Most Auto Dealerships In China Lack Cash Flow

Shanghai, December 4, 2008: (Gasgoo.com) Car dealers in China are feeling the chill of financial crisis. Sales of their vehicles have dropped and meanwhile their operations are blocked by the lack of cash flow, said Beijing Youth Daily today. This crisis puts some dealer through purgatory, with more mergers and restructuring likely to occur among them next year.

With the global financial crisis spreading and escalating, banks have become increasingly cautious about giving loans to auto dealers and the related assessment standards have also become stringent. An industry insider said that nearly two-thirds of car dealers in China have difficulty in taking out banks loans and the other one third, who could get some, have seen the upper limits on loans drop by more than 30%.

If a 4S store wants to borrow money from the bank, a car company must offer the credit guarantee. With the loans so hard to get, automakers are only willing to offer the credit guarantee for large and strong 4S stores, and this means more than half of the dealerships have no chance to seek help form banks. For instance, of the 30 or so Beijing-based dealers of a famous auto brand, only ten can get the guarantee of the brand's automaker.

An auto dealer in Beijing said that over 80% of the fund needed for his business to run smoothly should come from the bank loan. His 4S store needs a cash flow of 70 million yuan ($10.25 million) each month and more than 56 million yuan of this has to be borrowed from the bank. If the borrowing couldn't be guaranteed, the cash flow would stop and his shop would have to close down.

Bank loans are badly needed for auto dealerships to get new deliveries from automakers and to pay for the daily operational costs. Most of the dealers are facing a chilly winter when the impact of global financial crisis is pervading every aspect of China's auto industry. Many of them may be merged or restructured in the coming year.

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