The long cycle time of the application process in China Automotive Finance (CAF) led to rampant dissatisfaction from customers and affected its revenue. At the same time, competition is thriving. To maintain its leverage, what course of action should CAF undertake to stay on top of the game?
Neale O'Connor; Grace Loo
Harvard Business Review (HKU960-PDF-ENG)
September 22, 2011
Case questions answered:
- What are the problems faced by China Automotive Finance in providing auto financing to the Chinese market?
- How can CAF resolve the issue of long cycle time for approving applications?
- How can the financing application process be designed to run more effectively and efficiently? Also, consider the various incentive issues associated with the parties involved.
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Case answers for China Automotive Finance: Service Operations Re-design
Q1: What are the problems faced by China Automotive Finance in providing auto financing to the Chinese market?
Entering the Chinese market had various opportunities, but no doubt this market had several challenges, and several problems were faced by China Automotive Finance in the market.
Processing cycle time
The processing cycle time is seven days as compared to the industry time which was only 4 days. The processing cycle time is the cycle of different activities from application submission to dealer to delivery of the vehicle. The long processing cycle is due to the uncertainties associated with the Chinese credit market, as China state-run credit bureau was immature and it was difficult to identify reliable people for approving loans.
Most of the staff recruited by CAF were inexperienced and these new recruits were sent to the frontline to handle customers. These inexperienced recruits were also not given the proper training, which was highly affecting the business process.
Furthermore, CAF only provided training to the dealers and not to the insurance managers. The insurance manager was unfamiliar with the retailing financing process of China Automotive Finance. Insurance management is one of the major parts of the auto financing process. Ultimately, due to the inappropriate training of these managers, the application process is affected and slowed down.
Inconsistent Credit Decision
The inconsistency in its decision is due to several reasons. Firstly, the Chinese state-run credit bureau was immature and the personal credit histories it developed were insufficient to help financing companies in assessing the customers. Secondly, China Automotive Finance was new in the Chinese market and yet to have developed sound credit criteria for the Chinese market. Finally, there was no decentralized personal credit system for cross-checking.
The agents were inexperienced and improperly trained, leading to inconsistent service quality and slow response times that left both dealers and customers unsatisfied. The agent has short profit-oriented goal, while dealers had long term goals.
The problem further intensified when some agents were dispersed among 20 cities. The higher workload was decreasing the performance of the agents.
Lack of service mindset
There was the…