Frequently Asked Questions

Q: What is AutoChina’s business?

A: We are China’s largest provider of commercial vehicle sales, servicing, leasing, and support solutions. We are currently focused on the heavy truck (Over 15 tons Gross Vehicle Weight Rating) segment of the commercial vehicle market.

We provide our customers with an installment payment plan (which we call a “lease”) to buy trucks. During the lease we provide several valuable services that help our customers generate income with their trucks. For example, we use our store network to provide support such as roadside assistance and repairs (which is outsourced to third parties). We are expanding our store network across China with the ultimate goal to provide our customers with support anywhere in the country.

We also provide valuable truck ownership-related administrative services so that our customers can focus their time on operating their trucks for profit. We are also continually evaluating new value-added services to offer to our customers. By providing these services, we are empowering our customers to run their business without worrying about administrative burdens.

More than just providing the lease, we try to be our customers’ partner. We help them operate their trucks profitability which we believe makes them want to continue to make use of our services. This is why we provide our store support network, our administrative services, and our optional value added services.

Q: When was AutoChina founded and where is it incorporated?

A: Our operating subsidiary was founded in 2005 by nationally recognized Chairman and CEO Yong Hui Li. We are incorporated in the Cayman Islands.

Q: Where is AutoChina’s corporate headquarters located?

A: Our corporate headquarters is located about four hours outside of Beijing, in Shijiazhuang, the capital of Hebei province in northern China.

Q: What is the origination of AutoChina’s commercial vehicle business?

A: Although AutoChina has only been leasing trucks since March 2008, back in 1994 our founder, Mr. Yong Hui Li, was the first to bring commercial truck leasing to China. Thus, AutoChina’s efforts today represent the culmination of thought and experience that dates back to over 15 years ago. This is part of the reason why we have been so successful to date – our founder has refined his business model over time and developed many best practices.

Q: Why the focus on heavy trucks?

A: China is the world’s largest market for heavy trucks. Approximately 600,000 heavy trucks were sold in China in 2009. This is five times that of the United States and three times more than in Europe. AutoChina leased 7,564 vehicles in 2009. The Company may also consider leasing other types of commercial vehicles in the future.

Q: How does your typical lease work?

A: Our standard lease program is 26 months long. During the lease, AutoChina owns the vehicle. By the end of the lease the truck has been fully paid off and the customer then owns it outright. The Company does not take any trucks back at the end of the lease term.  A benefit of this structure is that we don’t have to worry about accurately estimating a residual value since each truck will be paid for at the end of the lease.

This simple lease structure also helps to ensure that AutoChina has significant positive equity value on all of our trucks. So, just in case we ever have a problem with a customer, we should be able to liquidate that truck for more than what is owed on it.  

Q: What makes and models of trucks does AutoChina offer?

A: We are make and model agnostic. We offer a wide range of heavy trucks from China’s market leading manufacturers, such as China FAW Group Corporation; Beiqi Foton Motor Co., Ltd.; Shaanxi Automobile Group Co., Ltd.; China National Heavy Duty Truck Group Corp.; and DongFeng Motor Corporation.

Q: Who are your customers?

A: Our customers are primarily engaged in long-haul transportation and tend to be located outside of the big cities in China. We call them truck owners and owner-operators. Most of our customers are individuals but we do have some customers that own more than one truck. Our customers operate commercial vehicles for transporting goods, such as agriculture, building materials, and natural resources. AutoChina’s offerings allow them to profitably operate their own businesses.

The Chinese trucking market is very different than that in the U.S. and Europe. We believe that it is dominated by these owners and owner-operators. The reasons for this are varied and have as much to do with socioeconomic factors as practical ones. We believe these small owners and owner-operators are best equipped to facilitate long-haul transportation in China. AutoChina’s business model empowers these individuals so that they can work for themselves and generate more income than if they drove a truck working for someone else.

Q: What is the useful life of heavy trucks?

A: In China, heavy trucks have a useful life of approximately 7 years (the first 3-4 years typically being utilized for long-haul use). Thus, our 26 month lease term is relatively short when compared to the truck’s useful life. In addition, we require a substantial down payment (for example new customers must put at least 25% down and our down payments average about 30%).

Q: How do you control credit risk with your customers?

A: We employ a sophisticated multi-layered credit risk control strategy. Given the nature of our business, our entire business model has been designed with an eye towards managing and controlling credit risk. This is of paramount concern, since our business would obviously not work if our customers were not repaying us.

For example, since there are no established credit rating systems in China for us to rely on, we undergo a very hands-on initial screening process that can take up to 2-3 weeks to complete in order to accept the right customers. After accepting a customer, the large down payments that we require (minimum of 25% of total purchase price for new customers) ensure that we have equity protection but also that the customer has a vested interest in fulfilling the terms of the lease. If there is a problem, we take our spare set of keys, locate the truck using its GPS locator which we have installed on each truck we lease, and take the truck back.

Our customers are also incentivized to perform. They are leasing to own the trucks and using them to generate the income that supports their livelihood, which serves as their incentive for fulfilling the terms of the lease.

Q: What has the credit performance of your customers been like?

A: Since launching the business in March 2008, we have leased over 11,000 trucks (as of 3/31/2010). We have only had a total of 12 customer default (0.1%). Of these, we have already repossessed and resold 9 trucks for a profit.

As you can see our customers’ credit performance has been quite good, which we believe is a direct result of our well-designed business model. However, it’s also very important that our customers see real value in what we provide to them.

Q: What are your value-added services?

Our base lease program currently includes: the installment payment program (the “lease”) for the truck itself, administrative support services, our store support network, and GPS location tracking. We recently began offering optional value-added services such as financing for diesel, tire, and insurance purchases.

Value-added services are important because they make it easier for our customers to operate their vehicles for profit. They are important to AutoChina because they represent additional opportunities to increase our profitability through our existing customer base.

Q: Do you have any competition?

Although we are the only corporation that operates such a commercial vehicle leasing business in China on any significant scale, there are many much smaller competitors. In addition, we believe we are a first-mover in China and are working hard to create a significant advantage for ourselves by quickly expanding our business.

Q: Is there any precedent for a business model such as AutoChina’s?

In China, we are relatively unique.  However, we can look at how companies in other countries have done as case studies. For example, in India there is a successful public company that has been leasing trucks to owners and owner-operators since 1979. They estimate that 70-80% of the trucks in India belong to individual owners, similar to AutoChina’s customer base. This Indian company has financed over 1 million vehicle purchases since going into business over 30 years ago and had around 600,000 customers as of March 2010. We believe this company’s success is strong evidence that a business such as AutoChina’s can flourish in China, which has a much larger market for heavy trucks than India.   

Investors

Q: Where is AutoChina’s common stock traded? What is the company’s ticker symbol?

A: Our common stock is traded on the NASDAQ Stock Market under the ticker symbol AUTC.

Q: When did AutoChina have its initial public offering?

A: Our predecessor company, Spring Creek Acquisition Corp., completed its initial public offering in March 2008.  We merged with Spring Creek in April 2009.

Q: Does AutoChina pay a dividend on its common stock?

A: We do not currently pay a dividend.

Q: When does AutoChina’s fiscal year end?

A: Our fiscal year ends on Dec. 31 of each year.

Q: Who is AutoChina’s independent auditor?

A: Our independent auditor is PricewaterhouseCoopers LLP.