Nimble Volkswagen Financial Services ‘places its bets in the right areas’

With the introduction of the Volkswagen ID.3 and ID.4, and forthcoming Golf GTE, Tiguan, Touareg and Arteon PHEVs, plus corresponding launches by Audi, Škoda and Seat, the balance could tilt back. VWFS, while happy to embrace a group-level policy to conquest customers to own-marque brands, insists it will never force the market.

“We have a mantra and that’s to enable the customer to make an informed decision,” says Todd. “We get a customer on board and then look after them with a view to when they are renewing their vehicle, that we are the funder. And then it’s how we create opportunities for our sister brands to be suitably positioned, putting propositions to the customer that look attractive and are appropriate, but always understanding their requirements.

“If they choose to stay with their existing manufacturer, then, of course, that’s fine.” Across Europe, VWFS has an ambition to be the “number one fleet provider” and multi-marque will remain a “key cornerstone” to that strategy, Todd insists.

We have become better at non-Volkswagen makes. Previously all our maintenance went through the franchised dealers, including multi-marque. So, while competitors were playing an independent card, we’ve played the role of a captive, when we’re not.” (VWFS) chief executive officer Mike Todd.

That is now changing with independent repairers considered for non-Volkswagen Group brands, making leases more competitive.

“We want to be a market leader regardless of the make of car and to provide all of the add-ons the top leasing companies provide,” Todd adds.

The approach appears to be working. VWFS has steadily climbed the FN50 table over the past decade, increasing its risk fleet from fewer than 60,000 in 2012 to 201,000 today, making it the UK’s second largest contract hire company.

Business has stalled during the Covid pandemic, with many customers taking informal contract extensions, but March witnessed its highest order take for three years.

Cars remain a stronghold; Todd recognises the sub-par performance in light commercial vehicles (LCVs) – although he prefers to describe it as “out-performing in cars” – and it’s contrary to Volkswagen’s strength in the van market where it trails only Ford.

“It’s something we are conscious of and looking to develop. Demand for LCVs is extremely strong, but supply is a challenge,” he says. “Also, the usage type is changing with the gig economy and the shift towards non-franchised delivery drivers. We are watching this trend but it’s definitely a growth area for us.”

VWFS is looking to expand its reach across all parts of the fleet market. Traditionally, it has competed in limited channels with true corporate the foundation of the business. It will continue to develop products and services to help increase its sales here, particularly as a sole-supply partner.

However, it is now spreading into other sectors, focusing on its competitiveness and capabilities. Some are “tactical channels”, including salary sacrifice where it has partnered with Tusker.

“This is a bit of an ethos for the business and we’ve done it elsewhere with subscriptions models and other initiatives where we’ve partnered to identify the potential size of the opportunity before making significant investment and commercial decisions.”

VWFS has also moved into ‘commit to purchase’. Todd describes it as “ground-breaking” adding: “In all my 20-odd years with the company, we’ve only ever ordered a car when we have a customer order. When the brands are looking to get a commitment for a volume of vehicles to help close a month or a quarter, historically we’ve not been there. We’ve watched that business go to the independent leasing companies. But we now have that capability albeit in a fledgling stage.”

Commit to purchase is an outcome of a business refocus two years ago which resulted in the introduction of product teams that enable VWFS to develop and test first versions of new propositions live in the market.

It results in fewer ‘big bang’ launches and more phased iterations, something that Todd learned from online used car platform HeyCar (VWFS is a main investor). He was part of the feasibility group which presented the proposition to the board. It subsequently went through live customer testing and refinement to create the current business model rather than spending years in development before launch.

The new structure helps VWFS be nimble, adapting to trends more quickly or, as Todd puts it, “placing bets in the right areas”.

Consequently, during the past tumultuous year, VWFS has been able to launch commit to purchase, partner with Tusker, set up payment holidays to customers, scale up its Drive retail contract hire platform and manage the significant proportion of vehicles that went on contract extension, including in the truck and bus division via MAN.

While it dialled up its launch activity in more conventional areas, VWFS temporarily pulled back from its mobility developments.

It will remain an area of priority, and one where VWFS has done a lot of work. But it’s also a subject where Todd concedes he’s “a lot less clear on the three-to-five-year horizon”.

He adds: “For the UK, mobility is still one to be determined. We want to provide access to our vehicles in the form that a consumer wants. If you need a van for an hour, you can have one. If you need a lorry for five years, we can provide that. If you want a purchase arrangement or a pure rental, you can have that, too”.

“We have a rental operation which gives us a platform for other initiatives. On subscription, we ran a pilot with Drover for 18-24 months which gave us good learnings about how much people would pay in different parts of the country, and that they were happy to do it all online. We will continue to test this”.

“We also have a flexi-rent proposition for six, nine, or 12 months as a pure rental. That was particularly attractive in the light commercial sector during the lockdown.”

In the retail channel, VWFS has launched mobility credits for electric vehicles. Lease an ID.3, for example, but need to go on a long trip? VWFS will offer you a petrol or diesel alternative. Need to move some bulky items? A van will shortly be on its way.

“While we are still trying to work out what mobility means in the future, we’re not standing still. Developing our rental car and van business to use for subscription pilots, in flexi-rent and for mobility credits is giving us that rich learning and experience.” VWFS chief executive officer Mike Todd.

VWFS is also considering a try-before-you-buy offer for EVs to encourage uptake, while corporate customers were enticed to switch to the ID.3 by the prospect of having any early termination charges on existing leases paid, including with other contract hire companies.

“We want to play our part in the transition to electric and we are always looking at the blockers for people,” Todd says. “In retail, it’s cost of the vehicle, maintenance cost and residual value.

“In corporate, it could be early termination fees, so it was a tactical deployment to say we’ll cover that because we are confident that when they get in the ID.3 they’ll want to stay with it and also, hopefully, with Volkswagen and VWFS.

“It’s worth that upfront investment and it’s had a really good response. I wouldn’t rule out (repeating the offer) on other electric models.”