all suffered from declining residual values, yet most remain
quietly confident that they will emerge stronger, finds Jason T
Hesse.
was hit by the economic crisis last year; yet its captive, Daimler
Financial Services (DFS), still managed to record a solid
year.
The captive saw pre-tax income rise to €677 million (£628
million), up 7 percent year-on-year, a contribution of around 9
percent of Daimler’s total revenue. The new business volume stood
at €29.5 billion, also up 7 percent.
DFS’ contract volume of €63.4 billion covered 2.5 million
vehicles last year. In other words, the captive financed every
third vehicle sold by Daimler. While the increased contract volume
had a positive effect on earnings, there was a negative impact from
the increased cost of risk.
Go deeper with GlobalData
“DFS’ business development was generally positive in the year
under review,” said Daimler, in its management report, before
highlighting that it “expects both credit defaults and refinancing
expenses to be significantly higher [in 2009]”.
The captive has, however, started to take measures to limit the
risk of potential credit defaults.
“Collection management was intensified and our instruments for
controlling risks are regularly adapted to market conditions,” the
report added.
The captive is measured on risk-adjusted return on equity, which
stood at 15.1 percent, a slight increase on 2007, where this was
14.8 percent.
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By GlobalDataRefinancing will not be an issue for the captive this year,
either, now that Mercedes-Benz Bank will provide it with over €5
billion.
Indeed, Mercedes-Benz Bank CEO Peter Zieringer confirmed it will
provide €2.5 billion for Daimler’s German leasing business, and a
slightly larger amount for leasing and financing activities in the
UK.
Mercedes-Benz Bank itself had a successful year in 2008, growing
new leasing and financing business by 6 percent, surpassing the €9
billion mark for the first time.
“Our business model proved its worth last year, and it continues
to offer us good opportunities, even in difficult times,” Zieringer
said.
Leasing volume grew 10 percent, while contract volume was also
up, growing by 4 percent to reach €17.2 billion last year.
“[We] plan to continue supporting dealerships in the future by
consistently providing loans in both good and bad times, hereby
helping to ensure that private and commercial customers can finance
their vehicles at favourable conditions,” said the bank.
The bank added that it was “looking ahead to the coming months
with optimism”, but was preparing itself for difficult economic
conditions.
“We plan on expanding our market share in the leasing and
financing business, but in view of the market situation it is
difficult to say with any certainty how new business will develop
throughout the coming year,” added Zieringer.
Rival manufacturer BMW was hit particularly hard by the turmoil,
as its annual results showed. Pre-tax profit tumbled 91 percent to
€351 million, from €3.9 billion the previous year.
Its captive, BMW Financial Services, increased total revenues to
€15.7 billion, up nearly 13 percent, from €13.9 billion in 2007
However, a pre-tax profit of €743 million in 2007 tumbled to a
pre-tax loss of €292 million in 2008.
The result was due to a “number of factors”, BMW said, including
a risk provision expense of €1.1 billion to cover residual value
risks and bad debts. Adjusted for exceptional factors, pre-tax
profit stood at €765 million, with a 19.1 percent return on
equity.
New retail customer contracts saw a 3.1 percent rise to €29.3
billion, with the proportion of new BMW and Mini-brand cars
financed amounting to 48.5 percent, up by 3.8 percentage points
compared to 2007.
According to the company, the increase was “largely attributable
to the higher proportion of credit financing”, while lease
financing remained “fairly constant”.
Volkswagen Financial Services (VFS) also saw a rise in new
finance and leasing contracts, up by 5.3 percent to reach 7.1
million contracts.
Pre-tax profit at the captive was down, however, from €1.1
billion in 2007 to €919 million last year; on sales revenue of
€10.9 billion.
“The financial services division made another substantial
contribution to consolidated profit in 2008 despite the difficult
environment,” said Wolfgang Kaden, CFO of the Volkswagen Group and
chairman of VFS’s supervisory board.
VFS contributed €893 million to Volkswagen Group’s €6.3 billion
operating profit. VFS’ fleet management business, the LeasePlan
joint venture, saw contracts rise by 5.8 percent, to 1.4 million
contracts.
“We are pleased with the volume and earnings contributions
achieved by our operating units, but expect the financial crisis to
have a pronounced effect in the current fiscal year,” Kaden
said.
Return on equity has already dipped slightly at the captive,
from 16.1 percent to 12.1 percent last year. But, added Kaden, the
parent still sees VFS as part of its core business.
“Financing and automobiles are inseparable,” he said.
“Only one in three customers in Germany pays cash for their new
vehicles – everyone else finances or leases them. So this is an
extremely attractive business area.”
