' profits. At present, auto finance includes sub-sectors such as new car finance, used car finance, financial leasing, car mortgage loans and auto insurance. Among them, there are startups backed by capital institutions and manufacturer finance companies attached to big-name car companies. So, what kind of industry is auto finance? In a fiercely competitive environment, how long can the industry's high profits last? This article will reveal it to you.

iAnalysis compiled a list when researching auto finance, which included 25 companies in six sub-sectors, with a total valuation of 127.8 billion yuan. The top three in terms of valuation were Yixin Group (30 billion yuan), SAIC-GM Financial (26 billion yuan), and Shenzhou Maimai Auto (valued at 20 billion yuan). The number of companies and valuations in specific sub-sectors can be found in the table below:

New car finance, banks and auto finance companies dominate

In the new car finance sector, banks have the advantage of low-cost funds, while auto finance companies have the advantage of channels, so the two are the main players in the new car sector. Ping An Bank issued a total of 82.1 billion yuan in auto loans in 2016, while more than 20 auto finance companies issued loans of around 500 billion yuan in 2016.

With the rise of domestic auto brands in recent years, domestic auto companies have also set up auto finance companies. Great Wall, Geely and BYD all set up their own auto finance companies in 2014-2015. With the increase in sales, the income contributed by financial business will also increase. As a representative of the auto finance companies of domestic auto companies, Chery Huiyin has maintained a net profit growth rate of more than 40% in the past three years.

Auto finance companies are still in the "huge profit" stage, with high net interest margins and net profit margins, around 6% and 38-55%. However, as more and more players participate in auto finance and competition intensifies, it is inevitable that interest margins will narrow and net profits will decrease.

In areas where banks and auto finance companies cannot cover, new car e-commerce and financial leasing companies have room to survive. These companies need to master scenarios, traffic and risk control capabilities. Connecting with banks on the funding side is the best option, which is essentially a cooperative channel for banks. For example, Zhongan Financial Holdings has a strategic cooperation with ICBC. ICBC provides funds, and Zhongan Financial Holdings needs to do a good job in customer acquisition and risk control.

Used car finance: channels and traffic are king

In the field of used car finance, auto finance companies are difficult to reach because the circulation of used cars is not strongly related to the brand of the OEMs, and the OEMs have no control over the channels. Therefore, the four used car finance companies on the list are all emerging startups.

Since the used car market is relatively fragmented, traffic can be divided into online and offline, and mastering transaction scenarios and traffic is the core advantage.

From the list, we can see that online traffic is mainly controlled by Internet companies and e-commerce platforms, such as Yixin (Yiche), Uxin and Guazi; offline traffic is scattered among many second-hand car dealers. Winning over car dealers is the key, so Beitaihaoche, No.1 Auto Loan, Yixin and Meili Auto Finance all have offline layouts, providing inventory financing for second-hand car dealers and reaching C-end consumers through cooperation with second-hand car dealers. Dasouche wins over car dealers by providing a SaaS system for second-hand car dealers.

Diyichedai started out as a second-hand car dealer's inventory financing company, and in the future will enter the transaction link from finance to provide SaaS systems for car dealers. Dasouche started out as a SaaS company, and in the future will provide inventory financing for second-hand car dealers. Different paths, same destination, hand-to-hand combat is inevitable.

In terms of funding, small second-hand car finance companies can only rely on shareholders or P2P platforms, while large second-hand car finance companies will seek institutional funds or issue ABS. The best ones can obtain funds from banks or insurance companies. For example, Chewang, Meili Auto Finance and No. 1 Auto Loan can issue ABS to raise funds.

Risk control for used car finance is more difficult than for new cars. New cars are standard products and only require the review of “people”, while used cars require the review of “cars” and “people”. In addition to mastering online data, risk control for used cars offline is also very important.

The concentration of auto loan market has increased, while Internet auto insurance is still under exploration

Car loan is a service created to meet the financial needs of car owners, rather than transaction needs. Car owners who could only obtain funds through loan sharks can now solve this problem through P2P platforms. After the introduction of online loan supervision policies, non-compliant platforms were eliminated, and car loan began to show a differentiation of the strong getting stronger. Weidai.com continued to lead the way, and its growth rate was higher than that of its peers.

The current auto loan industry has a clear structure, with leading companies having obvious advantages, but there is also the possibility that companies like Shenzhou Auto Flash Loan will catch up and other potential entrants will disrupt the market.

There are also 5 auto insurance intermediary companies on the list. Auto insurance is the most important type of property insurance, and the premium is expected to exceed one trillion in 2020. It is the most popular field for insurance startups. However, the online sales rate of auto insurance is not high, and most startups have taken the old path of attracting agents by rebates, lacking innovation and still exploring.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.