Daily Management Review

RRR Fund Release Enable Volkswagen To Boost Its Car Sales Through Financing


08/31/2015


The loosened up fund from the Chinese RRR will be optimized by Volkswagen which seeks to increase its sales.



Volkswagen will be using the opportunity while the central bank of China released over a “200 million yuan” which equals to “$30 million”. This was singularly aimed at providing “extra help” to the auto-financing companies. Likewise, Volkswagen is to increase its car sales.
 
However, in the case of People’s Bank of China, it also cut down the reserve amounts for financial institutes, which came down by “half a percentage point” besides lowering its “lending rates”. Moreover, this action was accompanied up by adding an extra “3.5 percentage points for auto financing”. Harald Mueller, the general manager informed Reuters:
"It can be used to reduce our cost of funds, and we can pass that on to the customers”.
 
The Volkswagen Finance Co Ltd of China is in deep discussion with various brand groups like Porsche and Audi. They are looking for ways to optimally utilise “free up” funds as the RRR requirements came down, whereby to “relieve the points of highest pressure”.
 
Consequently, certain segments of the company or some of its model can lower their interest rate which will in turn be lent to dealers and invested in the operations of the financial company. Reuters notifies:
“As China's economic growth in 2015 heads for a 25-year low, Volkswagen Group's China sales fell 5.3 percent year-on-year for the January-to-July period, trailing the overall market's 0.4 percent growth”.
 
With the lowering of cost in the China Association of Automobile Manufacturers which forecasted a “sales growth to 3 percent from 7 percent in July”, the largest global auto-market sees hope of slight improvement only towards the close of this year. In Mueller’s words:
"(The RRR cut) will not be a big boost, but it's more than symbolic. It shows that the PBOC is seriously looking into every area."
 
With the cash that has been released the company only recover its 0.5% of outstanding loans. However, the reserve requirements of the auto financing companies were lower than big banks which following this week they will be holding compulsorily 8% reserves as oppose to 18% with “banks in general”.
 
When the finance improves, the sales get boosted which allows the customers to select the car they desire, instead of the ones they their budget permits. In fact, if not an entire car, they can even go for adding an additional feature or features. It also looks like the RRR cut is more beneficial to some auto companies over others for the customers to go for “local and mass-market brands” will unlikely use “financing”. An official from the auto market of Japan mentions:
"Most Chinese people buy cars with cash. There are few people who use loans. As of now, (the cut) won't act as a shot in the arm for demand."
 
 
 
 
Source(s): Reuters.com







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