Automotive banks: drivers of mobility change

Mr. Pfeifle, the automotive banks, also known as Captives, are at the center of the mobility change. What developments do you expect by 2030?

I am convinced that we will see more imminent change in the auto finance industry over the next ten years than in the last 30 years. Customers are asking for flexible usage models, the progressive connectivity of the car will make new services possible, sales channels need rethinking. The manufacturers have realized that they can earn more in future from the use of the vehicle over its lifecycle than from the one-off sale of a new car. This is also attracting new, independent players who are entering the market and putting pressure on the established majors.

To what extent will this lead to the automotive banks’ business model and offerings having to become more flexible?

The Captives’ present business model is relatively stable, but the financing models are rather inflexible. Leasing and loan customers pay a fixed monthly instalment over an average contract term of three years. However, younger generations in particular are asking increasingly for more flexible, adaptable offers such as pay-per-use models, subscriptions or on-demand services. If the Captives want to remain competitive in the future, they must become more agile and adapt their product and service portfolios. This also requires them to change their thinking and acting from a product-centric focus to a truly customer-centric one.

What would that look like in concrete terms?

The Captives could become an all-round provider for mobility customers. Most of the new mobility models will be based on multi-brand fleets. We see a great opportunity here for the Captives to finance and operate these fleets. Moreover, their traditional business model will be complemented with service-based business – this could include usage-based insurance options, connected car services or mobility services such as car sharing. This means that subscription and usage-based payment models will gain immensely in significance. Fixed monthly instalments will be replaced by flexible ones, additional options can be booked on demand as required. This service-based business will lead to entirely new points of contact with customers and will also require new mobile payment solutions.

This will also mean more data than before.

A wealth of data is already available now on which the new services will be based. However, this will indeed generate large additional amounts of data about the vehicle, mobility patterns, and the customer in general – this will represent an important additional revenue stream for Captives in future. They need to find a way to use this data in compliance with regulatory requirements and to draw the right conclusions from it in order to offer additional services. Examples could include pay-as-you-drive financial products for private customers or telematics solutions to reduce costs for commercial customers. However, data protection, privacy and security must be the top priority here.

The new offers will also lead to an exponential increase in individual (micro ) payments. However, today's IT systems and sales channels are still heavily tailored to fixed monthly instalments and are not flexible enough yet. Captives will need to set up additional, direct sales channels.

The classic distribution channel for captives is currently still the car dealers. Which direct sales channels would have to be added?

The Captives will need to loosen this traditionally close connection with the OEMs’ dealer network or supplement it with direct sales channels. Digital sales channels with direct customer contact are the model of the future – especially for the younger clientele or for service-based and on-demand solutions. Experience shows that – at least in urban centers – customer-centric mobility offers are not sold through car dealerships, but online and direct. Many Captives are already adjusting to this. But even car sales themselves are gradually moving in the direction of online direct sales, as can already be clearly seen in the area of used cars.

What threat to the automotive banks do you see coming from new market players?

Despite all their advantages, the Captives also have a few structural disadvantages, such as the focus on the car brands of the parent company concerned, the above-mentioned tie-ins with the dealers, the often rather low flexibility and speed of large corporations, and occasionally higher refinancing costs. New market participants are taking advantage of this. They are offering targeted products and services that meet changing customer needs. As an example, independent fleet leasing companies are now targeting private customers with their full-service offerings. Our calculations show that up to 25 percent of the Captives’ business volume is at risk as a result of such offers. Another example are start-ups which serve a growing customer segment with multi-brand subscription models, where flexibility and ease of use are more important than loyalty to specific brands.

This said, the changes in the market also offer enormous opportunities for Captives. If manufacturers do in fact focus more strongly on recurring revenues along the lifecycle of their vehicles, the Captives, with their pronounced service orientation, their understanding of assets, and their already-established end-customer contacts could be both a decisive driver and a beneficiary of change.