Automobile finance is a financial activity that integrates funds in the process of production, circulation, and consumption of automobile, mainly including fund procurement, credit utilization, and relevant insurance and investment activities. It is an inevitable result of auto industry integrating banking business. The connotation of auto finance are continuously enriched with the expansion of auto finance business. In terms of present situation, auto finance refers to the market operation field that provides financial service for consumers, auto enterprises, and the auto dealers. Besides, auto finance industry at present regards commercial banks, auto finance companies, insurance companies, and associated service organizations as operation entity. Because of the internal relationship among the auto enterprises, auto dealers, and auto finance companies, all kinds of excellent finance services including credit and rent in the process of production, consumption, and circulation can be provided.
Firstly, auto finance service begins to provide production liquidity for manufactures in the production link, and offers them market information like maintenance and sale system and marking strategy. As for auto enterprises, they should realize the mutual separation between production and sales funds, and auto finance and its company is necessary. The production funds will be fixed in the dealer’s inventory and customer’s receivable accounts without auto finance, which will lead to the funds’ exhaustion with the increasing sale volume. Secondly, auto finance can play a role in providing inventory financing, working capital financing and equipment financing for auto dealers in the circulation link.
Automobile distribution is an industry with large capital requirements. Auto financial institutions can provide turnover finance for dealers’ necessary inventory vehicles, and provide necessary loan for the establishment of facilities such as exhibition halls, parts warehouses, and maintenance plants. Finally, auto finance can provide consumption credit, rent financing, maintenance financing, and insurance, etc. An important characteristic of auto consumption tends to be high depreciation rate, and the consumers should bear the loss of high depreciation rate. As for consumers, auto credit can not only solve the problem of inadequate payment capacity but also reduce consumers’ chance costs in the process of funds utilization.
Auto finance is traceable in the beginning of the 20th century, and the manufacturers provided users payment by instalment. Automobile belongs to luxury good at that time, thus the banks weren’t willing to offer loans to consumers. This situation became a barrier for both consumers and manufacturers. To solve this problem, the auto companies began to set up their financial company, and this was a symbolic of the beginning of auto credit. In the beginning, the function of auto finance tends to only provide loan service for the dealers. With the continuous development of its operation sphere, auto finance company gradually started to provide various forms of loan service for consumers and manufactures. Modern auto finance industry has developed the function of profession finance. In addition to loan service, there are also auto insurance, conditional financing, credit card, etc., which have permeated into manufacturing, sale, consumption, and every links and relevant industry, and a complete industry chain of finance service has been formed. Overall，auto finance has experienced initial stage, development, and maturation, which reflects the general rules and different operation mode of auto finance’s development. From the point of international scope, the service of auto finance and its specialization is gradually strengthened, and professional auto finance companies increasingly occupy a dominant position. Besides, auto finance service owners are becoming more diversified, and the color of non-financial institutions is becoming more and more obvious.
The contents of auto finance companies tend to be more and more diverse, which is embodies in financing object, the type of finance service, and the regions. The auto finance companies are no longer restricted to finance for their own enterprises, while they expand the financing object into various auto brands by agency system. And they expand the traditional auto credit into automobile derivative consumption and personal finance service in other fields. At present, the main automotive financial products on the market mainly include installment payment, financial leasing, transfer of installments, securitization, and trust leasing, which fully satisfy the financial needs of consumers in many aspects.
The developed countries carry out a series of laws and regulations about the development of auto finance in order to promote the social credit awareness. Besides, the countries that have mature development of auto industry all have carried out advanced risk management program, which will be utilized into the whole process of auto credit.
According to statistics, the annual income of new and used cars worldwide tend to be about $1.3 trillion, of which only 30% ($385 billion) is cash sales, and about 70% ($915 billion) has financing arrangements. This proportion in the United States (including rent financing) is as high as 80 to 85%, and the annual growth rate of auto financial services industry output is 2 to 3%, which has become an important source of profit for major auto companies. Just in the year 2002, General Motors Financial Corporation provided credit support for 8 million users worldwide. It can be seen that the automobile finance industry in the future is the main profit-making method in the automobile industry.