BEIJING – Volkswagen Finance (China) Co., Ltd. (VWFC), China’s first wholly foreign-owned auto finance company, held a press conference here on September 3 to celebrate its 10th anniversary.
As of June, VWFC had earning assets of ¥25 billion ($4.07 billion), registered capital of ¥4 billion, 2014 YTD new retail loan volume of 183,534 and total employees of 700. It has teamed up with more than 2,000 dealers in nearly 300 cities across China, serving all brands of parent company Volkswagen Group.
The new retail loan contracts signed during the period represents a 125 percent increase over the same period of last year, according to Reinhard Fleger, Chief Representative of Region China/India/ASEAN for Volkswagen Financial Services AG (VWFS AG). That follows a record year in 2013 when new retail loan volume increased 52 percent over 2012 to nearly 230,000, nearly 8 times the level in 2009 and more than 1,000 times the 210 contracts in 2004, when VWFC only had 17 dealer partners in just one city.
“It has been a period of rapid growth during the past decade,” said Fleger, who estimated that VWFC’s new retail loan volume for this year will reach about 350,000, or roughly 10 percent of Volkswagen Group’s sales volume in China.
In terms of new retail contracts, China’s ranking among 49 countries that VWFS is conducting business has jumped from No. 10 in 2010 to No. 2 in 2013, and is expected to reach the No. 1 position soon, according to Fleger.
“We are fully satisfied with where we are today,” said Frank Witter, CEO of VWFS AG.
Fleger pointed out that VWFC’s success in China can be attributed to the approach of “think global and execute local.” One example he gave was the introduction of a so-called upgrade finance, which is not common in Europe.
“With the upgrade finance, the customer can upgrade to a bigger or better car by financing the price difference,” said Fleger. The strengths of the Chinese market, according to Fleger, is that it is a volume driver and penetration is coming more and more from the younger generation who are increasing preferring buying a car with credit.
Over the last four years, China’s auto finance penetration rate has nearly doubled to 20 percent, according to Joern Kurzrock, CEO of VWFC. “We expect this dynamic trend to continue into the future and 40-50 percent is achievable in the future,” said Kurzrock.
Kurzrock believes that the stable growth of China’s economy, car sales, and governments support in terms of policies issued by the China Banking Regulatory Commission (CBRC) and People’s Bank of China (PBOC), as well as more adequate auto finance funding channels will continue to drive the auto finance market.
In fact, VWFC just completed its first asset-backed securities transaction worth ¥800 million in July as one of the ways to establish a good mix of funding sources. “We are looking forward to placing more ABS transactions and have already started talks with the PBOC,” said Kurzrock.
Kurzrock pointed out that there is rapid growth in purchasing power in tier-3 and -4 cities and he expects 68 percent of China’s vehicle purchasing power to come from these cities. On the other hand, he says that China’s younger generation is getting wealthier, has more purchasing power, is more mobile and seeks more innovative finance products.
“In the future, we will have very diversified and innovative products,” said Kurzrock. “We have three new programs – the young driver program, the family program and customer loyalty development program – that are in the phase of testing and will be rolled out soon.”
The future focus, according to Kurzrock, will not be only on financing the car itself but also total cost of ownership such as insurance, maintenance and service. “The decrease in TCO and increase in customer transparency will be a huge customer convenience and advantage,” said Kurzrock.
“Bringing different products catered to the markets is an important area globally but particularly in China,” said Witter. “This market here is going to become a market with very distinct and differentiated customer requirements.”
With regard to the difference between VWFC and banking institutions that provide auto financing, Kurzrock said that VWFC acts as a captive company focusing exclusively on auto financial services, and that by being a part of an automotive group, it is not only expert on the financial side but also on the automotive side.