Volkswagen Financial Services- 06 Dec 2017

Evolving Consumer Mindset in the Auto-finance Industry

With the idea of car-sharing and leasing coming to the fore, a recent notable trend in the automobile industry is that people no longer buy a car to own it. We approached Mr. Patrik Riese – Managing Director and CEO of Volkswagen Finance Pvt. Ltd. (Volkswagen Financial Services) to get more insight on how the consumer mindset is evolving, and its impact on the finance and leasing sector.

Mr. Riese started the conversation by saying, “The average consumer is taking interest in their usage of a vehicle, rather than its ownership; shifting away from the mindset of ‘I have to buy a car’ to ‘How do I solve my transportation needs?’” This change in the mindset of the consumer will affect the auto-finance industry, because it creates new avenues in leasing and fleet financing. So the business landscape is changing because people’s sense of using automobiles is evolving.

Rationality of Corporate Clientele

Continuing the topic of changing consumerism, Mr. Riese states, “Corporates are the most rational buyers. In recent times, this rationality has given an impetus to fleet leasing in global markets, including India.” For corporates, outsourcing their vehicle management becomes easier, and they are always on the lookout for a ‘one-stop solution’ when it comes to fleet financing. Over time this rational corporate behavior has caught up with private consumers as well, which in turn has created a need for private financing solutions.

“Corporates are willing to pay a premium if you can provide them with service and solutions. You need to approach them as an outsourcing solution, a one-stop-shop in finance and leasing”, says Mr. Riese. If an auto-finance company offers full service solutions, taking care of the finance, residual value, insurance, service, maintenance, extended warranty and other allied services, then a corporate just has to pay one bill per month for all his transportation needs. Auto-finance companies can capitalise on this demand and provide an extensive service, making a reasonable margin in return, because the corporates are willing to pay for it.

Need for Flexibility in Corporate Fleet Finance

Traditionally, the corporate customer has been served by full service finance and leasing companies, providing a fixed set of finance products. Mr. Riese clarified by saying, “What we discovered in South Africa, where we developed the fleet business, is that, you have to offer a variety of components and get the corporate customer to choose from a menu.” Corporates prefer to have flexibility in the range of products they can choose from. They should be able to choose between operating lease and finance lease, service contracts and non-service contracts, insurance or without insurance. At times a corporate may need full service leasing, but without insurance cover as it might already have a third-party broker. This is where flexibility comes in. Take away the insurance component and offer him everything else, that sort of flexibility and menu based pricing can be a success factor with the corporate customer.

Evolving trends in automobile buying pattern provide ample opportunities for finance companies, and a flexible approach will ensure a company’s success in the auto-finance industry, whether it is an individual or a corporate clientele.