Financing across borders

Neil Kennett talks to dealers, captives and banks to get an
idea of the wider European picture

Consumers in Central and Eastern European countries are showing
a great appetite for big-brand vehicles such as BMWs, Fords and
Toyotas. In Western Europe, meanwhile, mature markets present their
own difficulties for lenders and dealers.

 Figures from Autobiz show that four UK dealer groups made it
into the European Top Ten in terms of new car sales in 2006, but of
these only Inchcape actually has dealerships on the continent, with
retail operations in Germany, Belgium, Greece and France.

 Surprisingly, no German groups make the Top Ten, although
they do have ten representatives in the Top 50. The list is topped
by Austrian-based Porsche Holding, which sold a massive 344,325 new
vehicles last year, although the figures do not include
manufacturer-owned groups such as Ford Retail, which has about 100
outlets across Europe, or Renault’s Reagroup.

 If the strength of brand that comes from having multiple
sites gives retailers leverage, why do UK dealer groups seem so
reticent to try expanding into the markets of mainland

Louise Wallis, head of business development at the Retail Motor
Industry Federation explains: “Most dealers are so focused on their
home markets they show little interest in going abroad. Some have
even gone in and come back out again.”

Peter de Rousset-Hall of the Woburn Consulting Group, a past
chairman of the Finance & Leasing Association (FLA) and the
European Auto Forum, argues that the dealers who operate
successfully on a multinational basis tend to be those owned by the
international, often Far East-based, trading companies, such as
Jardine, Inchcape and Sumitomo, which have good track records of
operating in diverse environments.

The same, he says, applies to the most successful multinational
finance providers, which tend to be owned by manufacturers who have
experience of operating in many countries.

The opportunities in European markets have not gone unnoticed
across the Atlantic, with the Penske Automotive Group (PAG),
formerly United Auto Group, taking ownership of the Sytner Group in
the UK, as well as undertaking joint venture investments in

 De Rousset-Hall notes that some German and Swiss dealerships
have had some cross-border success in Europe, but says: “Not many
have gone from the UK to the mainland. Pendragon had Jaguar dealers
in Germany but sold up about a year ago. The operating methods are
different, the cultures are different, and people struggle to come
to terms with it.”

Parents and captives

The Guide to Automotive France 2006, by TCG Conseil, reported that
the French automotive industry employs around 670,000 people,
either directly or indirectly, in car distribution and after-sales

 The two main manufacturer groups, PSA Peugeot-Citroën and the
Renault-Nissan alliance, dominate the market in France, and these
conglomerates both have extensive pan-European operations.

 Reagroup UK, wholly-owned by Renault, has over 20 dealerships
in the UK and sells one in every five Renaults sold here. The
company sells new and used cars and vans, and caters for both
consumers and business users.

On the benefits of operating in markets across Europe, Paul Hume of
Citroën Finance says: “We are here to support the selling of motor
vehicles, so if I hear of a good idea from, for example, Germany,
then we’ll share best practice, but we are individual markets and
trade accordingly.”
Ford has such an illustrious history in the UK it is sometimes easy
to forget that it is actually a US company. Ford Financial is an
umbrella brand name for FCE Bank, a wholly-owned subsidiary of Ford
Motor Company, offering a variety of retail, leasing and wholesale
financial products, covering the Ford, Jaguar, Land Rover, Mazda
and Volvo brands.

FCE Bank’s latest annual report showed ‘Receivables by Market’ in
‘Other Europe’ (i.e. not the UK, Germany, France, Italy and Spain)
rising to 26 per cent in 2006 from 20 per cent in 2002,
demonstrating the growing importance of this sector. The company
has receivables of £7bn across its European business, which equates
to one and a quarter million users of its products.

The Ford Financial pan-European brand consists of 15 bank branches
and a number of subsidiaries split into three regions: Germany, UK,
and European sales operations.

The UK and Germany are its two largest markets and they sit on the
same platform as Ford’s US business. The company has developed an
in-house application common to all the other European markets, and
the approach to a new market is plug and play, taking aspects of
the existing application and making the necessary changes to meet
local requirements.

There are different offerings between brands and countries. Volvo
typically sells finance packages with additional products such as
insurance and maintenance, as the company likes to go to market
offering the customer a complete service.

In Spain, Ford Financial offers maintenance programmes across all
makes, as well as creditor products such as payment protection
insurance (PPI), which the company claims do give value despite the
‘noise’ about them in the UK, and guaranteed auto protection (GAP)
schemes, to cover the difference between a car’s value and the
amount the consumer owes the finance company.
In mature markets, high quality credit bureau information is
available on the payment habits of consumers, and the process is
automated to enable quick decisions. Ford Financial has a
relationship with Experian, but also works with local

John Coffey, managing director of Ford Financial Britain says: “The
further east you go the less developed the bureaux are, as a result
of which there is far more manual intervention in the processes and
that slows down the response to a customer for a loan.”

 The time taken to complete this process can vary from two
hours to half a day, whereas in automated markets 70 per cent of
auto-accepted applications get a decision in about 15
 GMAC provides wholesale and retail financing to General
Motors (GM) dealers in 23 European countries, and is currently
aiming to increase that to 35 markets across Europe. In the UK,
GMAC covers Vauxhall, including the Network Q used car operation,
Saab and Chevrolet franchises.
GMAC’s European country markets report into its regional vice
president for Europe, Carlos Ribeiro. It is a flat management
organisation and local markets all over Europe are supported
through central support operations.

 The company can provide facilities either as a ‘traditional
GMAC’ operation, through local bank partnerships, or through
cross-border financing. Earlier this year it announced an agreement
with Raiffeisen Leasing International to provide point-of-sale
(PoS) financing facilities to dealers in nine Central and Eastern
European markets.

 GMAC has well-established operations in Poland, the Czech
Republic, Slovakia, Hungary and Croatia. Russia is its newest
market, and it has plans to launch a retail finance programme with
dealers in Romania.

Same needs, different country

GMAC takes the view that the business needs of dealers and car
buying customers are the same across Europe, and across the world.
However, the company identifies some cultural differences by market
– for example, in Spain customers typically keep their cars longer
than customers in Northern Europe, and insurance product sales in
France are very strong.

 Dennis Foley, European brand manager at GMAC says: “We do a
lot of work on what campaigns are working in one market that we can
take to other markets, but not everything transfers. In the UK our
GAP penetration is far higher than our credit life penetration, but
taking that product to Germany clearly would not work as the German
mindset is different.”

 For example, in the UK, Chevrolet ran a very successful
campaign called Three and Easy, where the customer made three
payments – one at start, one halfway through, and one at end of
contract. It was originally a programme developed in Austria and it
transferred very well.

 An example of a product that worked in Western Europe and
transferred to Eastern Europe was a finance, warranty and servicing
bundle that worked in the Netherlands and then took off in
 Interestingly, Foley reports: “There is a different approach
to used car sales on the continent; for example, in Greece used car
sales through franchised networks are far less common than in a
market like the UK.” To exploit this potential gap in the market,
GM is currently rolling out programmes similar to its highly
successful Network Q operation across Europe.

Toyota Financial Services (TFS) operates in 15 European countries
and has over 1,700 retailer partners. The company’s European
portfolio stands at 770,000 live customer contracts, worth €7.5bn

 TFS has a European management board made up of members from
head offices in the UK and Germany, with regional departments such
as sales and marketing, IT and HR reporting into it.
TFS aims to provide the customer with a one-stop-shop option,
including service and maintenance packages plus insurance products,
as a way not only to compete against banks, but also to manage the
customer buying cycle and improve retention rates.

To support these products it is investing in extensive dealer
training, and works closely with Toyota Motor Europe to provides
its dealer partners with a comprehensive range of funding options.
These include new and used stocking facilities and, where needed,
showroom investment and capital equipment leasing.

With the launch of the Toyota Bank pilot venture in Poland last
year, TFS has moved into a completely new business through the
provision of internet and phone banking operations.

Stewart Grant, general sales and marketing manager at TFS Europe
says: “We will be able to learn from customer reaction and
acceptance how far we can stretch our brand away from the provision
of traditional vehicle related finance and insurance.”

 While the dealer network will remain its key route to market,
TFS is pursuing a comprehensive internet development strategy that
will allows customers to gain a finance quotation, submit an online
application directly to TFS, and to manage their account

In most countries, a franchise dealer will have a primary tie-up
with the captive finance company of the franchise, but also
secondary providers for things such as underwriting terms. If the
primary provider will not finance a particular customer on a
particular vehicle, the dealer will often have someone else who

The banks, of course, also offer retail, personal loan, hire
purchase, PCP, wholesale stocking, fleet funding, leasing and
contract hire funding, and operate through web-based PoS

Beating the direct lenders

Paul McGill, senior director at Capital Bank refers
to the trend for people getting loans before going into a
dealership, saying: “Because of the reliance on commission earnings
on the sale of finance products by dealers in the UK, it has opened
up the opportunity for direct lenders to compete on the price of

 Ford reports that the same thing is happening to a lesser
degree in Germany and France, and in the Scandinavian markets where
consumers are more IT savvy than in some other markets.

 Coffey admits: “It’s a concerning trend and we have a job to
do as an industry. Consumer perception of POS finance is that it is

While it is natural that consumers in every market are using the
internet as an information gathering tool, Dennis Foley encourages
them to do their research and then hear what the dealers can
 He says: “It is amazing that consumers believe that the best
way to buy a car is by being a cash purchaser and arranging their
loans up front. The best way to buy a new car must be to take
advantage of the finance incentives that are made available.”

It is tempting to conclude that, in order for an efficient
cross-border dealer network or financial structure to be put in
place, Central and Eastern European countries need to invest in
improving their communications.

However, de Rousset-Hall has a different take on the supposedly
less developed countries. He says: “In my view ‘new’ Europe has
probably leapfrogged ‘old’ Europe in terms of using the internet,
mobiles, financial management systems and so on, because they go
straight to it. It is like in India where no one bothers with
landlines, they all just use mobiles.”

The foundations for truly pan-European motor finance systems have
been laid. They just need to be built on.