A Study On Pangda Group’s Risk Management Issues In Auto Financial Leasing

In recent years,the automobile industry in China has been greatly developed.But today,the automobile production capacity tends to be saturated,and the possibility of automobile production and sales continuing to maintain high growth is small.With dealers’ big backlog of inventory,and the declining of sales margins,competitive in automotive market has become increasingly fierce.Looking for the potential profit growth of automobile industrial chain has become a way to gain a competitive advantage between the major manufacturers and dealers,especially the aftermarket which not taken seriously before,and it has been well received by the parties now.As the most representative one,the auto financing has made an onrushing progress.The auto financial leasing which across the automotive and finance two uprising industry,is an important part of the auto financial service,and it is in this environment gradually embarked on the automotive market arena.However,financial leasing companies focused on the expansion of the business itself,and often overlooked the importance of risk management,resulting in the level of risk management not to keep up with the pace of development of business,and the unsustainable development.Therefore,it is very necessary to strengthen risk management of the financial leasing.The study of auto financial leasing is mostly an integration of the automotive industry theory,economic theory and finance theory,specialized research is still relatively few,and it has not formed the independent theoretical system.The current study is based on theoretical research,and some scholars focus on empirical research,but still lack of standardized case studies,especially on the risk management of auto financial leasing.But it limits the further development of the business without an effective risk management system,and the risk even has swallowed the benefits it brings.Therefore,this article uses the literature analysis,case studies,qualitative and quantitative analysis and other methods to identify the problems from the development of specific auto financial leasing business and the situation of its risk management,and then makes the solution to the problem.This paper was a study on Pangda Automobile Trade Co.,Ltd.(hereinafter referred to as "Pangda Group")risk management issues in the auto financial leasing.Firstly,with the downturn in the automotive market,Pangda Group launched the auto financial leasing which combine automobile and financial industry to cultivate new profit growth point to obtain a competitive advantage,in the grim situation of the traditional vehicle sales’ profits constantly compressed.The business started in 2010,and then has been booming in the next two years.It has brought great benefits,which fees and interest income made other operating income increasing significantly,and to a certain extent,it promoted car sales to ease the pressure of high inventory.But it did not last long,since 2013 the side effects of aggressive credit sales model emerging,hindered the further expansion of business scale.Secondly,it has analyzed the risks of Pangda Group involved in the auto financial leasing,such as the poor quality of customer,the credit risk which caused by the uncertainty of customers’ ability to repay,the operating risk hidden in the complexity of business processes,the liquidity risk brought by high demand of its own funds.And it introduced the "six risk prevention system”,which has three main components: risk warning,risk control,risk mitigation,and the specific measures at different stages.Then it discovered the deficiencies of Pangda Group in risk management,including only focusing on credit risk,ignoring the effectively control of operational risk and liquidity risk,which lead to disputes turning staged and high financing costs;the investigators’ poor level of assessing credit risk,and the lack of necessary approval procedures;the heavy loss on disposal of risky asset.It also pointed the causes of the problems,attributed it to failing to realize the importance of the risk;the imperfection of the Group’s internal governance structure;the lack of effective ways to dispose risky assets.Finally,the paper proposed the advice to enhance Pangda Group’s risk management from three aspects.In order to strengthen the concept of risk control,the Group should focus on staff training,and establish risk management philosophy;standardize business processes,and control operational risk;broaden the financing channels,improve cash flow,and ease the financial pressure.To improve the governance structure,it can set up multiply vertical risk-management organization system,attract professionals to control the risk,and support internal organization involved in the business to form the pattern of checks and balances.To enrich the instruments of risky asset disposal,it can cooperate with the guarantee corporations,entrust social intermediary agencies to take the responsibility for the risk,and build second-hand car withdrawal system.This article studied the object of auto financial leasing,combined with the actual situation of Pangda Group’s risk management,and the existing theory has been used to guide practice to put forward relevant recommendations.It also adds a specific case study described for this theory.And I hope it can provide practical guidance for the better development of Pangda Group and companies like that in our country.