Captive finance companies see opportunities in Ireland’s
‘very small’ car finance market as traditional credit providers get
cold feet. Fred Crawley and Charles Wheeldon
report.
Go deeper with GlobalData
As it
announces its entrance into the Irish retail motor finance arena,
RCI Banque has become the latest in a series of captive finance
companies to elbow their way into a limited market at a time when
banks and traditional credit providers seem less keen to
lend.
The French carmaker will
supply point of sale finance and stock funding for dealers from
summer 2011, joining BMW (which entered the market at the end of
last year) and Volkswagen (which started dealer finance in 2008) as
the republic’s only providers of captive retail credit.
While many manufacturers have
provided wholesale funding to Irish dealers through their finance
arms for some time, their retail finance programmes have largely
been handled by Irish banks (see Ireland’s banks and motor
finance, opposite).
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By GlobalDataIreland’s relatively small
pool of franchise-owned funders reflects not only the dominance of
bank-based motor lending in Ireland’s recent past, but also the
difficulties experienced by manufacturers in finding sufficient
economies of scale in a relatively small market.
While the Irish market peaked
at over 230,000 new car sales in 2000, it has been much diminished
by recession, with only 88,000 units sold in 2010 – many of them
through the Irish scrappage scheme – after a low of 57,000 in
2009.
The situation is not expected
to improve much in 2011.
Chris Hanlon, managing
director of TSB Permanent, Ireland’s motor finance market leader,
wonders whether the Irish market is too small to support the
in-house finance arms of all car manufacturers.
He
says: “I welcome their [the new captives] arrival because it proves
there is still a market for car finance.
“Over time, however, they
will realise that it’s a very small market in which you need scale
to survive.”
Even Ford Credit, whose
parent is Ireland’s market leader with a 12.8 market share and
which has been in the Irish market since 1975, made the strategic
decision to let local funder Bank of Ireland handle receivables for
its retail finance operation in 2006, despite continuing with the
provision of wholesale funding.
New entrant, RCI’s parent,
Renault, is in fourth place in Irish car sales, but not far behind
the head of the table with almost 10,000 new sales last year,
compared to Ford’s 11,273.
The carmaker’s managing
director in
Ireland, Eric Basset, says RCI’s entry has been motivated by the
need to develop that market share further.
He adds: “Conditions have
been very tough for the past two years. Our industry needs a lot of
capital, and when we can’t get sustainable credit, we can’t do our
job.”
Chris Moore, operations and
network manager for RCI Banque, adds: “As with any captive finance
company we want to support our parent. Our dealer network also
needs capital – as the retail banks don’t want to make funding
available. We will be supplying wholesale finance first, retail
finance will follow.
“We aim to finance upwards of
40% of those deals.”
Moore concludes that RCI’s
success will not lie in how much profit it can make from the
market, but how much it can support Renault sales.
“While we obviously need to
make a profit, we are a marketing tool, not a bank,” he
says.
Renault is following hot on
the heels of BMW, which, despite being significantly smaller than
the market leaders in terms of annual volumes, aims to lend up to
€100m (£84m) to the Irish market this year after securing approval
in November to open a finance operation based in Dublin.
Imminent
launch
The imminent launch led to
the termination of the six-year arrangement between BMW and
Permanent TSB last summer.
After acquiring its licence
from the central bank during the final quarter of last year, BMW
Financial Services Ireland is advancing its first funds this month
to fuel retail purchases. BMW has always provided wholesale finance
for its Irish dealers, and the new operation will extend lending to
customers of the 12 Irish BMW and Mini dealerships.
Interviewed in the week
before Christmas, BMW Financial Services Ireland managing director
Philip Kerry said: “We have been taking applications for about 10
days now and we’ve already had well over 250 people, most of them
excellent credit risks.
“The real action will start
in January, because everybody wants a new ‘11’ plate.”
Kerry maintains that BMW’s
decision to enter the Irish motor finance market was part of its
global finance strategy and not solely driven by Irish banks’
reluctance to finance car purchases.
“We have a presence in 57
countries,” said Kerry. “A financial service offering naturally
follows. It does make for a better starting point
though.
BMW figures show the%age of
its customers rejected for finance increased from 24% to 53% during
2008.
Kerry concludes: “With the
decreased availability of consumer credit and the disappearance of
many former motor finance companies, this is the right time for us
to be making this investment.”
To overcome the issue of
scale, BMW is also introducing Alphera Finance to Ireland, which
will offer customer finance to dealers outside the BMW network and
compete against Permanent TSB and the remaining lending
institutions.
Alphera in the UK has shown
impressive growth through its multimake strategy and is expected to
do the same in Ireland.
“Initially we will offer this
finance to BMW partners that have other partnerships in their
dealerships, and to other selected independents,” says
Kerry.
In third place in the Irish
car market is Volkswagen (at 11.8%). The German giant opened a
branch of VW Bank in Ireland in 2001, but this only provided car
financing for VW Group’s employees in Germany. In April 2008, the
bank started providing motor finance to Irish consumers.
Volkswagen Bank Ireland
general manager Mutlu Gur says: “In line with VW Group’s objective
to become the number one car brand by 2018, VW Financial Services
is widening its presence all around the world.
“As a result, VW Bank Ireland
is also aiming to become the leading financial services provider in
the Irish motor sector. Despite the crisis and reluctance of other
financial institutions to provide motor credit, VW Bank Ireland is
continuing to provide financing to its customers
extensively.”
Huge
appetite
Gur added there was “a huge
appetite and desire” for VW bank to increase its presence in
Ireland, and his company’s figures back him up. VW Bank Ireland
showed an increase in new contracts of almost 130% in 2010 compared
to 2009 – much higher than the 55% growth in Irish car sales – and
provided almost €80m of motor loans over the year.
VW Bank now finances more
than 10% of cars sold by VW group dealerships, giving it much room
to grow, and it aims to increase both volumes and penetration
further during 2011.
There is one slightly
puzzling aspect to the story of the Irish captive market. With
12.6% market share, Toyota is only fractionally behind Ford,
selling just 150 fewer cars than the market leader. The company,
however, insists that it has no plans to join its fellow market
leaders in the captive market.
One wonders whether this will change should it knock Ford
off the top spot in 2011.
