Growing from only 17 dealers in a single city in 2004, Volkswagen Financial China has built up cooperation with more than 2,000 dealerships in 300 cities as the country's first foreign-owned automotive financial services company celebrates its 10th anniversary.
In 2013, the company offered financing on 228,000 vehicles. Today almost one in every 10 vehicles Volkswagen delivers to customers is sold through its financial service company. With the help of other financial institutions as well, 20 percent of Volkswagen's sales in the country are made through financing.
Frank Witter, chairman of the board of management of Volkswagen Financial Services AG, shared his views and vision on financing with China Daily reporter Li Fangfang.
What's your expected rate for Volkswagen car financing in China?
Currently about 20 percent of people who buy a car look for financing, up from less than 5 percent five years ago, so we believe the percentage is going to grow to 40 to 50 percent over the next couple of years. But 40 to 50 percent is still not the whole picture compared with other economies, such as 90 percent in the United States and 75 percent in Germany.
When will China, now your second largest financing market, lead your global business?
When talking the portfolio in China, last year we had new contracts on roughly 230,000 vehicles. Along with the success of Volkswagen Group China, which is going to sell 3.5 million vehicles this year, we are confident we will achieve more dramatic growth in 2014, even with a stable penetration rate of 10 percent, which means 350,000 vehicles with financial services.
Now China is our No 2 market in terms of new retail contract volume annually. Germany is still the lead with a significant margin. But our business in China has been growing very fast and successfully to close the gap. China has been the largest vehicle market, and managing such growth is a challenge. We need to continue to focus on the quality of services.
Volkswagen Group set a solid target for 2018. What is China's position in your strategy for that timeline?
China is a very important market with significant contributions in terms of volume and profits. With more Volkswagen sales to come, the share we are getting is important, and China is strategically an anchor of our global financial services strategy.
We have analysis in Europe that if a customer finances with a brand, there will be better loyalty. So this is an intangible benefit for brands to work very closely with the financial services of the company.
China's automotive industry is facing many challenges. Will it impact your business?
Yes, there are restrictions on license plates n a growing number of cities. But I think in a lot of areasгнmaybe westгнthere is a lot of potential. We are positive about the future with all the potential.
Second, in the past couple of years most of customers have been first-time buyers. In such a rapid pace of development, aftersales services and extended warranties and insurance become increasingly important.
And we are providing more services and solutions. For example in 2011 we established Volkswagen New Mobility Services in China focused on products like insurance, car sharing and leasing.
Your company just issued asset backed securities, or ABS, in China, the first foreign auto finance company to issue such bonds. What are your future plans?
We are very grateful that we got the opportunity to open the window for ABS. We believe that diversification in funding sources is strategically very important. So we are all becoming less depending on bank loans.
The first big step is to be known in the market place. We have a lot of experience to do that and a strong track record, and we have with roughly 16 billion euros ($19.9 billion) in auto ABS, roughly 14 percent of funding for Volkswagen Financial Services. So it is an important strategy.
As well, we are in dialog with regulators and preparing for more issues, but nothing has yet been concretely approved.