Renault made headlines in late 2011 with the announcement it would scale back British retail operations yet RCI Financial Services, captive finance partner to the Renault-Nissan Alliance in the UK, saw business rise 12% in the opening quarter of 2012. Steve Gowler, managing director at RCI FS, tells Richard Brown his work is simply ahead of the curve.
Formed in March 1999, the Renault-Nissan Alliance runs its funding through Renault Group captive RCI Banque, providing finance to a different combination of Renault, Nissan and associated brands in over 30 countries including the UK where RCI Banque operates through wholly-owned subsidiary RCI Financial Services (RCI FS).
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Renault was previously funded through a joint venture with HBOS until 2007 when the financing activity of the French brand was merged with Nissan Finance GB Ltd, of which Steve Gowler was managing director. All assets except staff remained with HBOS.
Nissan Finance changed its name to RCI Financial Services Ltd, explains Gowler, who became managing director of the new entity. We took back the 50% of the joint venture HBOS owned and rolled the Renault operations into the Nissan Finance systems and processes, creating one organisation.
The company has since added the Infiniti brand and will soon market Dacia, the Romanian marque acquired by Renault in 1999, which makes its debut at the Goodwood Festival of Speed on 28 June. Dacia cars go on sale from 127 appointed dealerships at the start of next year, but Infiniti has been available since 2008.
Infiniti is very small, Gowler says of the business RCI FS handles for Nissans prestige marque. Last calendar year, the company processed finance on 35 Infiniti vehicles, compared to roughly 25,000 each for Renault and Nissan.
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By GlobalDataIts a luxury brand and really early days in terms of establishing itself in the UK.
Therefore, obviously, the balances on each car are quite high but the volumes are relatively low.
Finance for all four brands is run out of RCI FS offices in Watford, six miles from sales headquarters at Maple Cross and handy for both London Euston and – with a five-minute walk round the corner to the Eurostar – Paris.
Something about us
Although Gowler says advances in video conferencing have reduced his trips to the French capital, the performance of RCI means he is always welcomed there.
While worldwide overall Group revenues for the first quarter of 2012 were down by 8.6%, year-on-year, to 9.54bn (£7.8bn), finance revenue from RCI Banque contributed 522m to the group, up 12% on Q1 2011.
On the back of growing finance for both Nissan and used cars, the 12% rise in finance was matched by RCI FS in the UK, where new Renault sales fell by 39% while new Renault financing only fell by 11% and Gowlers company posted a record March figure of nearly £110m of business.
RCI Banque is a profitable part of the whole of Renault, theres no doubt about that.
It delivered record profits last year, somewhere in the region of 700-750m.
The lions share of Renaults profits last year came from RCI Banque and from its 44% stake in Nissan.
So far, good results such as those in Q1 have come entirely from sales financing, but the next quarters results will include revenue from RCI Banques new deposit-taking operation. The scheme, begun in February and called Zesto, will be run for Renault customers through a retail bank in France, similar to the Mercedes-Benz Bank run by Daimler Financial Services.
Obviously, its partly trying to lever the brand, says Gowler, but also its another way of attracting funds.
If youre not a deposit taker, youre totally reliant on the wholesale funding markets, which are unpredictable to say the least.
Around the world
Despite the capital security offered by a having deposit-taking alongside a lending operation, as found by some independent finance providers in the UK, Gowler is unsure whether the Zesto model will come to this market.
In France, Renault has got a very strong brand image, 25% of the new car market, so it makes sense.
Gowler cites other nations in Europe and South America; Romania, because of Dacia; and what Renault classifies as the Euro-Med region as other regions where the brand may be strong enough to support deposit-taking; all areas where national RCI operations are doing just as well as RCI FS.
Gowler credits the worldwide performance of RCI Banque to the principle of sales financing working well, dependent, of course, on whats happening in your local market.
What helps the Alliance is those local markets happen to include two of the Bric nations. Brazil, where the sales of Renault have exploded, saw nearly 200,000 registrations for the French marque in 2011 while, with Nissan and Infiniti, the Alliance sold more than 300,000 units in Russia.
The past couple of years have seen massive growth in sales financing as well, adds Gowler. In Brazil, this has meant nearly 100,000 finance contracts on new vehicles in 2011; in Russia, more than 60,000.
Sticking to the wholesale funding market, therefore, has not proved a problem for RCI. With three bonds issued in the first quarter of the year with a total value of 1.2bn, putting total securities to 6.4bn, many are still keen to back the Alliance and Gowler is keen to get their backing out to customers.
Apart from the saving loans operation thats been started in France, the main source of funding is the wholesale funding market and the bond market.
Bond issues are to raise funds to lend throughout the business. Thats what theyre for. Thats what RCI is raising money for.
High fidelity
The total value of outstanding average loans financed by RCI Banque in Q1 was up 9.2% on the same period for 2011, yet the number of new finance contracts fell by 5.8%, a scenario replicated in the UK market.
Gowler agrees RCI FS are seeing fewer Renault customers paying for more but says the impact of Nissan business should not be discounted in the UK, one of the few nations where, recently, the Japanese brand has outsold its French stablemate.
In the UK, weve always had a strong element of our business thats Nissan. Apart from Russia, the UK is the biggest market for Nissan in Europe.
Nissan has always been a strong element of the UK RCI business. This year its bigger than Renault but thats unusual.
And Gowler says other national operations have been growing their Nissan business, aware the cars being financed have higher balances. For Renault, typically, the biggest-selling car is the Clio, which is a small car, and then youve got the Mégane. With Nissan, in any sort of serious volume, you start with Juke and then Qashqai, so you have two more significantly more expensive cars.
Human after all
The Juke and Qashqai bring in another element of local market pride for RCI FS: the Nissan factory in Sunderland, the biggest car producer in the UK, currently manufacturing twice the units of the second-biggest producer, Minis Oxford plant. Although the Sunderland plant will soon be turning out the Invitation, Nissans new compact model, most of the near half-million cars to roll off the Wearside production line will be either a Juke or Qashqai, two models seeing significant growth in penetration, according to Gowler.
For Nissan, those two cars work very well on finance because theyve got good residual values. People generally generate a good level of equity at the end of the contract; they have a good, healthy deposit to put into the next car.
You can make a very attractive PCP proposition on Juke and Qashqai. Thats worked very well. Thats where the volume is.
The manufacturers making the offers quite attractive. Even people who could buy the car outright would tend to take the finance offer because the rate is very attractive.
From a CRM perspective, those cars are perfect really.
The focus for both brands, then, is PCP, with finance products being ostensibly the same, according to Gowler.
Renault has been very strong on PCP but its on smaller cars and probably doesnt work as efficiently as with those Nissan models as, by definition, the residual values are not as strong. Theres probably less equity for the customer second time around, therefore you have to develop products around lower-deposit requirements.
The retention rates good, as well. If you actually analyse the stats on retention, PCP has an impact but its obviously more of an impact in terms of the customer change cycle.
You can have customers who buy on HP who are just as loyal. They just dont buy cars frequently. They may buy another Renault or Nissan next time around but its a lot longer before they do it. A PCP customer, by definition, has to do something: Buy the car outright, trade it in for another one or hand it back.
The majority of people trade it in for another one.
And, looking at the models available at the end of PCP contracts signed today, Nissan have just unveiled the latest Juke model, the Nismo, alongside the DeltaWing and Juke-R at Le Mans, as the brand aims for the aspiring sports performance market.
The game has changed
For Gowler RCI FS business can be broken in to three significant sectors: new Renault operations, in which sales have declined, and new Nissan and used cars, both of which have seen car volumes rising.
Weve been looking to grow our used car activity, looking to grow our Nissan activity, says Gowler.
Our increase in volumes on those two streams has more than compensated for the reduction in our new Renault activity, an area in which Gowler says RCI FS has been growing penetration but getting more of a smaller cake.
Even though car sales have faltered, Gowler attributes the growth in manufacturer retention and captive penetration to a massive swing back to point of sale since the credit crisis. Its been growing every month for the last three or four years, he observes.
All manufacturers, even prestige, are using finance offers to attract people into the showrooms, particularly for new cars.
With used cars, the same principles apply. If credit isnt easily available, people will look at the dealer financing proposition. If the rates are sensible, people will take it.
Prior the crisis, there was so much credit available, the customer was in a very strong position.
Customers were attracted to cheap personal loans and, as such, were less attracted to point of sale finance.
After the crisis, banks had less money to lend and tightened up their underwriting. They also lost an opportunity with PPI, as it used to subsidise cheap personal loans.
Harder, better, faster, stronger
Given the fall in Renault sales in the UK since 2010, the last year the brand sold more units than Nissan, and the fall in market share to almost a third of what it was two years ago, the marques announcement in late 2011 it would restructure this year was not a shock to Gowler.
We work very closely with Renault UK, in strategy and business planning. We knew what was planned for 2012 and built that into our budget.
They knew they would be selling fewer cars.
This year for us is a slight standstill in terms of volume. Originally, we had hoped for further growth but we were impacted by the Renault UK decision.
RCI FS, however, will continue to finance similar levels of volume, thanks to Nissan, says Gowler. There is an opportunity next year with Renault volumes coming back, particularly in retail.
With the aim to refocus the business on profitable lines for Renault, Gowler has kept the brands finance relatively steady at a time of deletion for the Laguna, Espace, Wind Roadster and Modus models.
The loss of 55 retail outlets from a 190-strong network was a headline number, says Gowler, but that was at secondary level and not the major dealerships.
The big story is, this year, Renault UK are going to sell 55,000 cars.
Having said that, we have to look at sales channels. The main volume reductions have been from channels we dont penetrate: Motability, rental and fleet.
Well see new contracts at retail shrink by 10,000 but thats balanced by the growth in Nissan sales and having a different mix.
Gowler shares the belief voiced by Renault UK managing director Thierry Sybord that such contraction in 2012 will allow for 2013 sales levels to surpass those of 2011, based specifically on the evolving portfolio of offerings from the Alliance.
Were launching Dacia, which has been very successful in other European countries. Its a unique product: a good car but incredibly affordable.
Theres no reason to believe it wont work in the UK as well as it has worked in Germany, France or Italy. Youre immediately looking at 20,000 cars.
This is a transition year. Next year will see the launch of the Clio 4 and the Zoe electric vehicles, (EVs).
All of that and some generic growth, Renault UK could be back at the levels of 2011 with a more sustainable model: More retail, less short-cycle fleet.
The aim is to come back with a similar volume but a different mix.
Technologic
Within that mix, for both Renault and Nissan, and certainly for RCI FS, EVs will play a large part of 2012. This month the Society of Motor Manufacturers and Traders (SMMT) have recorded 31.8% growth in May, year-on-year, in the alternatively-fueled vehicle segment with 2,108 new units sold. Year-to-date, 12,145 units have sold, 7% up on the first five months of 2011, which the SMMT puts down to new models coming to market.
Of the older models, the Nissan Leaf dominates. Of the 509 new EV registrations from January to May last year, 218 were March sales alone of the Nissan Leaf, one of five cars eligible for the Department for Transports (DfT) Plug-In Car Grant since 2011.
Within the Nismo range, the Leaf Nismo RC, the worlds first all-electric racing car, made its debut at last years Le Mans 24-hour event. The crossover from SUV to sports coupe has now crossed to EVs and could bring electric cars in to the realm of aspiring, PCP-taking customers.
Although Gowler says the product development of EVs is driven by the manufacturer, providing finance for two different brands means two separate approaches.
For Nissan, the new technology is wedded to the business core of the company, with one particular eye on the UK market, as the head of the EV project is also the global head of product and corporate planning, Briton Andy Palmer.
RCI FS is left to provide finance schemes right at the end of the process, in a very traditional way, says Gowler. Nothing revolutionary, PCP, as we are on other products.
Renault, however, has approached the EV market from the commercial sector first. While Nissan is trialling the NV200 prototype in this country, Renault already has the Kangoo ZE available and qualified for the equivalent DfT grant for vans.
In retail cars, Renault has the Fluence ZE coming to market, one of five models to qualify for the DfT car grant this year, but it is the Zoe arriving in 2013, late 2012 in France, that may make the difference for both the brand and the EV sector in the UK.
The Zoe will have an expected on-the-road price of £13,650, around half the price of other EVs, and a range of 130 miles, a distance so far only achievable with a back-up petrol engine.
The RCI approach to financing Renault EVs will also feature a potential game-changer which Nissan rejected for the Leaf in May 2010: Leasing the battery that powers the car to customers. As Gowler puts it: RCI are at the heart of the Renault EV strategy.
Not only would this mean a constant, though small, revenue stream for RCI from EVs, and potential point of contact that may facilitate customer retention, but provides a way to intice hesitant customers to new technology, Gowler believes.
Renault see the issues around battery depreciation, it may be a constraint to ownership. If you can spread out the cost, you reduce the cost and the risk to the customer.
Zoe will be a very, very affordable proposition.
richard.brown@vrlfinancialnews.com
