Free Loans in China
Posted by: David Welch on August 22, 2007
No matter how bad the news from is in Detroit, General Motors can always brag about its success in China. Indeed, its swift rise to become the emerging market’s top player has stood as a shining beacon of what GM could do when relieved of many of the problems it faces in North America. In China, GM operates free of the burden of massive retiree costs and union wages. It doesn’t have restrictive dealer contracts that all but mandate the preservation of irrelevant brands. Hence, it doesn’t need incentives to lure shoppers to its showrooms.
Or does it? This week, GM started offering car buyers 0% loans. Increased competition is one reason, according to GM. Even though sales from its Shanghai-GM joint venture are up 11.7% and up 20% at its GM-Wuling venture in the first half of the year, market share fell from 12.3% to 10.8%. GM wants to grab marekt share. The company also wants to get more buyers buying on credit. In China, auto loans are still a relatively new phenomenon. Car buyers pay mostly with cash. GM—through its GMAC lending business—is offering 0% loans to get more consumers used to buying on loan.
That makes sense, but GM needs to be careful. Heavy incentives can become addicting when the result in bigger sales. And they cost money. Recall that GM started 0% financing in the dark days after the Sept. 11 terrorist attacks, when consumers froze and car sales started sinking. The marketing move worked, but GM never kicked the habit and is still trying to roll discounts back six years later. It should keep that lesson in mind when using 0% in China.
