+++ Households in CHINA, traditional savers with an aversion to debt, are rapidly warming to the idea of borrowing to buy a car, as automakers push financing deals to boost sales and margins in an increasingly competitive market.

Nearly 30 percent of Chinese car buyers bought on credit last year, up from 18 percent in 2013, according to analysts from Sanford C. Bernstein and Deloitte, helping a rebound in the car market after a sticky 2015. That is welcome news to China’s government, which wants consumers to borrow and spend more to shift its slowing economy away from heavy industry and investment-led growth. Beijing resident Wang Danian said he planned to buy his first car on credit, saying it was the smart move. “I can use my cash to do other things”, the 28-year-old said while looking at an FAW Besturn X80 sport utility vehicle. “If I use all my savings at once to buy a car, and then something happens, I can’t manage the risk”. Six consumers interviewed byReuters said they would all consider loans, lured by low-fee and interest-free deals, with half saying they’d prefer to buy on credit and save cash for other items. “I’d estimate after the manufacturer came out with the low-interest deal that about 30 percent of potential cash buyers switched to buying on credit”, said a salesman at a Volkswagen dealership in eastern China’s Jiangsu province who gave his name as Mr. Zhao. That is still a far cry from the more than 80 percent of cars bought on loans in the United States, but Deloitte predicts China will reach 50 percent by 2020. Global automakers have struggled to encourage this trend for some time; Volkswagen established its finance subsidiary in 2004, but was held back by strict regulations on underwriting loans and sources of funding. As the government gradually relaxed those restrictions over the last 7 or 8 years, financed purchases have grown, with Daimler’s Mercedes saying more than 30 percent of its cars in China are now bought on credit, and it reported 31 percent year-on-year growth in net lending as at the end of July. China’s auto market struggled last year thanks to the slowest economic growth in 25 years and a stock market rout, but rebounded in October when the government cut sales tax on smaller cars. By July, vehicle sales were rising at their fastest monthly rate in three and a half years. “While the government’s tax reduction was the most obvious explanation for the rebound in Chinese car sales at the end of 2015, soaring auto financing penetration represented another, lesser noticed, driver of the boom”, Bernstein said in April. More Chinese automakers jumped into the loans market last year, with Guangzhou Automobile Group and Geely setting up financing firms. Several Chinese carmakers also reported a significant impact from financing activity on their accounts for the first half of 2016. SAIC Motor, China’s largest automaker, said its net operating cash flow dropped by 16.6 billion yuan ($2.5 billion) from the same period a year ago, as money was diverted to its financing unit for consumer loans. Dongfeng Motor Group similarly reported a 3.6 billion yuan year-on-year fall in net cash flow due to an increase in loans and receivables of its financial business. Great Wall Motor recorded a 140 percent increase in interest income, mainly because of its finance subsidiary. BYD, backed by Warren Buffett’s Berkshire Hathaway, said with 13.6 percent of its sales done on credit, financing was already making considerable contribution to its profits. Controlling the risk of default on these loans can be difficult in China, where there isn’t a reliable credit rating system for individuals comparable to the U.S., said Yale Zhang, managing director of consultancy Automotive Foresight in Shanghai. “You cannot spend one month to investigate one person and then in the end you only land 100,000 yuan”, Zhang said. That got the sector into trouble when China previously tried to pump up car sales through loans after the Asian financial crisis of the late 1990s. A lack of risk control resulted in widespread defaults and a government clampdown for several years in the mid-2000s, he said. “It arguably remains open to question whether Chinese auto (non-performing loans) will remain similarly low, should macro conditions deteriorate”, Bernstein said in April, observing low delinquency rates thus far. Chinese e-commerce giant Alibaba, which last year inked a collaboration deal with China Yongda Automobiles Services, says it can address this risk thanks to ‘big data’ it has on its customers, including their credit records. The company’s auto web portal offers “instant automobile financing”, approving loans in as little as 20 seconds, a spokeswoman said. +++

+++ The LAND ROVER Discovery has been partially revealed ahead of its official debut later this month. Land Rover’s teaser image of the Discovery reveals the full front-end styling of the car, which in true Discovery form, features high ground clearance, an imposing front grille and Range Rover-like styling. The full front-end styling of the car can be seen in the teaser, which marks a considerable departure from more boxy previous generations of Discovery, but closely matches the styling of the Discovery Vision concept of 2014. Spy images of the Discovery testing have suggested that it could maintain the car’s signature asymmetric boot lid, with the registration plate positioned over to one side of the car’s rear-end. The fifth-generation Discovery, which will go on sale next year, is set to use the company’s 2.0-litre Ingenium diesel engine (following the sighting of pre-production mules using this engine) while petrol and diesel 3.0-litre V6 powerplants are also mooted, stemming from Land Rover’s development of modular engine technology. The seven-seater will also use the Range Rover’s aluminium monocoque, making it considerably lighter than its 2.622 kg predecessor. It is also expected to be tech-heavy; a projection of what’s underneath the car onto the bonnet is just one such system expected to feature. Land Rover is positioning the new Discovery as much more upmarket than the current model, according to design boss Gerry McGovern. The repositioning and sharper design do not mean that the Discovery has sacrificed any of its off-road ability, though, and that the car would be “more universally appealing, without compromises”. The Discovery family doesn’t end with the Discovery and Discovery Sport, though; the Discovery will be the largest in a three-car-plus Discovery sub-brand, much like how the Range Rover has gained the Sport and Evoque variants, as well as the upcoming coupé. Incidentally, the new Discovery will be built alongside the larger Range Rover variants in Solihull. Chances are, that the third member of the Discovery family will be smaller than the Discovery Sport, as the growing small SUV segments continue to thrive. McGovern ruled out the possibility of a larger model. The Discovery will be the first car in Land Rover’s line-up to gain an SVX variant. The SVX badge is one of three arms of Jaguar Land Rover’s Special Vehicle Operations division. The other two are the high-performance SVR and luxury SVAutobiography arms. In a quote accompanying the teaser shot, McGovern said: “New Discovery redefines the large SUV. Land Rover’s design and engineering teams have revolutionised the Discovery DNA a to create a highly desirable, extremely versatile and hugely capable premium SUV”. +++

+++ LOTUS CEO Jean-Marc Gales calls to ask if I’m free for a chat. It’s a no-brainer. I start by asking why, in its registration figures for July, the Society of Motor Manufacturers and Traders reported just one Lotus was sold via his 19-strong UK dealer network during the month. His response is immediate. “It’s strange. We know we had double-digit sales in July”, the 54-year-old former Citroen CEO assures me. “The UK is a market where we can reliably sell 300 to 350 cars per annum. But we’re targeting production of over 2,000 this year”. For a minnow like Lotus, these annual figures are respectable. But designing, manufacturing and selling Lotus cars has been almost unprofitable in recent decades. “The plan now is profit”, Gales continues. “Two and a half years ago, when I took over, the first priorities were stabilising, getting product up to speed, getting new models out, then positive cash flow, which we’ve already seen in some months. This is important because it shows we earn the money we spend and spend the money we earn. We’re no longer dependent on regular cash injections from shareholders”. Quality problems? “We’re on top of those”, insists Gales, who reckons his warranty claims are 60 percent down on 2 years ago. Workforce? “We were at 1,200, annually building 1,200 cars. Now 850 make 2,000 cars”. Overheads are 40 percent down. True, everyone works harder. But Gales says the workforce is more motivated and more ‘can do’, too. Understandably, the Lotus CEO is reluctant to reveal future product plans.But he agrees that he desperately needs a volume car, almost certainly an SUV, saying: “It’s an interesting project. And an interesting market. I can very well imagine a Lotus being in that market. A Lotus SUV that would be completely different from any other. It would be lightweight. We have that know-how. We have the specialisation in making lightweight cars that handle, brake and take to the circuit like nothing else. We’re thinking about it very actively. We’re working on it. But we haven’t yet taken a final decision”. But its clear from the way he speaks that Gales is positively crazy about the prospect of an SUV wearing Lotus badging. I understand it’s not if, but when. The sooner the SUV is built and sold, the sooner the legend that is Lotus can enjoy long-overdue and much-needed profit. +++

+++ OPEL will have a five-strong SUV line-up by the end of the decade, including an all-new Astra-sized crossover rival for the Nissan Qashqai. Opel is playing a quick game of catch-up to expand their SUV range, which currently comprises only the recently refreshed Mokka X. The lack of other crossover options in the line-up has left GM Europe’s brands flat-footed in the face of huge rising demand for SUVs and rapidly dropping sales of conventional MPVs such as the Meriva and Zafira. The first vehicle to arrive will be a new Corsa-sized model that will join the Mokka in rivalling the Nissan Juke. It’s expected to be unveiled before the end of this year, and it will replace the costly and slow-selling Meriva in Opel’s line-up. The new car will be built in Spain and, as part of GM Europe’s tie-up with PSA Peugeot-Citroen, it will sit on the same platform (PF1) as the current Peugeot 2008 and Citroen C4 Cactus. Given that the Mokka X will continue to feature, we’d expect the Meriva replacement to be a crossover that leans towards MPV packaging, with the higher seating position of an SUV. The next generation of the 2008 and Cactus models (plus a new small DS SUV) are set to be make use of new CMP (Common Modular Platform) architecture, co-developed with Chinese partner DongFeng. However, GM’s determination to expand its small SUV range as soon as possible means that it will stick with the older PF1 chassis technology; for its first generation, at least. An even bigger part of the PSA deal will be the components that underpin a large Astra-sized crossover to rival the Qashqai, Nissan X-Trail and Skoda Kodiaq, and replace the Zafira. This new five and seven-seat crossover (again, a mix between MPV and SUV) will be around 4.5 metres long, and will share PSA’s EMP2 platform tech with the forthcoming 3008 and 5008 models. Indeed, it’s likely to be built alongside those Peugeots in PSA’s factory in Sochaux, France. The new family crossover is likely to make its public debut at next autumn’s Frankfurt Motor Show, with sales kicking in at the beginning of 2018. It’s likely to benefit from a mix of PSA and GM engines, including small turbocharged petrols for entry-level editions and a 2.0-litre diesel for higher-end versions. As part of its PSA tie-up, it could also get access to the EMP2’s electrification tech, offering a plug-in hybrid version with petrol-driven front wheels and an electric back axle. Bookending the Juke rival, the Mokka X and the Qashqai competitor will be an Adam X and a new flagship SUV that was confirmed by GM CEO Mary Barra back in 2014. Announcing Opel’s biggest model as part of GM’s investment in its European operations, Barra said that the flagship car will be produced at Opel’s headquarters in Rüsselsheim by 2020. This model is understood to be a large SUV, so it will give Opel a rival for the Land Rover Discovery Sport, while following the brand’s mantra of “premium experience without premium pricing”. It’ll sit above the new Insignia in the Opel line-up and could well sit on an extended version of that car’s new platform. It will also underpin stronger relationships between GM’s European and US operations, with the new model likely to share technology with a new Cadillac and Buick SUV. The Buick brand, run by ex-Vauxhall MD Duncan Aldred, will also enable GM to take the new large SUV into the lucrative Chinese market, while Aldred has also spoken to Auto Express in the past about greater co-operation between Europe and the US. Indeed, he’s had conversations with his European counterpart, Karl-Thomas Neumann, about the joint development of a coupe, following the excellent reception to Buick’s Avista Concept at this year’s Detroit Motor Show. The Adam crossover will be the final piece in Vauxhall’s SUV jigsaw. Based on the next generation of the city car, the new model will rival cars like the planned Suzuki Ignis and focus on funky style and personalisation. It could also include an electric powertrain. With GM’s investment in Europe including 17 new engines before 2020 (some of which are already finding their way into cars like the Corsa and Astra) the new SUV line-up should be one of the most efficient on the market. What remains up in the air, though, is the naming of these new models. The Zafira badge is likely to die altogether, while Corsa X is said to have been rejected as a badge for the new small crossover, too. There are rumours that bosses could delve into the Vauxhall and Opel brands’ pasts, as they did with the Viva. The Monza name, revived for 2013’s Opel coupe concept, has also been linked to the new flagship SUV, while names such as Kadett, Tigra and Manta are all possibles for the other crossovers. +++

+++ ROLLS-ROYCE is refusing to dub its upcoming crossover, codenamed Project Cullinan, an SUV. The firm’s global production communications manager Andrew Boyle told Motoring that the vehicle is not considered an SUV. Instead, he says it’s a high-sided vehicle. “Project Cullinan? We call it a high-sided vehicle. SUV is not necessarily the right thing to call it because it’s not necessarily sports, it’s not necessarily utility”, Boyle asserted. It was originally thought that Rolls-Royce would directly rival its latest model against the Bentley Bentayga, offering both incredible performance and sheer opulence. That doesn’t seem to be the case however, with Boyle going on to state that the model will be completely unlike anything else currently on the market. “A number of other brands are entering into this area as well, with their own interpretations of what a luxury SUV should be. You’ll have to wait to see what we decide it should be, but I think you’ll find that it’ll be a different interpretation to what’s available today”, he said. For now, we know that Project Cullinan is underpinned by an aluminum architecture set to support the next-generation Phantom. This platform will be capable of accommodating electric powertrains but it isn’t currently clear when Rolls-Royce intends to offer electrification to its models. +++

+++ In the United States, despite this year being one of the industry’s best ever through August, demand for mid-size family SEDANS is at a five-year low. It seems that with each passing month, the segment is fading even faster into obscurity. Sales for the mid-size segment fell 3.4% in the first quarter of 2016, 13% in the second quarter and a whooping 21% so far in the third, compared to 2015. According toAutonews, models such as the Nissan Altima, Ford Fusion/Mondeo, Hyundai Sonata and Kia Optima have all had to suffer as sales plunged by more than 30% in the month of August alone. Chrysler 200 sales fell by two thirds, whereas for all of the 16 mid-size nameplates, the decline evened out at around 27% – a loss of more than 60,000 units. In comparison, sales of compact & smaller cars fell just 3.6% last month, more or less in line with the industry’s overall 3.5% decline, which proves that the market shifting away from mid-size saloons isn’t a fluke occurrence. “That larger sedan buyer just sees more value in the SUVs or CUVs”, said Mike DeSilva, co-owner of Liberty Hyundai in Mahwah. “That’s just where the activity is. And heading into the end of summer and going into winter, we’re really going to get into SUV season”. Even through the SUV boom of the 90s and early 2000s, mid-size cars remained the industry’s powerhouse segment, with sales topping 2.4 million units in each of the past 4 years. In 2016 though, compact crossovers are primed to take over as No.1 for the first time as mid-size cars will likely fall to fourth. In fact, since June, mid-size cars have proven less popular than even full-size pickups and compact cars. “It doesn’t matter how deep you discount the leasure suit and bell-bottoms; nobody’s going to buy them if they’re not fashionable”, said Eric Lyman, VP of industry insights at TrueCar. “I don’t think they’re ever going to go away, but there’s a lot more people who don’t consider them anymore”. Last December, Toyota head of US operations Bob Carter actually predicted that the Camry (America’s No.1 car for 14 consecutive years) would be outsold by the company’s own RAV4 within 5 years – though it might happen even sooner if the decline remains constant. In August, the Camry trailed not only the RAV4 (for the first time ever), but also the Honda CR-V and Nissan Rogue/X-Trail. +++

+++ Despite predictions of an economic slump from to the uncertainty Brexit brought, the UNITED KINGDOM car industry is continuing full steam ahead, as August figures show new car sales are on the rise. Over 81,600 new cars were registered in the month of August, up 3.3 percent compared to the month last year. This brings the total up to 1.68 million new car registrations in the first eight months of the year, up 2.8 percent compared to the first eight months in 2015. Fleet sales continue to carry the growth, as attractive finance deals and discounts ahead of the September plate change increased fleet registrations by 7.7 percent. Over half of all new car registrations comprised of fleet sales, while the private sector continues its decline, down by 0.2 percent for the month. The good news is that the demand for alternative fuel vehicles (AFVs) shows little signs of slowing down. This year has seen almost 54,000 AFV’s registered, nearly a third more than last year. Diesel registrations were down by 0.2 per cent, but the demand for petrol vehicles was up by 5.3 per cent. The latest figures cover the year to the end of August and show that superminis are the order of the day. The Ford Fiesta continues to fly out of dealerships, with Vauxhall’s Corsa chasing hard but some way behind in overall sales. Ford also wins the battle of the compact hatchback, with the Focus attracting plenty of fans, but the Volkswagen Golf retains fourth place despite VW’s recent tribulations. Nissan’s Qashqai shows the continuing popularity of small crossovers by holding on to the fifth place it achieved in 2015. Meanwhile, Vauxhall’s Mokka (10th overall last year) has so far climbed to 9th. The Vauxhall Astra (6th) continues to sell well, albeit not in the numbers needed to trouble the Focus, and the Volkswagen Polo (7th) shows that there are plenty of buyers willing to pay extra for a more classy supermini. The latest-generation Mini has climbed to 8th from its 2015 position of ninth and Mercedes-Benz secures an impressive 10th place with its most recent C-Class. It’s rivals, Audi and BMW also show rising sales. Equally impressive was Jaguar Land Rover, which saw year-to-date registrations go up by over 52 percent for Jaguar and 22 percent for Land Rover. Volkswagen, which has been troubled by an ongoing emissions scandal, has seen its registrations fall by nearly 10 percent to last year. The emissions scandal first emerged last September, so next months figures will give an indication of how the German carmaker is faring one year on. Mike Hawes, SMMT chief executive, said: “August is traditionally one of the quietest months as consumers look ahead to the September plate change, so growth, albeit small, is good news. With showrooms full of exciting models featuring the very latest technology and a raft of affordable finance options, it still makes economic sense to consider buying a new car. The key to maintaining this strong market is consumer confidence for which we look to government to deliver the conditions for economic growth”. +++

+++ VOLKSWAGEN has agreed a wide-ranging technology and purchasing deal with U.S. truck maker Navistar in exchange for a 16.6 percent stake, an alliance forged in part by the need to meet stringent emissions regulations. The deal should help both sides cut costs, give Volkswagen’s trucks business a long-desired foothold in North America, and provide a source of new engines for Navistar, which has been looking for a partner since 2010 when it failed to get approval from U.S. regulators for its heavy-duty diesel truck engine. With few potential partners to choose from, Navistar is tying is fortunes to a company which, through its acquisition of MAN and Sweden’s Scania, has amassed global truck engine expertise, but whose carmaking arm is grappling with a scandal over falsified diesel emissions tests. Wolfsburg-based Volkswagen will pay $15.76 a share for 16.2 million new Navistar shares, a 12 percent premium to Navistar’s closing price on Sept. 2, the two groups said on Tuesday. Volkswagen Truck & Bus will hold Navistar shares for a minimum of 3 years and top-level executives from both parties will align product development and procurement processes, the companies said. The pact was welcomed by analysts who said it could also bolster VW’s chances of spinning off its trucks arm. “A more global company with exposure to the profitable North American market will make for a better story should VW look to IPO its trucks business in the future”, Arndt Ellinghorst, analyst at Evercore ISI said in a note. The alliance, first reported by Reuters on Monday, will see the creation of a joint venture for procurement, which Navistar said would help it reach synergies of at least $500 million over the first 5 years. Pooling VW and Navistar’s procurement will create economies of scale from Volkswagen Truck & Bus’s three major truck brands (Scania, MAN and Volkswagen Trucks) in addition to Navistar’s own International and IC Bus brands. In a statement, Troy Clarke, President and CEO, Navistar, said: “Over the longer term, it is intended to expand the technology options we are able to offer our customers by leveraging the best of both companies”. By year five, it expects the alliance to generate annual synergies of at least $200 million for Navistar, which could rise further as the companies continue to introduce technologies from the collaboration. Navistar said synergies will come from procurement and technology collaboration, rather than job cuts. U.S. regulators last month announced new environmental standards designed to cut greenhouse gas emissions from medium and heavy-duty trucks by up to 25 percent by 2027, adding pressure on Lisle, Illinois-based Navistar to seek a technology partner. The financial burden of developing next generation engines to meet new emissions standards is forcing several vehicle makers to pursue partnerships and technology deals. In May, Nissan took a 34 percent stake in Mitsubishi, while in 2013, Aston Martin agreed to sell a 5 percent stake to Mercedes-Benz parent Daimler in exchange for delivering next generation engines and electronics that meet the latest emissions rules. +++

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