The Captives industry is on the verge of fundamental change as disruptive forces challenge its traditional business model

Published: 5 September 2018

The Captives (OEM-related auto finance companies) industry is on the verge of the most intense change in its history as multiple disruptive forces challenge its traditional business model. Deloitte's recently published report, Future of Captives (the Report), sheds light on development trends in the Captive industry to support Captives and facilitate their decision-making amid great uncertainty, enabling them to not only survive, but win out in the disruption ahead.

As the Report points out, a multitude of high-impact drivers including automotive and mobility, digitalization and banking trends will determine the future of Captives in 2030. In areas where future developments seem most uncertain today, scenario-based thinking can support decision-making, and it's in this context that Deloitte has developed four extreme yet plausible scenarios for the future of Captives.

"The future of Captives will not be an 'either-or decision'," explains Sebastian Pfeifle, Global Auto Finance lead at Deloitte. "Scenarios will exist side-by-side, with some Captives rising to become owners of the mobility ecosystem and others reduced to an 'empty shell'."

The transformation of profit pools and the value chain in the next decade will require bold decisions from Captives. Deloitte's research arrived at four findings of special importance to Captives' transformations. First, there is a shifting center of gravity, with business volumes relocating from traditional to emerging markets. As a result, Captives will not only face new customer segments with different needs, but also a new competitive environment. Secondly, there will be a switch from indirect to direct sales models. In this context, new digital sales channels will displace the traditional dealer network sales channel.

Thirdly, the revenue streams of Captives in 2030 will rely on two business models, one based on assets and the other on service. Current asset-based businesses will decline and demand for new businesses based on service are likely to increase substantially. As a result, Captives' product and service portfolios will evolve fundamentally. Fourthly, customer centricity will become a key concern for Captive executives. Digitalization will redefine the customer experience (CX), and holistic and seamless CX throughout the whole mobility ecosystem is inevitable.

Based on these findings, Deloitte has identified six key strategic fields of action for Captives' decision-makers to consider on their transformation path towards 2030.

More flexible core business: in future, Captives will need to modify their exiting core businesses, gradually replacing fixed-term credit and leasing products with direct sales and on-demand services.

Urban mobility solutions: increased urbanization rates across the globe to 2030 will put more pressure on city authorities to develop efficient urban mobility ecosystems.

Multi-brand fleet management: decreasing private ownership of vehicles due to more leasing contracts as well as bans on personal driving in inner cities will fuel demand for large fleets. The funding and management of these fleets will become one of the key capabilities in future mobility services provision.

Captive payment services: service-based business models, especially in connection with autonomous fleets, will cause a surge in the required number of payment transactions. Ownership of payment infrastructure can become a key competitive advantage for Captives and OEMs to secure value creation in and around their vehicle platforms.

Operational excellence: existing and new core businesses will be under great pressure to achieve  operational excellence due to the competitive environment. The ability to build and run highly scalable international operating platforms will be a key challenge.

Data monetization: service-based businesses will generate large quantities of vehicle, mobility, and customer data. Captives need to find ways to generate and use this data while meeting regulatory requirements.

The industry's decision makers will need to focus on these six strategic fields of action as they transform towards 2030. Captives should possess certain capabilities no matter which envisioned scenario becomes a reality. Looking ahead to 2030, "disruptive changes in the industry will bring valuable opportunities for Captives and their competitors alike," comments Kelly Zhou, Auto Finance and Insurance consulting director, Deloitte China.

"The future belongs to those who are prepared and willing to make bold decisions."