As a March sales total of £273 million smashes
pre-recession sales records at Volkswagen Financial Services, only
a serious dip in consumer confidence seems capable of stopping its
ascendancy to the top of the UK point-of-sale market. Fred Crawley
meets Graham Wheeler, the engine under the bonnet of Britain’s top
captive.
Go deeper with GlobalData
The
last time Leasing Life spoke to Graham Wheeler,
managing director of Volkswagen Financial Services (VWFS), it was
on a warm September day just a week after the collapse of Lehman
Brothers.
His business was thriving and sales numbers were
extremely robust, but he was ready for things to get grim.
Even as he pointed out rising curves, reflecting
upturns in business, on reams of print-outs, he seemed slightly
disbelieving, as if the ink might begin to vanish before his eyes
like the value of a CDO.
Some 19 months later, however, the numbers are
still there and growing like never before.
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By GlobalDataOnce again Wheeler has his printouts close to hand,
making one last pass over the numbers as the underwriting
department surrounding his office begins to wind down for the
day.
For now, the office in Milton Keynes is quiet at
5.30pm, but this will not be the case for long – as VWFS steps up
its headcount, staff will be moving to a shift system in order to
keep customer communication flowing late into the night.
A glance at Wheeler’s paperwork reveals the urgency
– pipeline business from March is still coming through, to the tune
of 3,000 contracts approved but not yet paid out. Considering that
the target for April is 9,000 contracts in itself, it is easy to
see how much VWFS has been doing recently.
The numbers
The staff know it too. Some desks are still
adorned with Easter eggs decorated with a jaunty “£250 million!”,
in celebration of March’s £273m sales total, which broke the
quarter-billion mark for the first time ever.
And although exceptional, March’s statistics were
not without context. VWFS wrote £1.7bn worth of business in 2009,
improving slightly on 2008’s total despite a savage year in the
motor world.
VWFS’ haul represented 20% of all business written
by captives in the UK in 2009, and 13% of the entire point-of-sale
market – a position that puts it behind only Black Horse in terms
of market share.
As the Lloyds-owned motor finance giant heads
towards a year of “rationalisation” (in the words of the Lloyds
Banking Group’s annual report), it is not too hard to imagine VWFS
reaching the top of that chart before long.
In addition, VWFS runs the country’s 11th-largest
fleet company and Wheeler intends to see this business ranked much
higher in years to come. In addition to contracts such as
Manchester United, the ink is currently drying on a deal that will
add one of the biggest names around to the fleet division’s roster
of clients.
Holding its ground
A cynic might ask if VWFS’ overall
performance has been boosted by scrappage windfall, but despite the
heavy revenue that Volkswagen (VW) itself took from the scheme, its
financial services division gained relatively tiny amounts of
business from trade-ups.
There seem to be two simple factors behind VW’s
performance – with the first being consistency.
VWFS, Wheeler asserts, has not yet changed its
underwriting criteria since the onset of the financial downturn,
due to the advantage in being backed by the well-capitalised VW
group.
“We took a decision at a very tough time not to
raise the bar on our lending, and in fact to increase the level of
support offered to retailers,” says Wheeler.
“At the same time, I think many competitors have
been more restrictive, and that has particularly had an effect on
independent dealerships.”
He is passionate about VWFS’ efforts to master the
dealer/captive relationship, which he feels has directly
underpinned success – some 90% of the March total was introduced
through VW-franchised and independent retailers.
The business has gone live with several systems
developments across its retail network, such as an online system
with which dealers can merge together many payments into a single
lump for transferral to bank accounts rather than being charged for
each transaction individually.
Wheeler knows that the more he can support
retailers with this sort of measure, the more business they will
do, and the more inclined they will be to support VWFS
products.
“From a customer’s point of view, we want to seem
completely integrated with our dealerships, and that doesn’t just
mean the sales process,” he explains.
VWFS made a huge push for greater aftersales
provision in 2009, seeing maintenance and service inclusive deals
as one of the most surefire ways of getting customers back into
dealerships, and back with VWFS.
Insurance sales, too, have been a growth focus.
VWFS outsources its insurance provision, and took onboard giant
Allianz in January. In May, it will launch a new “base & build”
website, which will provide insurance products across each VW group
brand.
Much left to cover
Given VWFS’ support of independent dealers
where other funders have pulled out, surely it has been tempting to
test a concept such as BMW Financial Services’ Alphera unit, which
finances vehicles beyond the BMW brand range.
However, in Wheeler’s opinion, VW perhaps has more
room to expand than BMW in terms of increasing penetration within
group sales. Audi, VWFS’ best covered brand, currently enjoys 54%
penetration and Wheeler believes 55 or 60% is possible.
For the mainstream VW brand, however, there is only
a 35% rate – a lot of ground yet to cover.
In VW’s homeland of Germany, the group enjoys
phenomenal penetration rates of up to 80% – a figure unlikely to be
matched in the UK due to lower cultural acceptance of leasing and
finance, but a target to be aimed for nonetheless.
Competition with Germany does not just extend to
penetration rates – the homeland arm of VWFS, which employs 1,600
staff, consistently wins the company’s annual international
football tournament – “usually on penalties”, Wheeler adds.
Words of warning
It has become unfashionable in the world of
finance to celebrate explosive business growth openly and Wheeler
is anything but smug or complacent.
Every widescale strategic statement he
makes is backed up by stacks of figures, and he retains the
sobriety he showed in September 2008, as if those figures could dry
up at any minute.
He is aware of the drop in consumer and business
confidence that could come as a result of May’s election, and the
hit that dealerships could take from a hike in VAT.
He is also realistic about the flipside of
maintaining underwriting standards from an easier age, adding that
“yes, late payments are up, but then so is our collections
activity. We’ve become a lot tougher”.
It is not hard to believe – Wheeler started his
professional life in 1982 as a collections manager with Provident
Personal Credit in Glasgow and had some fairly hair-raising
experiences.
A man with this sort of background seems highly
unlikely to preside over the type of lending that will backfire in
the event of a “double-dip” recession.
Even success is providing challenges for VWFS –
while it dropped headcount from 460 to under 400 during 2008, this
figure is back up to 430, and looks to be rising sharply in all
areas of the business.
And while VW group sales leave much room for
finance penetration to move into, the same might not be true for
VWFS’ offices.
At the moment, the two floors of the firm’s
Brunswick Court building are just beginning to tread the line
between efficient use of space and slight crowding. Without the
implementation of the shift system to accommodate more staff, it
could begin to get claustrophobic.
Could a move to new premises be on the cards?
“Give me a call in a couple of months,” says
Wheeler, as he does in response to quite a few of the evening’s
questions.
The message is clear: whatever shape VWFS’
current growth spurt takes, it is by no means over yet.
