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Extensive financial services lead to more new car sales and higher revenues for OEMs

Munich, January 20, 2016

  • 45 percent of auto financing in Germany is provided by captive banks
  • 53 percent of captive bank customers remain loyal to one brand
  • Automakers can gain increased customer value through OEM-owned captive banks
  • Access to new customer data enables the development of products suited to specific target groups
  • Four strategic steps for successful captive banks

The number of cars being sold worldwide is constantly rising. But whereas the Chinese market grew by an average of 54 percent per annum between 2010 and 2014, sales in Europe have been stagnating. And European automakers (OEMs) anticipate only moderate growth in the period through 2020. Cars are increasingly being financed through loans and leasing offered not only by traditional banks but to a growing extent by OEM-owned captive banks too. In their latest study, "New captive finance – optimizing the customer lifetime value", the experts from Roland Berger identified four strategic steps that banks in the automotive sector can take to build their business with financial services into an additional revenue driver.

"In Germany, 45 percent of auto financing is already being provided by captive banks," said Philipp Grosse Kleimann, Partner at Roland Berger. The figure in other European countries like the UK, Italy, Spain and France is between just 34 and 37 percent. One of the reasons for this lies in the broader portfolio offered by German captive banks. "From the OEMs' perspective it makes sense to have a broad product offering partly because it enables them to generate customer data that would not normally be seen by anyone but the financing banks," explained Grosse Kleimann.

Captive banks offer financing on attractive terms
In the past seven years, some 3 million cars have been sold every year in Germany, most of them financed or leased. And it's not only new cars: used cars are also bought on finance, their share having risen from 28 percent in 2010 to 35 percent by the end of 2014. Leasing is the predominant method of financing company cars (49%), whereas the share of leased private cars is less than 20 percent. "Captive banks often draw customers in with low interest rates and attractive payment terms in a bid to boost sales of their own brand," said Grosse Kleimann. A nice side-effect that stems from this is the fact that many customers will then have their car equipped with optional extras. Which for OEMs means higher revenues and bigger margins.

Extensive financial services increase the revenue potential
"Banks and leasing companies owned by OEMs cover about two thirds of the market for automotive financial services," explained Roland Berger Partner Dominik Löber. "But there are also specialized banks, independent leasing companies, savings banks and the traditional all-purpose banks active in the market; there's a lot of competition out there."

Captive banks used to focus solely on offering financing deals to support the OEM's sales and revenues. "Established captive banks have since realized that an extensive range of financial services brings more advantages for the parent OEM: they have the capacity to increase the customer value and with it the revenue per customer," explained Philipp Grosse Kleimann. That's because offering extensive service deals, insurance and even fleet management are ways of increasing customer loyalty and enable cross-selling of other products. For instance, almost 40 percent of captive bank customers have opted to have their car kitted out with more expensive extras owing to an extensive range of financing services at their disposal and 38 percent have bought a new car instead of a used one. Furthermore, the majority of captive bank customers remain loyal to one brand (53%), whereas customers of other banks are more prone to switching brand (62%).

Four strategic steps for successful captive banks
There's clearly a great deal of benefit to be had for OEMs, as Alexander Brenner, automotive expert at Roland Berger pointed out: "Offering a comprehensive range of financial services is just as obvious a choice for OEMs as it is for them to have an optimized distribution network." The Roland Berger experts identified four strategic steps that OEMs can take to establish captive banks or take them to the next level:

Increase their market share: Formulating a clear strategy can enable OEMs to reach critical mass with the captive banks they own and place their business model on a broader footing.

Expand their captive banks: The banks should evolve away from being pure financing specialists and instead become providers of automotive-related financial services as a way of offering a full service from a single source.

Maximize the vehicle value: The additional customer data acquired by the banks can enable OEMs to develop their product and service offerings to match the needs of their specific customer groups.

Maximize the customer value: Providing additional, innovative solutions like integrated mobility services in conjunction with rail and airline offerings or other data-driven services can help OEMs increase the value of their customers and their revenues even further.

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