Recently, the acquisition of 100% equity of Yulong Auto Finance (China) Co., Ltd., which mainly focuses on used car financial services, by BAIC Group has been officially approved by the regulatory authorities and has been renamed to "BAIC Auto Finance (Hangzhou) Co., Ltd." (hereinafter referred to as "BAIC Auto Finance"), which is also considered by the industry as an important signal for giants to increase their investment in used car finance.

In the near future, many market institutions have further increased their investment in used car financial services, which is becoming one of the important growth areas of automotive finance. However, due to the "non-standard" nature of used cars, the risk control challenge it poses has brought certain difficulties to the development of the business.

Many industry insiders pointed out to reporters that the information asymmetry and lack of unified evaluation standards of used cars have put higher demands on the risk control of automotive finance companies and the handling of non-performing assets. At the same time, the current market products are seriously homogenized, and consumer trust is low. How institutions can find their own differentiated competitive strength before market competition further intensifies is becoming the key to breaking the deadlock.

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The business tends to homogenize.

Recently, the Zhejiang Regulatory Bureau of the State Financial Supervision Administration issued a series of approvals, officially approving the renaming of Yulong Auto Finance to BAIC Auto Finance, as well as the qualifications of several senior executives. In August this year, BAIC Group was approved to acquire 51% and 49% of the equity of Yulong Auto Finance Company at a price of 1.318 billion yuan.

Public data shows that Yulong Auto Finance Company was established in 2016. Due to the withdrawal of its own brand Na Zhijie from the market, it involves less new car financial business and mainly focuses on used car finance, mainly in the form of SP business model. Therefore, the industry generally believes that BAIC Group's acquisition this time is intended to develop used car finance business.

Regarding whether the company will still focus on used car finance in the future, reporters sent an interview letter to BAIC Auto Finance, and have not received a reply before the deadline.

In fact, in recent years, used car finance has become one of the key areas of focus in the automotive finance field.

In terms of automotive finance companies, according to the "China Automotive Finance Company Industry Development Report (2023-2024)" recently released by the China Banking Association, by the end of 2023, the total asset scale of 25 automotive finance companies nationwide reached 964.818 billion yuan, generally maintaining stability. Among them, the balance of used car loans was 62.18 billion yuan, a year-on-year increase of 37.60%.

In terms of automotive finance trading platforms, the person in charge of Yixin Group (2858.HK) told reporters that thanks to the implementation of policies such as trade-in, the enthusiasm for consumption in the used car market has been increased. In the first half of 2024, the transaction volume of domestic used passenger cars reached 7.5 million, a year-on-year increase of 6.9%. Correspondingly, Yixin's used car financing transaction quantity in the same period was 154,000, a year-on-year increase of 16.2%, and the proportion of used cars in the total amount of automotive financing transactions increased to 46.7%.Multiple industry insiders have informed reporters that, on one hand, relevant policies are supporting institutions in conducting second-hand car finance business. On the other hand, the current automobile finance market is highly competitive, and exploring second-hand car business would be a good direction to increase differentiated competitiveness.

The reporter also noted that the "Notice on Adjusting Policies Related to Auto Loans," jointly issued not long ago by the People's Bank of China and the State Financial Regulatory Administration, clearly encourages financial institutions to strengthen financial product and service innovation in combination with segmented scenarios such as new cars, second-hand cars, and car trade-ins.

Wang Peng, a researcher at the Beijing Academy of Social Sciences, told the reporter that the prospects for automobile finance companies to develop second-hand car finance are broad. With the promotion of policies and the continuous expansion of the second-hand car market, the scale of second-hand car finance in the automobile finance field will continue to grow.

However, there may be multiple challenges in the development of second-hand car finance. Wang Peng believes that as the second-hand car finance market continues to expand, more institutions and enterprises will enter the field, and market competition will become more intense. Automobile finance companies need to continuously improve their competitiveness and service levels to cope with market competition. Currently, second-hand car finance products are relatively single and seriously homogenized, which cannot meet the diverse needs of consumers. Automobile finance companies need to increase product innovation efforts and develop more targeted and personalized products to meet market demands.

In addition, second-hand cars have the characteristic of strong liquidity, and cross-regional after-sales service issues have become an important factor restricting the development of second-hand car finance. At the same time, due to the aforementioned information asymmetry and trust issues in the second-hand car market, consumer trust in second-hand car finance is relatively low. Automobile finance companies need to enhance consumer trust and loyalty by improving service quality and transparency.

"Risk control is difficult" has become the main bottleneck.

The risk control problem of second-hand car finance has always been a focus of concern in the industry.

Public information shows that recently, the State Financial Regulatory Administration issued a penalty announcement against Chang'an Automobile Finance Co., Ltd. (hereinafter referred to as "Chang'an Automobile Finance"). The announcement pointed out that the company was fined 900,000 yuan for multiple violations in business operations and warnings were given to relevant responsible persons.

Specifically, the company's main violations include: imprudent review of additional loans, the company had imprudent issues in the review process of additional loans, directly infringing on the independent choice rights of financial consumers; transferring risk control costs: the company transferred its own risk control costs to customers, further damaging consumer interests; inadequate risk control in second-hand car business: in the risk management of second-hand car business, the company failed to effectively control risks, causing adverse effects on the company's stable operation and market image.

Regarding whether the company has rectified the relevant issues and specific risk control measures for second-hand car business, the reporter sent an interview letter to Chang'an Automobile Finance, and had not received a reply by the time of publication.Changan Auto Finance's 2023 annual report indicates that the company is continuously advancing the intelligent and digital transformation of risk management. On the basis of its core business systems, it has built a decision management system, anti-fraud system, dealer risk management system, financial instrument impairment provision system, overdue management system, and an intelligent bad debt write-off system, among other risk management systems.

The difficulty in risk control of used cars is a common issue in the auto finance industry. Firstly, there is a lack of transparency in the condition information of the used car market, making it difficult for buyers to accurately understand the true condition of used cars, such as the technical condition, maintenance records, and accident history. Secondly, there is no unified standard for used car appraisal, and there is a lack of authoritative appraisal institutions and systems. The professionalism of appraisers varies, and there are even cases of people starting work without professional training. This leads to unreasonable pricing and a large degree of arbitrariness in transactions.

The company launched a car pricing monitoring and early warning system in the first half of the year, covering the market transaction prices and trends of various car models and years. It achieved real-time feedback on inflated car prices, avoiding more than 302 million yuan in potential fraudulent losses in the first half of the year alone, greatly enhancing the overall risk control capabilities.

In addition, compared with the after-sales service system of new car sales, the after-sales service system for used cars is not yet perfect. Many used cars are sold, and consumers find it difficult to obtain satisfactory after-sales services, such as repairs and maintenance, which increases the cost for auto finance companies to deal with overdue loans and non-performing assets. Finally, the laws and regulations in some areas may not be perfect in terms of used car transactions, leading to insufficient supervision and difficulty in rights protection. For example, issues such as tax policies and market access thresholds for used car transactions need to be resolved urgently. The imperfection of laws and regulations brings uncertainty to the risk control work of auto finance companies.

In response to these issues, relevant personnel believe that auto finance companies can cooperate with third-party data institutions to obtain more comprehensive vehicle information. In addition, auto finance companies also need to continue to improve the after-sales service system and strengthen risk early warning and monitoring. Further, by conducting real-time analysis and mining of transaction data, potential risks can be identified, and corresponding measures can be taken for prevention and control.