High rates of fraud and default on car loans have led two big insurers to stop underwriting car loans from state banks. The move by Ping An and the People's Insurance Company of China has already hit car sales in Shenzhen, reported the Financial Times.
The problem could further delay the plans of Volkswagen, General Motors and Ford to set up finance subsidiaries after waiting for months for the go-ahead from the People's Bank of China. They have had to sit on their hands and watch as domestic banks have financed an estimated 800,000 car deals over the past three years. This aggressive financing, only reintroduced after local banks were warned off the sector in the late 1990s because of similar fraud problems, is widely credited as triggering the boom in local car sales over the past 18 months.