The article reads the profit model of auto finance

With the development of the automotive financial market and the increase in consumer demand, auto finance has gradually penetrated into all aspects of automobile consumption. Coupled with the increasingly low profit of selling cars, various value-added services have become the main source of income for some auto dealers.

Today, the automotive financial market is full of changes and challenges. New auto finance participants, new business models, and new financial tools continue to impact on traditional thinking and form major challenges to traditional business models and funding channels. How to quickly find new profit growth points has become a problem that needs to be solved in every market player. What are the major profit models of current auto finance? As shown in the following diagram, I briefly summarize it and welcome to add it.

1.1 Basic profit model

From the current point of view, China's auto finance service business is dominated by auto consumption credit, which can be divided into two categories according to loan targets: wholesale and retail auto loan.

Wholesale car loans mainly refer to the liquidity loan services provided by auto financing companies to distributors, such as inventory financing, equipment financing, and building shop financing. These types of business entities are mainly divided into two categories: banks and auto finance companies.

Retail auto loans mainly refer to auto consumer credit services provided by auto finance companies for customers. In recent years, the retail auto credit business has grown year by year, accounting for more than three-quarters of the total automobile credit business, and the profit is far greater than wholesale credit.

1.2 emerging mainstream profit model

In recent years, with the increasing demand for financial products with low down payment and low interest rate from the 80s and 90s after China’s car buyers, the relevant policies and regulations in the leasing industry are increasingly perfect, together with auto manufacturers, dealer groups and third-party companies. Having stepped into this field, the market scale of China's financial leasing has seen rapid growth, and financial leasing has gradually become the emerging mainstream profit model in the automotive financial industry.

The automobile financing lease mainly includes two aspects: one is the operating lease, and the other is the financial lease, that is, one is “melting” and the other is “financing”.

Operating lease refers to the process of separating the right to use the car from its ownership. The lessee obtains the right to use the car within a certain period of time from the lessor in the form of a certain rent. During the lease period, the right to use the car belongs to the lessee, and the ownership belongs to the lessor. The rent is calculated by the time the lessee uses the car.

Financial leasing refers to the process by which the lessor pays for the purchase of vehicles from the 4S store and leases them to the lessee according to the lessee’s specific requirements for the car and the selection of the 4S store. During the lease period, the right to use the car belongs to the lessee, and the ownership belongs to the lessor. When the lease expires, the lessee may decide whether to purchase the rented vehicle, and if he does not want to purchase it, the lease relationship ends, and if he wants to purchase, he can pay the residual value (depreciation price) of the vehicle to obtain the ownership of the vehicle.

For tenants, this "first-to-now buy" approach is more flexible and has gradually been accepted by the market.

1.3 Value-added profit model

With the development of the automotive financial market and the increase in consumer demand, auto finance has gradually penetrated into all aspects of automobile consumption. Coupled with the increasingly low profit of selling cars, various value-added services have become the main source of income for some auto dealers. Such as car maintenance, auto insurance, auto parts, auto boutique and so on.

For example, some auto finance companies will provide customers with a complete set of car maintenance solutions to help customers obtain reasonable prices and timely maintenance services, and maintenance costs can be done in installment loans, reducing the customer's financial pressure.

Car insurance can provide risk protection for car loans, make the entire industry chain flow smoother, and the value of the industrial chain can be amplified, which can promote the entire automobile transaction process.

From a long-term perspective, car loan insurance business will surely become a new profit growth point for financial institutions and insurance companies.

1.4 New Player New Mode

After the auto industry experienced high-speed development in China in 2009 and 2010, the growth rate began to slow in 2011, and profit models led by the sales, maintenance and repair of new vehicles are gradually being replaced.

The rise of a new generation of consumer bodies after 80 and 90 provided a good opportunity for the development of internet auto finance. As a result, automakers, distributors, bank insurance, and internet platforms have all set foot in, and Internet auto finance has become a new direction for the automotive industry.

Player 1: Car E-commerce Model

In 2013, the model of automotive e-commerce emerged, but it only played a role in diverting customers and providing information on the Internet. Due to the large price gap between online and offline, information asymmetry, the conversion rate of orders was extremely low. Some platforms rely on meager advertising revenue to survive, and the road to e-commercialization of automobiles is difficult.

Player II: Internet Auto Finance Platform

Since 2014, a number of OEMs have launched online car loan application and approval services on e-commerce platforms or official websites to meet the needs of consumers at different levels.

As a result, the Internet giants who have long been in the auto industry have joined in. They have mastered a great deal of transaction data and social data and built an internet car platform.

Cooperated with third-party auto finance companies and financial leasing companies to launch new car installments and second-hand car finance leasing services, such as second car loan launched by Ali, second-hand loan from Yixin jointly launched by Tencent and Yixin, and second-hand gifted letter Vehicle finance, etc., output the risk control model of big data, provided comprehensive credit to consumers with good online shopping records, opened up new channels for car manufacturers, and gained a large number of users.

From the perspective of mature markets, auto finance is not only an important means for differentiated competition between vehicles and dealers, but also a source of profit for growth and survival.

With the 80,90 consumer groups gradually become the main group of car buyers, the entire automotive industry will usher in major changes, opportunities and challenges coexist.