China is planning to become one of the big ‘electric car states’ in the next few years as its plans to lower its dependency on foreign oil, yet continue with rapid car sales at the same time. The different standards will cover 15 different areas of electric car standards and will cover areas such as battery casing size, voltage and current references, charging  stations (including monitoring and billing) and also car security.

It is not entirely clear what global ramification this standardization project might have for international car makers that plan to export electric cars into China in the future, or what it might mean for Chinese electric automotive exports. China may well lead the way in an electric car standard, or they maybe pushed aside by a global forum of international automakers that have their own standardization aspirations.

The Ford Focus continues to be Ford’s big seller in China with 13,039 units delivered in August alone, and marks the sixth month in a row where the Focus has sold more than 10,000 units, and the millionth China built Ford was delivered a customer in Lanzhou last week also.

The Ford Fiesta still remains a highly popular model for Ford with 4,629 Fiesta’s leaving dealership forecourts over the course of the month, with Ford laying praise on the government for introducing a 3000rmb subsidy for the Fiesta due to it being an energy efficient vehicle.

Ford’s commercial vehicle joint venture partner, JMC, sold 15,572 vehicles in August alone and 117,057 vehicles from January to August, which translates to an increase of 89% and 64% over the same period in 2010, the huge increase in performance is being claimed by the Ford Transit MPV.

Guangzhou Auto unveiled its VIP Auto Lounge concept car at this years Beijing Auto Show in April and you could easily see the Alfa DNA in the full design. Lots of detail regarding the cars engines and suspension set up have not yet been announced yet, however when the car finally comes down the line on September 3rd, I am sure we will learn a great deal more.

The W5 SUV recently appeared in the central governments list of cars that have been granted production rights for this year, which should mean that we will finally see the Ssangyong based Roewe on the roads before long. The W5 will be equipped with a 2.4L Ssangyong petrol engine, or SAIC’s 1.8T engine and also the choice of automatic and manual gearboxes:

Audi have been without a compact sedan offering since they launched the best selling Audi A4 in Lengthened version, and has gone onto take a great slice of the mid size luxury sedan segment and has basically shut the door on its Germanic rivals in this segment, however it appears that Audi are planning to launch the A3 sedan as a compact sedan rival to the current BMW 3-series and Mercedes C-Class, both of which are produced in China. Oddly, BMW are planning to lengthen the 3-Series to give the Audi A4L some competition, and there is no official word nor rumor on a stretched C-Class.

Beijing Auto are partners with Mercedes Benz, so it could be possible that they have shared designs with Beijing from the B-Class MPV that launched in China last year. The exterior design is remarkably similar to the B-Class, however it is the suspension set up that gives the design away, the Merc’s is much different to the BJ Auto’s C30, although that is not to say that the C30 is not B-Class derived, we will have to wait for more details on this model.

By the end of the year China will have five pure electric vehicles in production, including the BYD E6, Chang’an Ben Ben Mini and the new FAW vehicles, which will give consumers and governmental departments a wider choice in green vehicles.

Michael Dell and the MG6

Are you young enough for an apprenticeship? Would you like to have a stab at working at one of the worlds most famous car companies? Well it seems that if you answered yes to the above then an apprenticeship at MG Motor UK in their Longbridge factory is the way forward for you.

MG have already signed up one young man for an apprenticeship scheme, and are currently looking for more able bodies to fill up the office spaces and learn more about the automotive industry from the inside rather than from a College text book.

Michael seems to be enjoying his time at MG, and was quoted as saying “I was thrilled to be selected to be MG’s first new apprentice and am really enjoying my work. It’s my dream job; it’s so exciting to be working on the launch of an all new MG.”

If you’re interested in working with MG, contact them via their website, or try them on their new Twitter page or even Facebook.

New energy vehicles appeared to be the big new winners thanks to government support, 32 energy saving vehicles achieved total sales of 129,600 vehicles, an increase of 32.04% over July sales and accounted for 13.26% of total car sales in August, whilst small displacement engines of 1.6L or less accounted for 19.88% of the market.

Domestic self developed vehicles fell slightly in August with 176,400 vehicles sold which is an increase of 16.60% over the previous year. Japanese cars stood at 176,100 cars (an increase of 26.98%) whilst European cars sold 174,200 cars (an increase of 16.89%).

For many years it has seemed that sedans were the most popular form of automobile for the Chinese market, but now it looks like hatchbacks are coming into fashion but sedans are still keeping their advantage. Sedans stood for 548,000 cars, an increase of 20.90% over July and a year on year increase of 50.59%. Hatchbacks sold 149,200 vehicles, an increase of 17.06% and a year on year increase of 84.63%, this shows that hatchbacks are starting to gain some ground in the Chinese market.

Vehicles with automatic gearboxes sold 329,600 in total, and stood for 47.27% of all vehicles sold, with the most popular models being 4, 5, and 6 speed vehicles and includes CVT and AMT equipped cars.

SUV’s are still continuing to be a popular style of car for Chinese consumers with production reaching 94,300 vehicles in August, but this was a decrease of 3.72% over July production whilst sales stood at 87,500 vehicles an increase of 13.75% over July sales and an increase of 117.13% over August 2009 sales. Interestingly, two wheel drive SUV’s sold 33,500 vehicles, an increase of 17.03% and stood for 38.32% of all SUV’s sold in August. AWD SUV’s sold 54,000 vehicles, an increase of 11.81% over July and took 61.68% of the market.

August’s MPV sales stood steady at 38,500 MPV’s sold, a slight decrease of 0.02% over July but an increase of 64.41% on August 2009′s sales stats. Four cylinder MPV’s were the most popular with 2.0l, 2.4l and 1.8l MPV’s taking the larger portion of the market.

The 18,000rmb Alto is certainly basic, but at that price it is sure to gain consumers especially first time buyers that want a simple car to get about the village in.

Why the Volt is getting an airing now, but no sales until 2011 is still a mystery to CCT, it could be that GM are eager to launch the car to show their green credentials but the lack of support for imported hybrid vehicles in terms of subsidies may leave the Volt out in the cold for quite a while.

The Volt will launch in the USA at the end of 2010 and will officially go on sale in the fourth quarter in the Chinese market.

The Chinese company eHi Car Rental said Monday that a consortium led by Goldman Sachs has agreed to make a $70 million investment.

Existing shareholders of eHi Car Rental are also part of the group, including Qiming Venture Partners, CDH Ventures, Ignition Capital, JAFCO Asia and New Access Capital.

The deal is expected to close soon.

Based in Shanghai, eHi Car Rental has a fleet of 4,000 vehicles and operates in 34 cities.

Nissan March

The Nissan Micra has followed in the Japanese market footsteps and launched in China under the March name. The March is being built via Nissan’s China joint venture with Dongfeng that has exploded in popularity over the past four years due to an aggressive model launch that has propelled them to one of the larger foreign car makers in China. The introduction of the March fills in an product gap in their dealerships that was being exploited by other small car makers, with low price Nissan is likely to take car sales from domestic self developed car makers.

The March is powered by a 1.5L engine mated to a 5 speed manual or a 4 speed automatic gearbox and is the cheapest model in the Dongfeng-Nissan lineup. Nissan is expected to launch other models in China to further fill in gaps in the model line up, the Nissan Quest MPV is likely to be Dongfeng-Nissan’s next model and also a new Tiida range.

The Riich Z5 will come with a 2.0TCI engine, which translates into quite the little power plant for the Z5. The 2.0TCI engine is capable of 125Kw of power at 5500rpm and torque translates to 225Nm/1900rpm. However it seems that the Z5 will be coming in automatic form, which means some power is lost and ends up with 116kw of power but a torque increase to 250Nm thanks to the 5 speed automatic gearbox Chery plan on using.

Eventual pricing, or a launch date, has not yet been announced, but it is expected to be over 200,000rmb.

Two years ago, BYD Auto announced its ambition with certainty to become the No.1 automaker by sales in China in 2015 and 2025 over the world.

Under the pressure of a weakening auto market in China, the Warren Buffet-backed carmaker has become more and more low-key since August 4 when it slashed its full-year sales target in 2010 by 25 percent to 600,000 units.

The company’s Shenzhen-based spokesman Lin Mi told the Global Times Tuesday that they had been overconfident in the auto market this year and BYD’s ability to expand capacity. The BYD, whose founder says the name stands for Build Your Dreams, has decided to tap on the breaks to work more on its brand image.

Poor sales

In the past five years, BYD’s annual unit sales almost doubled every year, hitting in 2009 448,000 units, nearly tripling the sales over the previous year.

“Sales in 2009 boosted our confidence in hitting our sales targets in 2015 and 2025. However, things are not running as smoothly as we expected,” Lin said.

Lin said the company’s internal sales target for this year was 1 million units, higher than 800,000, the target it made public.

Yet over the first seven months of this year, the company only met less than one third of its internal sales target in 2010.

Lin blamed the unexpected sales on seasonal factors, formidable weather conditions like floods and mudslides, and difficulties in expanding capacity to meet market demand.

“Unlike other automakers that outsource parts manufacturing, BYD produces all auto parts used on vehicles itself. If we expand our vehicle production capacity to 1 million or 800,000, we will have to equip our auto parts plants with proportional staff and production facilities. If we were able to do that, quality couldn’t be guaranteed,” said Lin.

Factory debacle

BYD’s expansion plan also ran into property problems. The Ministry of Land and Resources said July 15 BYD illegally built seven factories on 112 acres of farmland it agreed to buy in Xi’an from a local economic development agency.

BYD planned to spend 10 billion yuan ($1.47 billion) this year in expanding production capacity at its new energy production base, Changsha, Xi’an, and headquarters in Shenzhen.

The first batch of buses produced in Changsha have rolled off the assembly line and capacity expansion in Shenzhen also run smoothly.

A government decision on whether to punish BYD for the illegal factory construction will be made by September 30.

BYD’s existing Xi’an factory, built in 2005, can assemble 300,000 cars in the 3 series a year. The company previously planned to finish constructing the factories by 2011.

Increasing dealer pullouts in cities such as Beijing, Southwest China’s Sichuan Province and East China’s Zhejiang Province also held down BYD’s sales to some extent, though the company said its impact had been exaggerated.

Dealers including Ping Yong, BYD’s flagship dealer in Chengdu, the capital of Sichuan, have pulled out of BYD’s sales network this year, saying high inventory and BYD’s demanding management practices dried up their cash flows.

Lin said the public has made a fuss over BYD. “The sales network is a world of the survival of the fittest. Dealers joining and leaving networks is common to all automakers. More dealers joined us than those that left,” said Lin, who declined to provide exact numbers.

Ping Yong joined BYD’s rival Geely after breaking away from BYD, the China Business News reported.

BYD also delayed a mainland listing due to stock market downturn and said Monday it hopes to list on the Shenzhen Stock Exchange later this year. The company planned earlier to raise 2.85 billion yuan ($421 million) to finance battery, vehicle and auto parts projects.

Rolling out high-price vehicles

When asked whether BYD will readjust its plan to become the largest automaker both in China and the world, Lin provided no direct answer but said that BYD values branding and quality more than quantity.

BYD has been planning to launch five models this year, priced above 100,000 yuan ($14,713), to build BYD into a brand covering multiple products instead of remaining synonymous with low-end. These products are also expected to help improve profitability of the company.

BYD launched its first multi-purpose vehicle last week and a sedan late last month. Their impact on BYD’s sales remains yet to be seen. The company will launch other medium- and high-end models including another sedan and an SUV.

Rivals Geely and Chery are also motoring into the medium- and high-end market, which has long been dominated by joint ventures.

Geely will launch its first luxury multi-purpose vehicle this month. Chery began last year to sell high-priced vehicles under brands Riich and Rely. Analysts say competition between domestic automakers and joint ventures will be fiercer as both are now expanding into each others’ territory.

E6 go to US first

BYD founder and chairman Wang Chuanfu said Monday BYD will launch electric vehicles in the US later this year.

China launched a pilot program in June in five cities including Shenzhen to provide subsidies to buyers of electric and hybrid cars. Buyers of hybrids and electric vehicles could receive up to 50,000 yuan ($7,320) and 60,000 yuan ($8,826) in subsidies per unit respectively.

The Shenzhen government announced in July it would provide another 30,000 yuan ($4,413) and 60,000 yuan respectively.

Even with the government support, BYD sold no more than 500 F3DM plug-in hybrids this year in China.

“BYD might sell electric car E6 in the US first. Consumers there are more likely to accept electric vehicles than people in China,” said Lin. BYD said in late April it would open its North American headquarters in Los Angeles.

BYD is also planning to move into the new energy vehicle market in Europe. Lin said the company is visiting several cities right now, and the location of Europe headquarters is yet to be decided.

It would be unfair to call the new crossover a RAV4 clone, it certainly appears to be the same size but appears to be vastly different in styling and very unique when compared to the other raft of Chinese self developed SUV’s that are coming out at the moment.

General Motors Co GM.UL considered an Asian exchange for its historic return to the public markets, but ruled it out because it would have delayed the IPO, people familiar with the matter said.

GM, which filed plans for a dual listing in New York and Toronto this week, as recently as several weeks ago was also considering listing in Hong Kong to highlight its growing focus on China — now the world’s largest car market — and to attract the region’s growing pool of investors, the sources said.

That plan was ultimately scrapped because a Hong Kong listing would have pushed GM’s IPO beyond its targeted debut between late October and the U.S. Thanksgiving holiday, sources said, asking not to be named because the preparations for the IPO are not public.

It was also unclear what the U.S. automaker would gain in terms of investors or trading liquidity and listing on multiple exchanges would have added cost and complexity to GM’s already complicated IPO, two of the sources said.

“I don’t think signaling goodwill toward Asia is likely to be a significant enough argument for all the cost and complexity. I don’t want to overstate the cost and complexity but it’s not insignificant,” one of the sources said.

The Hong Kong stock exchange requires three years of profitability or a large market capitalization and revenue in order to list.

The consultancy firm Mckinsey indicated that 30% of China’s rich life in Beijing, Shanghai, Shenzhen and Guangzhou, but by 2015 75% of China’s wealthy will be living in second and third tier cities along China’s east coast.

In a survey of China’s wealthy over 40% indicated that they planned to buy a luxury car, the first time it has jumped over the choice of buying a luxury home (which stood at 38%) whilst clothes, diamonds and art stood at 9%, private planes at 4% and luxury travel stood at 1% and other items stood at 8%

Bentley recently opened its 10th sales center in Yunnan province, and is a stark difference to its original dealership in the year 2000 when it only had one single dealership and a sales goal of 30 vehicles. Fast forward to 2009 and Bentley cleared 421 cars from its dealership forecourts. However first tier cities are still expected to be strong sales points, and in 2011 Bentley is aiming to sell 1000 cars in China and will open dealerships in fast developing cities, specifically Xiamen, Shenyang, and Tianjin etc.

In 2009, Lamborghini sold 80 vehicles in China, which was an increase of 11% over 2008 sales and is likely to achieve its sales goal of 100 vehicles in 2010 without much difficulty. Lamborghini currently has seven dealerships in China and will open its 8th dealership in Chongqing the first in China’s west and also plans to open dealerships in Qingdao and Dalian.

Rolls Royce is the big winner in China, with it selling 678 vehicles between January and April 2010, an increase of over 146% over 2009 sales, but whilst its sales network is smaller than Bentley’s, it has chosen its network locations carefully and only in fast developing cities such as Shenzhen, Chengdu and Hangzhou, where the number of wealthy consumers is quite high.

Rolls Royce’s long sighted vision has made China its second biggest market and has jumped over the Japanese market. By 2008 China had over 1.6 million people with yearly incomes of over 8000USD, by 2015 this number is expected to jump to 4.4 million, whilst the number of China’s combined rich list will place China in fourth place in terms of worlds richest people.

Following the development of China’s second and third tier cities, luxury car makers will adopt their tactics and take the focus away from big cities such as Beijing and Shanghai where the market for super cars and luxury models is already beginning to saturate, the new focus is going to be on Chengdu, Harbin, Dalian, Chongqing, Xi’an, Wuxi, Wenzhou, Qingdao and other second tier cities.

The Aveo is based on GM’s Gamma II platform and will be packing a 1.2L, 1.4L, and 1.6L naturally aspirated engine, although rumors of a 1.4T engine are also circulating. The new Aveo has taken on a much more aggressive stance, and seems to have borrowed some headlight styling hints from the Mitsubishi Lancer which coupled with the vastly improved Chevrolet corporate grill seems to give it a more sporty appearance.

The small car segment is likely to heat up considerably in the next few weeks as the long best selling Ford Fiesta gets intense competition from the soon to launch MG3, and also VW Polo and the Chevrolet Aveo.

From TTAC:

Opel now received the o.k. to expand into markets outside of Europe. You probably can guess which markets they have in mind.

“We will begin distribution in China this year” said Opel’s Nick Reilly to Automobilwoche [sub]. Opel will also compete with Holden in Australia. Opel will be sold in another country in Asia and two markets in South America. Their identities are being kept under wraps.

Opel isn’t completely new in China. About 4,000 Opels were sold in the Middle Kingdom, unbeknownst to most. In Australia, some were sold rebadged as Holdens. And of course there is the huge GM presence in China that sells rebadged Opels as Buicks. Whether GM will allow them to seriously compete in China remains to be seen. A few years ago, Opel was sold in Japan, but met with a resolute yawn.

Opel needs the business. In the first 6 months, Opel sold 4.5 percent less in Europe than in the year before. Losses so far $637m. More to come.

Looking over the Opel.com website, it seems that the only models that Opel would be able to sell in China would be the smaller models, such as the Corsa and Meriva models, or perhaps the Tigra twin top or other sports models. Either way, Opel are going to have a fight on its hands if they want to stand out further than they have been doing.

For the Chinese market the H5 will come with a choice of three engines, and in three specifications for each. The base model is a 2.0L model priced from 92,800rmb to 112,800rmb and a 2.4L priced from 99,800rmb to 139,800rmb and the flagship 2.5TCI diesel model is priced from 126,800rmb to 158,800rmb.

The MG3 appears to have leather seats and also an AMT gearbox, interestingly the car has white sporty inserts which is fairly similar to the MG Zero Concept car that we saw in April this year.

The MG3 has also entered into the 214 list from the Ministry of Industry and Communications of soon to be produced cars, which shows that it will be taking a 1.5L engine that has 108bhp and 135Nm of torque whilst the gearbox is planned to be a 4 speed auto, and a 5 speed manual. The new MG3 is likely to give the small car segment a real shake up, and could be the Chinese answer to the Ford Fiesta, and Chang’an Ford should be very afraid.

Over the course of 2010, Lifan have been working on new technology and research and development of new cars including their new RAV4 inspired SUV, 2011 will see the launch of the said SUV and also the Lifan 720 whilst on the engine front Lifan are working hard on the 1.6L and 1.8L CVVT series that they have talked about before now. Lifan are also reportedly working on a range of mini vans which are currently gaining government subsidy support.

In recent months BMW, Mercedes, and Audi have been in a three way battle for control of the luxury market, but it appears that Audi are the winners in this area, however BMW maybe planning to fight back against the popular Audi Q5 model with the addition of a long wheel base BMW X3. So far, only the Audi Q5 is built in China but BMW and Mercedes have both made noise about producing their SUV offerings in the Chinese market, with BMW expected to produce the X1 with their JV partner Brilliance, and also Mercedes expected to produce the GLK series with their partner in Beijing Auto.

GWM are aiming to invest a billion RMB per year over the next five years on new models and technology, with a large focus on self developed larger displacement engines, including a V6 diesel that GWM are currently working on. By 2015 the GWM pick up range and Hover SUV range will all be changed for new models and generations of vehicles. Tianjin city will also boast a new GWM factory which will produce the H6 and also GWM’s new b segment sedan.

The major issue appears to be that the road is used by the hustlers that are transporting coal from illegal mines in the vastness of Inner Mongolia where you only basically have to scrape away the top layer of sandy-dirt to discover a coal face that will make you, or break you. The vast majority of Chinese highways have traffic stops just past the toll booths where the Police will pull over truck drivers to check their papers and make sure they are not over their load or to make sure that car drivers are not removing their driving licenses (as they often do), but it seems that the highway in question was free from such controls which made it popular with the illegal coal merchants and drivers hoping to avoid the long arm of the law, ultimately it backed up worse than your average Chinese toilet when toilet paper is flushed.

The traffic jam seemed to grow into its own mobile city, with many locals coming out to sell noodles, sausages and hot water at highly marked up prices, and drivers stood around in the hot sun topping up their tans or slept under their trucks, whilst thieves made good money on several occasions by robbing the citizens of the new found highway-town.

With the worlds eye on the Chinese traffic jam, the central government appeared to be embarrassed into action and swiftly ordered the traffic to move more freely, and thus overnight the traffic jam was undone.

BAIC purchased Bao Long Auto last week, and an executive with BAIC was quoted as saying that BAIC are actively shopping for five automakers in China which will help them cover the north, south, east and west of China. Earlier this year it was rumored that Zotye were actively in talks with BAIC regarding a merger  that would see them become part of the BAIC empire. Zotye is owned by Zotye Holdings corp, a company that is mostly producing light weight vehicles and also automotive parts, Zotye currently produces three vehicles and is planning to add two ex-Fiat models to the line up (and possibly some other ex-Fiat models) which will give it a greater range of vehicles, Zotye also have extensive plans for an electric car base which maybe the big attraction to BAIC.

Mr. Liao remarked “This issue has already been raised with our CEO, Lifan really wants to work with Subaru on this project, and we also have the support of the local government”

However, Mr. Liao never mentioned from which angle Lifan and Subaru plan to work on, if it is to be a true joint venture between Subaru and Lifan, or if it is to become a licensing deal that will see Lifan produce Subaru cars under license. Other rumors are saying that Subaru are planning to put the Impreza Crossover into production first should they achieve a joint venture in China.

Lifan are being placed as the outside horse in the race to win the Subaru partnership, and the big money appears to be on first tier automakers such as FAW, BAIC and SAIC.

Pricing is currently unknown, but it is likely to be in the 300,000rmb to 450,000rmb segment and is likely to take on the Toyota Highlander in the Chinese market.

PSA’s entry into Guangzhou province represents one of the first smart moves that PSA have achieved in China, its initial JV with Dongfeng to produce the Citroen and later Peugeot range in China started off well with the Citroen ZX becoming the car to own at one point, but soon slipped behind the competition, although PSA are working hard to rectify the situation with the launch of the Peugeot 408 and also the incredibly elegant Citroen C5 into China. The new JV is set to produce MPV’s and also the DS range of vehicles from Citroen.

The original joint venture agreement between PSA and Chang’an was signed on July 9th and will see the pair produce and sell, and also carry out joint R&D on new vehicles and also new energy vehicles in China. The first stage of the JV will see a production capactiy of 200,000 full cars and 200,000 engines which will be built in Hafei’s old factory.

SASAC

Sixteen of the largest state owned Chinese auto makers are set to form an alliance that will push for the development of electric vehicles in China, and will be a major linchpin in the governments plans to push the electric car industry in the right direction and have a lesser dependency on fossil fuels.

The alliance was formally created late last week and will have a war chest of 100 billion Yuan (14.7 billion USD) to spend on the development of electric vehicles by 2012 according to Chinese media reports. The alliance itself is being headed by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), the alliance is headed up by not only state owned auto firms such as FAW and Dongfeng, but also China’s three top fuel suppliers and two power grid operators. The group of companies is aiming to work with state owned car makers to further the development of electric cars, whilst also working with state owned fuel suppliers to make sure that the infrastructure for electric cars is developed at the same speed and will also work on developing unified standards across the industry.

Shanghai resident Jiang Qinxia is just the kind of guy that global automakers like General Motors hope will jumpstart their foray into China’s fledgling and potentially lucrative consumer auto financing business.

As an upwardly mobile junior manager, Jiang, 26, recently drove home a new 105,000 yuan ($15,500) Buick Excelle after taking out 50,000 yuan loan from GMAC-SAIC, a three-way tie between Ally Financial, a SAIC Motor (600104.SS) affiliate and GM’s car venture with SAIC.

“I don’t mind paying a little bit more to get a car just as I need it,” said Jiang. “I will recommend that to my friends as it’s fast, easy, and most of all, I don’t have to borrow money from my parents or friends.”

Even as China’s auto sales sizzled last year at the height of the global meltdown, just 10 percent Chinese car buyers used loans for their purchases, industry executives say. That compares with over 80 percent in the United States — a huge gap that has foreign automakers seeing the retail auto financing business as a way to turbocharge sales.

China’s strong “cash culture” and lack of comprehensive credit rating tools are seen as major hurdles for the 35 billion yuan ($5.2 billion) a year industry, according to Sheng Ye, associate research director at industry consultancy Ipsos’ Greater China region.

Massive defaults that resulted in credit crunches like ones that hit Taiwan and South Korea remain another risk.

Still, foreign names like GM, PSA Peugeot Citroen (PEUP.PA) and Toyota (7203.T) are hoping to sell vehicle financing services to a new generation of young, upwardly mobile Chinese who, unlike their parents, don’t feel a need to pay for everything with cash and aren’t afraid to borrow.

“These people are very different from their parents’ generation. They work hard, play hard and have no qualms about snatching up the latest iPhones or other fancy gadgets on credit,” said Ipsos’s Ye.

“As more and more youngsters get behind the wheel, the size of retail financing could easily double in as soon as five years.”

OPTIMISTIC

Vehicle financing began in China’s affluent big cities, but has been expanding slowly into smaller ones and rural areas lately as China’s wealth trickles down.

The interest charge for buyers of selected Buick models in China is zero for a one-year loan, but rises to 7.69 percent for three years and 8.33 percent for four, according to GMAC-SAIC. That compares with the country benchmark lending rate of 5.31 percent for loans with duration of one to three years.

“Going forward, we expect financing to play an increasing role in making automotive purchase more affordable for consumers,” Frederick Livingood, general manager of 6-year old GMAC-SAIC, told Reuters.

Other automakers are equally optimistic.

PSA Peugeot Citroen’s Chinese auto financing arm started its retail business in September 2008 and expects 10-12 percent of its buyers to use financing service in five years, up sharply from 4 percent now, said Michel Arnaud, head of the unit.

Warren Buffett-backed Chinese battery and car maker BYD (1211.HK) recently set up a consumer financing venture with a Societe Generale (SOGN.PA) affiliate.

Other homegrown players like Beijing Automotive Industry Holding and Guangzhou Automobile have also set their eyes on auto financing.

The stakes are significant in a market that passed the United States last year to become the world’s largest, with over 13 million vehicles sold. Sales are on track to rise another 15 percent this year, even as most other global markets remain depressed.

As business from cash-rich buyers starts to slow, credit could be an important tool to keep the industry’s growth humming, said Klaus Paur, director at industry consultancy TNS’s North Asia automotive division.

“At the moment, it’s easy for car manufacturers to sell cars and they don’t need that yet,” he said. “But over the time this will change and it won’t be as easy as it is today.”

The trend would follow another fast growing market, India, where auto financing has long been a convenient a tool. Industry players — from home-grown Tata Motors (TAMO.BO) and Mahindra & Mahindra (MAHM.BO), to multinationals like Volklswagen AG (VOWG.DE) — all have their own captive financing arms.

RISKS

Like anything else involving credit, auto financing will carry risks for the new players in China.

In the early 2000s, many banks pulled out of the business on record defaults due to lack of national credit databases and lax lending practices, industry executives and observers recalled.

Lack of comprehensive credit rating tools could hamper the industry in its early stages, as lenders are forced to do costly and time-consuming background checks.

“The system for finding those who decided not to pay and for repossing the vehicles to get any kind of residual value is still premature,” said John Bonnell, a senior director of strategic advisory services for J.D. Power Asia Pacific.

Recent signs indicate Beijing may be moving to promote the business, including possibly allowing GMAC-SAIC to become the first car financing firm to issue bonds in China. Others, including Toyota’s financing unit, hope to follow.

Yale Zhang, a Shanghai-based analyst with IHS Automotive, said the potential was huge.

“It’s difficult to say exactly when auto financing will take off in China. But when it does, it could grow exponentially, way beyond anyone’s expectation.”

Jin Dong, a 25-year-old marketing executive, has just taken delivery of his new car – without stepping into a dealership.

Instead, Jin bought his 120,000 yuan ($17,720) Focus hatchback, made by Ford Motor Co’s joint venture with Changan Motor Corp, through the Internet.

“I prefer online shopping. It saved both time and energy,” said Jin, who ordered the car on one of China’s many automotive websites, cheshi.com.

“I didn’t even have to pay a deposit, just the full price when I took delivery five days later.”

While Jin did not pay online, he did receive a gift pack of accessories with the car.

Jin is among a rising group in China who are using the Internet to buy cars, either through websites such as cheshi.com or direct from manufacturers.

Most deals through automotive websites don’t ask for deposits, although some manufacturers are now beginning to do so.

FAW, one of China’s largest auto manufacturers, has recently started asking for deposits from online buyers. A 2,000 yuan deposit, for example, will be needed to order a Mazda6.

Geely, China’s largest privately owned automaker, announced in June that it will start selling its cars online next year through Alibaba.com, an e-commerce platform, with payments made through Alibaba’s Alipay, the country’s largest online payment company.

Liu Jinliang, Geely’s vice-chairman, said work to set up the system is going well and Geely’s target will be to sell 1,000 cars in the first month.

“Geely will offer special models for online buyers, which consumers would not be able to get from franchised stores,” he said.

Hu Jun, Geely’s online marketing executive, said the company has been researching the online market for several years.

“However, considering government regulations on e-commerce, privacy and safety concerns, we may start with partial payment online.”

Geely is not the only manufacturer in China seeking an online market.

“Some manufacturers are willing to give some discounts or additional benefits to customers who place orders online,” said Wang Chen, a marketing executive of cheshi.com.

“After the order online, customers could just go to the franchised store to make the payment and collect the car.”

Bitauto.com, one of China’s largest automobile websites, said it gets about 50,000 “positive” inquiries from online buyers every month. Sina.com, another highly popular Chinese portal, started its online “auto franchised stores” last year, with some of its operators requiring deposits.

Su Yunong, chief editor of sina.com’s auto channel, said: “People are willing to buy laptops online which cost up to 20,000 yuan each, so they should have no problems in paying for cars online.

“But manufacturers often build online stores or offer online discounts just to promote their products as most people check the Internet before buying cars.” He said online sales should theoretically reduce car prices, but this may not happen for several years.

Websites have also adopted 3-D modeling and offer virtual stores, and many receive more than 10,000 visits a day.