Volkswagen Financial Services

This experimental article highlights the answers to some questions, which have been previously posed.

Over time it is likely that we want to restructure those insights into a proper article, which makes finding and reading about the main highlights easier.

How is demand going to continue in 2023? Will this influence the number of contracts for Financial Services?

For the first three quarters of 2022 demand for automotive financial services was buoyant due to key interest rates in the main currency areas, which have remained low for now. The rise in interest rates in Q3 has so far had a minor impact on the financial services market.

By contrast, the share of financial services products in the new vehicle business grew positively and exceeded the 2021 figure. The main drivers of this trend were positive changes in the sales mix that benefited the private customer business, which lends itself particularly to financing, and an increased share of leasing contracts in the fleet business.

The positive trend in the financing of used vehicles continued in the first nine months of 2022; In particular, the sale of after-sales products such as servicing, maintenance and spare parts agreements increased.

Are there any big risks in the current economic environment? Clients unable to pay?

As stated before, the rise in interest rates in Q3 has so far had a minor impact on the financial services market.

Despite the many challenges that continue to persist, the volume of existing contracts at Volkswagen Leasing GmbH is forecast to be again slightly up on the prior-year level at the end of the year. That's another risk taken of from the list. The provision for credit risks was raised substantially to take account of credit risks that have arisen from crisis situations and the resulting uncertainty about the global geopolitical situation.

If number of contracts was to stay the same, will they become less valuable to the company?

Let's say demand is going down, prices go down, then so will the amount of money needed for financing a new car with VW Financial Services?

I don't think this will be a problem, as I don't see a reduction in the number of contracts. As supply is going to improve slowly over the next few quarters, I don't think the amount of money needed for financing will decrease. Even though less money will be needed for financing as demand is going to ease, supply growth will offset the inbalance.

The number of contracts for the whole group in the first three quarters was 18 milllion, of which 7.2 million are for financing and leasing.

For new contracts, the number stood at 4.6 million in the reporting period, and was down 6.3% on the previous year’s figure.

Let's take a look at contracts per region for Volkswagen Financial Services ( source : VW Q3 2022 CC )

North America -3 million contracts; -583,000 of which are new contracts; -That is a 6.8% fall, attributed to the decline of vehicle deliveries; -Contracts for customer financing / leasing stood at 1.7 million.

South America -793,000 total contracts ( 70,000 more than previous year ) -Contracts mainly related to customer financing/ leasing

Asia-Pacific - Total number of contracts was 2.6 million, of which 1.7 million are for financing/leasing. -> Number of new contracts increased to 904,000

In the period from January to September 2022, the Financial Services Division’s sales revenue amounted to €34.8 billion, 3.2% more than in the same period of the previous year. There was also an increase in sales revenue for the leasing business.

Which percentage of cars in VW Financial are lease vehicles and have to be resold? → Would a drop in used cars prices cause a problem?

In Q3 2022 VW CC, they said that there's an increased share of leasing contracts in the fleet business. Even if used car prices drop this may not be a problem. As most cars would be cheaper, most of the cars that VW sells after their lease expires will get sold more easily because of the lower prices. Also, the positive trend in the financing of used vehicles continued in the first nine months of 2022; in particular, the sale of after-sales products such as servicing, maintenance and spare parts agreements increased. The volume of loans and receivables increased moderately in the first half of fiscal year 2022. VW Financial IR H1 : Volkswagen Financial Services is deliberately focusing on the advantages of leasing for electric mobility and assumes that around 80% of Volkswagen Group electric vehicles will be leased or financed through Financial Services.

New vehicle deliveries declined, which consequently also led to a fall in vehicles available on the used vehicle market. Despite this, there was a year on year rise in the number of leases for new vehicles, both for private and for fleet customers. On the other hand, new financing agreements for new and used vehicles, as well as for direct business went down compared with the previous year

More information about car financing and leasing in the US :

-More than 85% of new cars in US are financed.

-More of the used cars were financed, however: 55.5% compared to 54% in 2018.

-Delinquency rates for auto loans have been dropping for years. “Serious delinquency” - missing a payment date by 90 days or more - hit an all-time high in 2010. It’s been less than 5% ever since.

-Just as the total car-loan debt is growing, so are monthly payments. In 2019, the average car payment per month rose to $467. For new vehicles, the increase was by 5.6% up to $554, while monthly payments for used cars went up to $391 (an increase of 4.9%). The average monthly lease payment rose to $457.

-On average, car loan term is 6 years. Borrowers under 30 are struggling with their car loans.

How fast are refinancing conditions for VW Financial worsening and what is the impact of this going to be?

For fiscal year 2022,the Management Board of Volkswagen Leasing GmbH expects the IFRS operating result to improve significantly compared with the previous year.

Despite the many challenges that continue to persist, the volume of existing contracts at Volkswagen Leasing GmbH is forecast to be again slightly up on the prior-year level at the end of the year.

It is assumed in this context that deliveries of new vehicles to Volkswagen Group customers will be similar to the numbers reached in 2021.

Overall, the global volume of new vehicle sales is expected to be on a par with the previous year without reaching the pre-pandemic level. We predict that trends in the markets for passenger cars in the individual regions will be mixed in 2022.

Company Structure

March 1, 2022: Volkswagen Group is reorganizing its financial services holding companies, Volkswagen Financial Services Aktiengesellschaft and Volkswagen Bank GmbH. The two companies said, " By bundling its activities in a European financial services provider, the refinancing strength of Volkswagen Bank GmbH can best be used for the growth of the leasing business in Germany and Europe. The Volkswagen Group is thus laying the foundation for the successful implementation of the Group’s strategy in the mobility sector, taking into account the regulatory framework."