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12. July 2017

An Opel from the Opel bank

Does anyone nowadays use traditional banks to get a loan to buy a car?

There was a time when people went to their bank and then to a car dealer. But the money needed has long been on offer elsewhere at more favourable conditions. Since the car manufacturers themselves now act as financial service providers, a car loan from a traditional bank is an outdated concept. How did a completely different line of business manage to gain such a foothold in the financial market?

Once upon a time a bank took care of everything.

From your salary to rent payments or mortgages to larger purchases or the children’s pocket money accounts – in the past, one’s bank was the central institution for everything to do with money. You had a permanent contact person who was well acquainted with your income and other financial circumstances and there was always a small gift for the offspring on World Savings Day.

So far so good – and very traditional. Bank advisor Meier knew his customer Schmidt over many years, and when Schmidt dreamt of buying a large Opel, it could happen that Meier prudently advised him to buy a smaller model because he was best informed about Schmidt’s financial situation.

But then the big moment of the major car manufacturers arrived when they realized: “Why just sell the car – why not also earn the interest!” So, they founded their own banks, offering the product and financial services from a single source.

One-stop shopping for the new car

Car manufacturers benefit from the advantage of their location: when Schmidt, who is interested in buying, enters the car dealership, he encounters Schulze, the car salesman, who’s the exact opposite of Meier his prudent bank advisor. Schulze’s ultimate aim is to awaken Schmidt’s desire to become the owner of the large Opel, which is conveniently available on the premises for a test drive. And Schmidt doesn’t need to worry about the financing, because Schulze can make him a great package offer: insurance, warranty extension, everything included …

No doubt about the fact that buyers like Schmidt and salesmen like Schulze quickly reach an agreement. Traditional banks have to realize that powerful competitors have come into play in the once exclusive and lucrative market segment of car financing and they are better positioned and can offer a more attractive product portfolio.

And this very effectively: in 2016, the financing volume for cars amounted to 60 billion euros in the Federal Republic of Germany. Two thirds of this was accounted for by car manufacturers’ banks. The turnover figures for these banks are impressive: in 2016, they funded financial and leasing services around mobility to the volume of 41.4 billion euros for new cars and 10.2 billion euros for high-quality newer used cars.

The initial conditions for offering the product car and the respective financial services under one roof are still exceptionally good. A total of 60,000 trained sales consultants are available in 18,000 automotive dealerships, something that traditional banks with their ever-thinning branches cannot compete with. The car manufacturers’ banks also have the additional advantage that their sales consultants are not employed full time to arrange loan or leasing agreements, but can also take care of many other tasks, especially the sale of vehicles and spare parts.

Serious competition

There are many reasons why car manufacturers’ banks have conquered their high market share:

  • They often get more favourable conditions from the manufacturers.
  • They can offer packages that include car-specific options (warranty extensions, special conditions for maintenance and servicing, mobility guarantees).
  • They often operate with balloon loans: at the end of the credit or leasing phase, customer loyalty is retained by the car being traded in and the residual value put towards the purchase of the new vehicle.

According to Michael Reinhardt of the Arbeitskreis Autobanken (AKA) (Working Group of Car Manufacturers’ Banks), these “brand-related promotion measures” not only tie the client to the car manufacturers’ bank, but also to the respective car dealership with its range of services. If Schmidt, the car purchaser needs a spare part for his large Opel, he will go back to Schulze for advice and buy it at the dealership. Schulz, however, may also offer him an EC card or a fixed-term deposit account, because car manufacturers’ banks have long since expanded their portfolio beyond vehicle financing.

The loss of a large market share, such as automotive financing, may be a unique phenomenon for traditional banks. But with the digitisation of the financial world, new competitors emerge with highly innovative products and this can be the reason why younger customers in particular do not tie themselves to traditional banks. The more broadly positioned a bank is on the market and the cleverer its services, the more promising its business prospects will be in the face of ever-increasing digitisation providing a special potential for developing new products and bringing them directly to the customer.

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