New captive finance – Optimizing customer lifetime value

[Pages:27]New captive finance ? Optimizing customer lifetime value

White paper

Munich, January 2016

Management summary

Major European car markets are forecast to experience only moderate growth after the European crisis and remain extremely competitive

Offering finance products is a must to create additional sales momentum and defend current market shares. In Germany, car sales are mainly driven by corporate sales using leasing products

Providing finance products to customers also is a key means for OEMs to maximize customer lifetime value systematically ? Most OEMs use their own captive units once they've reached a critical size in total sales

In the past, the offering of finance products by OEMs has evolved from a pure sales support function to the pursuit of profit contribution objectives while following a characteristic path related to sales volumes

Recently, mature captive units increasingly shifted focus away from pure sales support by broadening the product offering to mobility or retail banking services with ultimate aim of maximizing customer lifetime value for OEM

Roland Berger has identified three strategic moves to successfully develop captives and optimize the customer lifetime value

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Contents

Page

A. Current market overview

4

B. Business model of automotive captives

15

C. Captive maturity stages

22

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A. Current market overview

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Passenger car sales volumes have increased globally ? Especially strong growth in China, but Europe has been stagnating recently

Passenger car sales per region [m]

-1%

16.4 17.1 16.3 16.1 16.2

+29%

19.2 20.2 20.5 15.9 17.3

Americas

Europe

'10 '11 '12 '13 '14

'10 '11 '12 '13 '14

+54%

16.2 17.9 11.6 12.6 13.6

China

'10 '11 '12 '13 '14

+12%

Japan 4.2 3.5 4.5 4.5 4.7

+10%

'10 '11 '12 '13 '14

10.8 11.3 11.7 11.5 12.0

Rest of World

'10 '11 '12 '13 '14

Source: IHS Global Insight; Roland Berger

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Italy, France and Spain saw the strongest decline ? But future overall growth expected and first signs already visible

A closer look at EU-5 automotive markets plus rest of Europe

Passenger car sales in Europe [m]

20

19.1

16.4

17.1

16.3

16.1

16.2

3.2

15 2.9

3.2

3.1

3.0

3.0

2.0

2.3

2.2

1.9

1.8

1.8

2.4

10 2.0

1.9

2.0

2.3

2.5

1.9

2.0 1.0

1.8 0.8

1.4 0.7 1.3 0.7 1.4 0.8 1.2

5

6.3

7.2

7.2

7.0

6.7

8.4

CAGR (2010-2014)

-0.3%

Germany France United Kingdom Italy Spain

Rest of Europe

1.1% -5.1% 5.1% -8.7% -3.5%

1.7%

0 2010 2011 2012 2013 2014 2020

> Most important and stable car market: Germany

> Most positive development in UK with a rise of more than 20% from 2012 to 2014

> In contrast, Southern European markets hit hard in aftermath of financial crisis

> Signs of recovery observable in Italian and French markets in 2014

> Spain's economic recovery also visible in car sales, which rose by almost 20% in 2014

Source: IHS Global Insight; Roland Berger

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More than 70% of cars are financed at point of sale ? Market share of captives is typically slightly below 40%, except in Germany

Market structure of car financing in EU-5

New car financing in selected European markets

45%

37%

37%

36%

34%

28%

52%

47%

27%

11%

16%

Germany United Kingdom Italy

Captive

Non-captive

Not financed

49%

47%

15% Spain

19% France

> Captive banks have the strongest position in Germany ? Possible driver: Strong German OEMs with broad FS offering

> Also, Germany has the highest share of cars not financed at the POS ? Two possible drivers:

? High proportion of cash payers

? Strong position of local banks in Germany, i.e. banks providing salary accounts

> From OEM perspective, providing financing via a captive also provides a significant upside in terms of customer ownership

? Customer data available centrally

? Master data (e.g. address) can be maintained better

Source: AutoValue; Roland Berger

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German car market development relatively flat, but leasing products are becoming ever more important driven by corporate sales

The largest European market in close-up

New car sales in Germany, 2010-2014 ['000]

1,500

> Car sales tumbled by some 3 million cars p.a. since 2008 ? Exception: 2009 with 3.8 m cars due to government subsidies

1,400

> Cash payments peaked in 2011 due to the

1,300

euro crisis and now on a declining trend

1,200

> Leasing expected to become dominant form of car financing, mainly driven by

1,100

corporate customers1)

1,000

> Share of financed or leased new cars is

900

also rising with size of cars and engine capacity

800

> Besides new cars, share of financed used

700

cars increased from 28% (2010) to 35%

0

(2014)

2010

2011

2012

2013

2014

Cash (and other)

Car credits

Leased

1) In particular, whether leasing can be structured as operating lease

Source: IHS Global Insight; DAT-Report 2014; Roland Berger

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