China’s central bank singled out on Tuesday the auto financing companies for extra help. The action led to a growth of 30 million for Volkswagen AG’s China finance unit, money that can be used to increase the German carmaker’s auto sales.
People’s Bank of China (PBOC) cut the amount of reserves financial institutions need to hold by 0.5% along with a reduction in benchmark lending rates, but raised by 3.5% the auto financing reserves.
Harold Mueller, General Manager of Volkswagen told Reuters that “It can be used to reduce our cost of funds, and we can pass that on to the customers”. He added that Volkswagen Finance (China) Co Ltd is discussing with VW Group’s various brands, which include Audi and Porsche, how to spend the funds in order to reduce the points of pressure by the lower reserve requirement ratio (RRR). Mueller explained that this could include lowering interest rates for certain models or segments of cars, lending to dealers or investing in the brand’s own operations.
Volkswagen Group’s China sales went down 5.3% year-on-year up until July, while China’s economic growth in 2015 seems to be heading for a 25-year low.
Mueller said that the RRR cut would not be a big boost, as it holds more of a symbolic value, but it indicates that the PBOC is paying attention to every area. The cash freed up for VW only stood for 0.5% of the company’s loans.
After this week’s cut, auto financing companies must hold 8% compared to 18% for banks in general. However, buyers of local and mass-market brands are less likely to use financing, meaning the RRR cut will help some auto companies more than others.
By Gabriela Florea