* Central bank allows lower reserve holdings for leasing companies * VW Finance says move frees up more than 200 mln yuan * Says can use the extra funds to boost falling car sales * Daimler and BMW say also expect a boost to the industry * Financing more common in China for foreign and luxury brands By Jake Spring BEIJING, Aug 28 (Reuters) - When China’s central bank singled out auto financing companies for extra help on Tuesday, it effectively freed up more than 200 million yuan ($30 million) for Volkswagen AG’s China finance unit, which it can use to boost falling car sales, a top official said on Friday. Along with a cut in benchmark lending rates, the People’s Bank of China cut the amount of reserves financial institutions need to hold by half a percentage point, but topped that up to 3.5 percentage points for auto financing. “It can be used to reduce our cost of funds, and we can pass that on to the customers,” General Manager Harald Mueller told Reuters. Volkswagen Finance (China) Co Ltd is discussing with VW Group’s various brands, which include Audi and Porsche, how to spend the funds freed up by the lower reserve requirement ratio (RRR) to relieve the points of highest pressure, he said. That could include lowering interest rates for certain models or segments, lending to dealers or investing in the finance company’s own operations, he said. As China’s economic growth in 2015 heads for a 25-year low, Volkswagen Group’s China sales fell 5.3 percent year-on-year for the January-to-July period, trailing the overall market’s 0.4 percent growth. The world’s largest auto market is only expected to improve slightly toward the end of the year, with the China Association of Automobile Manufacturers (CAAM) having cut its 2015 forecast for sales growth to 3 percent from 7 percent in July. “(The RRR cut) will not be a big boost, but it’s more than symbolic,” Mueller said. “It shows that the PBOC is seriously looking into every area.” The cash freed up is equivalent to about 0.5 percent of the company’s outstanding loans, he said. Auto financing companies already enjoyed lower reserve requirements than big banks. After this week’s cut, auto financing companies must hold 8 percent reserves compared with 18 percent for banks in general. Financing helps sales by enabling customers to buy cars they aspire to, not just the ones they can afford now, or lets them to spend on additional features, Mueller said. The cut to RRR will benefit some auto companies more than others, as buyers of local and mass-market brands are less likely to use financing. “Most Chinese people buy cars with cash. There are few people who use loans,” said an official at a mass-market Japanese automaker. “As of now, (the cut) won’t act as a shot in the arm for demand.” In China 22.6 percent of buyers used auto-financing in the first half of 2015, up from 19.6 percent a year earlier, according to analysts at Bernstein. Premium brands in China on average have higher financing penetration of around 50 percent, Mueller said, while about 40 percent of VW Group buyers finance their purchases. A spokeswoman for General Motors Co’s financial subsidiary, which has a Chinese finance joint venture with local maker SAIC Motor Corp, said the company was still assessing the impact of the RRR cut and it was too early to discuss. Mercedes maker Daimler AG and BMW AG both said they appreciated the central bank’s cut and that it would boost the industry. ($1 = 6.3917 Chinese yuan renminbi) (Additional reporting by Minami Funakoshi in TOKYO; Editing by Will Waterman)
When the People 's Bank of China sought out auto financing companies for extra help this week , it ended up freeing up over RMB 20 million ( $ 30 m ) for Volkswagen 's ( VW ) Chinese unit , which is being used to prop up falling car sales says VW 's General Manager Harald Schmidt . " It can be used to cover our cost of funds , and we can pass that on to the customers " said Mr Mueller . Volkswagen Group 's China sales have fallen 5.3 % , for 1H15 , primarily due to China 's economic slowdown .