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New captive finance – optimizing lifetime value

New captive finance – optimizing lifetime value

Portrait of Dominik Löber
Senior Partner
Frankfurt Office, Central Europe
+49 69 29924-6105
19 augustus 2016

  • Passenger car sales volumes have increased globally with especially strong growth in China. In contrast, the market in Europe has been stagnating recently with Italy, France and Spain seeing a strong decline with just some first signs of recovery observable. Overall, major car markets are forecasted to experience only moderate growth after the European crisis and remain extremely competitive. Therefore, offering finance products is a must to create additional sales momentum and defend current market shares.

"Own (aka “captive”) finance products can be a driver for OMEs to optimize customer lifetime value."
Portrait of Dominik Löber
Senior Partner
Frankfurt Office, Central Europe

An evolutionary path that ultimately leads into banking

In Germany, car sales are mainly driven by corporate sales using leasing products with captive banks having the strongest position. This is mainly due to strong German OEMs with broad financial services offering. From OEM perspective, providing financing via a captive also provides a significant upside in terms of customer ownership (like customer data availability and better data maintenance).

Besides the OEM-owned financial service providers, there are also non-captive banks in automotive finance. Santander runs service centers for several manufacturers, for instance.

Passenger cars sales volumes; China leads, Europe lags behind

In general, captive financing usually follows an evolutionary path that ultimately leads into banking and/or enhanced mobility services. For OEMs, Roland Berger defined different maturity stages, which describe unique captive archetypes for own financial service offerings:

  1. No financial offerings: Entry state for small OEMs limiting their new car sales potential to self-purchase only
  2. Pure sales support: Basic offering of service products together with third party consumer finance specialist
  3. Core captive: Setup of an own captive division – usually this is the first step to shift focus from sales support to profit generation
  4. All car related: Sophisticated product portfolio including all relevant car-related products, with a focus still very much on primary business
  5. Act as a full bank: Significant product portfolio not related to car sales only. Further services like retail banking leverage customer relationships
  6. True mobility provider: Moving customer to the center of business and becoming a true mobility provider (with integrating car, train and flight offers, for instance)

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 volume.

Recently, mature captive units increasingly shifted the 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 OEMs.

Roland Berger hereby identified and developed four strategic moves to successfully develop captives and optimize the customer lifetime value.

In Germany, car sales are mainly driven by corporate sales using leasing products with captive banks having the strongest position.
In Germany, car sales are mainly driven by corporate sales using leasing products with captive banks having the strongest position.

  • Passenger car sales volumes have increased globally with especially strong growth in China. In contrast, the market in Europe has been stagnating recently with Italy, France and Spain seeing a strong decline with just some first signs of recovery observable. Overall, major car markets are forecasted to experience only moderate growth after the European crisis and remain extremely competitive. Therefore, offering finance products is a must to create additional sales momentum and defend current market shares.

An evolutionary path that ultimately leads into banking.

In Germany, car sales are mainly driven by corporate sales using leasing products with captive banks having the strongest position. This is mainly due to strong German OEMs with broad financial services offering. From OEM perspective, providing financing via a captive also provides a significant upside in terms of customer ownership (like customer data availability and better data maintenance).

Besides the OEM-owned financial service providers, there are also non-captive banks in automotive finance. Santander runs service centers for several manufacturers, for instance.

In general, captive financing usually follows an evolutionary path that ultimately leads into banking and/or enhanced mobility services. For OEMs, Roland Berger defined different maturity stages, which describe unique captive archetypes for own financial service offerings:

  1. No financial offerings: Entry state for small OEMs limiting their new car sales potential to self-purchase only
  2. Pure sales support: Basic offering of service products together with third party consumer finance specialist
  3. Core captive: Setup of an own captive division – usually this is the first step to shift focus from sales support to profit generation
  4. All car related: Sophisticated product portfolio including all relevant car-related products, with a focus still very much on primary business
  5. Act as a full bank: Significant product portfolio not related to car sales only. Further services like retail banking leverage customer relationships
  6. True mobility provider: Moving customer to the center of business and becoming a true mobility provider (with integrating car, train and flight offers, for instance)

Four moves to successfully develop captives

Fight and grow market share: Move out of niche markets, clear strategy to grow and reach significant size. Captive can be an enabler to realize future growth potential

Expand the captive: Once captive is set up, reaching archetype 4 and 5 see above) is the crucial task, turning the focus from sales support to profit generation

Maximizing car lifetime value: The strategic challenge is the full exploitation of the car-/OEM-related revenue and profit potential with synchronized and personalized offerings

Maximizing customer lifetime value: Even beyond archetype 5 there is potential to maximize profit by going beyond pure OEM sales support and becoming a true mobility provider. One lever could be to use the data available to the captive.

  • Photo Credit: Westend 61 / Getty Images

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New captive finance – optimizing the customer lifetime value

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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.

Published January 2016. Available in