The fleet business is of strategic importance for Volkswagen Financial Services. The company plans to have around 6.6 million fleet contracts on its books in 2025. The large volumes involved, the short vehicle lifecycles and the broad willingness to innovate make fleets a particularly signif-icant business area. In the following interview with Corporate Communications, Jochen Schmitz, the Head of International Fleet at Volkswagen Financial Services, talks about the opportunities for growth and the challenges ahead.
Mr. Schmitz, why do Volkswagen Financial Services want to grow in the fleet segment in particular?
At Volkswagen Financial Services, we have set ourselves the goal of having around 30 million contracts in our portfolio by 2025 - across all customer segments. In addition to the high growth potential that exists in the used car business, the fleet business also offers huge opportunities. If we look back at the European vehicle market in 2019, we can see that according to Dataforce the market as a whole grew by around 1.2 percent. However, whereas the growth in the commercial fleet segment was 5.7 percent, the private customer market declined by 2.8 percent. This trend was also discernible in the previous years. It shows that the major growth driver for new contracts is the business involving commercially used vehicles.
So could one say that fleets are stabilizing the overall business?
Absolutely. In contrast to the private market, the fleet market is not that volatile. Although economic fluctuations can cause companies to postpone the investment they make in replacements, this spending is usually still carried out after a time delay. After all, com-panies have to ensure the mobility of their employees over the long term – and the car is still the number one choice in most cases, even if alternative and intermodal forms of mobility are gaining in significance.
Isn't the coronavirus pandemic changing pro-curement behavior?
That's difficult to gauge. As in the market overall, we initially observed a reluctance to invest in new acquisitions. Customers primari-ly wanted to extend their existing contracts. After that, a race to catch up on orders emerged relatively quickly. The fact is that customers are now asking for contract solu-tions that are even more flexible. There may also be a shift towards using cars for business trips because travelers are avoiding local pub-lic transport and air flights. Whether this is a long-term trend or not will only be seen in a few years.
What measures will you take to achieve the goal you've set?
We've already done some of our homework in the past. For example, we have harmo-nized our range of products and services at the international level, established an inter-national tender management and fleet re-porting system, and appointed implementa-tion managers in our markets to make sure the processes are properly set up. As a result, we are now able to serve fleet customers in 37 countries.
What about the future?
For one thing, we want to work much more closely with the Volkswagen Group brands and the local importers so that we can offer attractive terms and services to our custom-ers everywhere. In addition, we want to cre-ate a digital ecosystem for our fleet custom-ers. After all, digitalization doesn't stop at the gates of the fleet business. That includes all processes throughout the lifecycle of the vehicle – from procurement to de-fleeting. We will also be optimizing our multi-brand business, i.e. the inclusion of vehicles from outside the Volkswagen Group.
Multi-brand is not what one would expect from a captive financial services provider...
That may be true, but in our view it's abso-lutely necessary. That's because we now take a more holistic view of our customers than we did maybe a few years ago. We're con-cerned with the entire vehicle fleet. And if a customer tells us he wants to have other brands in his fleet in addition to the great products available from the Volkswagen Group – for whatever reason –, we certainly don't want to send him away, but want to meet this specific need as well. Indeed, we anticipate that the proportion of vehicles we provide from non-Volkswagen brands will reach around 25 percent in Europe in the fu-ture. That shows how serious we are about this issue.
The last five years have seen a disproportionately high level of dynamic development taking place in the fleet business.
Which countries are you now focusing on?
There's a definite focus on all countries outside Germany. In our home market we've been in an extremely good position for many years now and penetration in the fleets is at a very high level. Things are different in other European markets. We're doing very well with smaller fleets because in this area we can use our strong dealer partners as touchpoints. On the other hand, though, we have some catching up to do with larger-sized fleets and multinational corporations.
You've been in the fleet business for a number of years. How has the company car business changed?
Quite frankly, the market was relatively static up until around five years ago. A few service packages were gradually added and many features became more digital, but in essence the fleet business had not been changing to any great extent. Even the short-term trend towards downsizing was quickly over. After all, there's never been a one-size-fits-all solution. Every customer has his own set of rules and pursues his own goals with his fleet. What's more, there's also the great variety of different processes that exist. The last five years, however, have seen a disproportionately high level of dynamic development taking place in the fleet business. There's a great deal happening there at the moment.
What do you mean exactly?
The fleet market is facing enormous changes. Changed regulations at the EU and state levels, new mobility solutions and new trends are increasingly shifting into focus. In the past, customers had the choice of petrol or diesel engine, various full-service options and a more process-oriented fleet management. Apart from the fact that the complex topic of electromobility has now been added to the mix, this still applies. However, there is the additional desire for more flexibility and for integrated mobility solutions. The diversification that exists from customer to customer, but also from market to market, has increased massively. Rentals, ride sharing, car sharing, company bikes, e-scooters, mobility budgets – fleet managers are almost inundated with mobility alternatives these days. The real challenge is to identify the individually appropriate solution for each customer and to separate the relevant from the less relevant. True to the motto "less is more". Not every trend is your friend, or makes sense.
Does that mean the level of consultation has increased?
Exactly. We have long been in a position to effectively advise our customers and guide them through the changes in the industry with the aim of helping them make the decision that is best for them. What is important here is to determine the individual mobility needs together and, on this basis, to integrate the appropriate solutions in the fleet and mobility management – ideally with everything from a single source. The areas of travel management and fleet management, for example, are merging together more and more in many companies. Traditional full-service leasing will continue to dominate in the future, but additional forms of mobility will supplement it. That's why, for example, we have acquired the start-up Voya in Hamburg and have taken a 60 percent stake in the fleet management services provider Fleet Logistics.
What about e-mobility?
We're noticing an extremely high level of interest in the new technology on the part of customers. It can be assumed that fleets in particular will play a major role in the market ramp-up of electric mobility. Firstly, the vehicles are becoming more and more interesting from a total cost perspective. And secondly, corporate responsibility aspects are becoming more important in procurement and fleet electrification also helps companies achieve their CO2 targets. Having said this, switching to the electrified drive is somewhat more complicated for companies than it might ap-pear at first glance.
In what respect?
It's not just a question of the vehicle. Companies also have to deal with the development of an in-company charging infrastructure and with load management. Further aspects to be considered include the precise analysis of driver and usage profiles, billing options for at home or on the road, and the different opportunities for government subsidies that vary from country to country. For this reason, we at Volkswagen Financial Services have explicitly trained electromobility experts who, together with their colleagues from the Volkswagen Group, can provide customers with comprehensive advice and develop an integrated and holistic concept for them. In addition to the topics I just mentioned, this naturally also includes advice on car policy and cost analyses for the possible use of BEVs (battery electric vehicles) as compared to hybrid or petrol and diesel vehicles.
What's your wish for 2021?
That we can slowly but surely return to post-coronavirus normality and that we continue to work with such commitment in the project teams. If we do, I'm certain that we at Volkswagen Financial Services will be the most important partner for fleet mobility globally in 2025.
Mr. Schmitz, thank you very much for this interview.