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April 9, 2013 3:51 pm
The Italian and Spanish car markets have contracted sharply since the onset of the financial crisis and the German carmaker has not escaped that downward trend.
However, the proportion of VW purchases in Spain and Italy that are financed by its own unit has jumped from 25 per cent to more than 40 per cent in the past three years.
At the finance arm’s annual press conference in Frankfurt, Lars-Henner Santelmann, board member at VWFS, said the growth had come “very strongly” at the expense of the car financing businesses of local banks.
Disintermediation – the trend for companies and individuals to find other sources of financing to take the place of banks – is on the rise in Europe as financial institutions come under pressure to retrench in the face of greater regulation.
“There has of course been an impact from the crisis,” said Mr Santelmann. “In southern Europe the banks are obliged to strengthen their capital base – either the owners inject capital, which isn’t easy sometimes, or they must reduce their balance sheet.”
It is advantageous for carmakers to offer financing to customers as they can cross-sell a variety of associated products, including maintenance and insurance contracts.
European car sales tumbled 8 per cent in 2012 compared with the year before but VW’s share of this shrinking market rose from 23 per cent to 25 per cent, according to data from the Acea industry association.
Although VW was able to offer customers an unrivalled collection of brands that stretches from luxury marque Bentley to low-cost Skoda, it was ably assisted by its car finance division. VW is able to offer cheaper car loans than rivals such as France’s PSA Peugeot Citroën or Italy’s Fiat as its refinancing costs are much lower.
VW’s five-year bond yields are at 1.9 per cent, while Peugeot’s are close to 8 per cent, Commerzbank told clients in a recent note. “With respect to the financial services business and the importance of cost of capital for the total cost of ownership of a car, this is a significant competitive advantage,” it said.
Commerzbank added: “Passing on the refinancing cost to customers makes a Peugeot 30 per cent more expensive than a comparable VW – we do not expect customers to be ready to pay this premium.”
Total assets encompassed by VW’s financial services arm increased 14 per cent to €111bn in 2012 compared with the year before and its operating profit jumped 17 per cent to €1.4bn.
Still, VW faces an increasingly tough market. On Tuesday the group’s main passenger car brand said European sales had declined 10 per cent in the first quarter of this year compared with the same period in 2012.
“As expected, markets are becoming more difficult, and in some cases decidedly more challenging,” said Christian Klingler, board member for sales and marketing at VW.
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