The dealerships remain the most important sales channel for Volkswagen Financial Services, a key promoter of sales for the Volkswagen Group brands and the world's largest provider of automotive financial services. In an interview with Corporate Communications, Jens Legenbauer, Chairman of the Management Board of Volkswagen Leasing GmbH, gives us his views on the digital ecosystem, coronavirus support for dealers and why the ID.3 will mainly be leased.
Mr. Legenbauer, your first year at the helm of Volkswagen Leasing has been heavily impacted by the COVID-19 pandemic. Would you nonetheless like to venture a conclusion or two?
Glad to. Putting it in a few words, you could say my review is positive, despite the coronavirus, because the customer's demand for "using instead of owning" is more prevalent than ever, and that applies to electromobility as well. Our business model is precisely tailored to this need. The elements of our digital offensive are currently being put into actual practice with the online used car platform heycar, the digital application routes, the renewal of the contract management systems, and the digital processes being implemented in the car dealerships. Of course, in retrospect, I would have liked some things to have moved a little faster, but after all, this isn't a greenfield development where we can start afresh, what we're doing is integrating new components into an existing landscape. In other words, we're working with the Volkswagen Group brands and our dealers to build a digital ecosystem for the customer. That is indeed a really big undertaking. In this light, and not only because of the difficulties forced upon us by the coronavirus, I would like to thank the dealers and the brands for their close collaboration and commitment over the past few months.
How have you been supporting your dealers in the coronavirus crisis so far and how will you manage the crisis in future?
First of all, our dealer partners deserve a lot of respect. All car dealerships were closed for several weeks in spring, and public life, and with it consumer activity, was also restricted in the second lockdown. The situation in spring 2020, in particular, presented the trade with huge challenges of course – especially as regards liquidity. That's why, together with our colleagues at Volkswagen Bank, we also reacted quickly and developed a variety of measures to secure liquidity very early on. These included, for example, fast and unbureaucratic bridge financing, extended terms of payment and temporary credit line increases, as well as stable interest rates. We know from asking the dealers that we were right on target with our efforts. Our information policy in particular was rated as being very good – in terms of both the scope and speed of the information provided.
Furthermore, in order to get business going again and encourage people back into the showrooms, we launched a great sales and marketing program together with the Group brands in the form of a short-term campaign. In addition to really very favorable conditions for leasing and financing contracts, we included payment protection insurance in the event of unemployment in this package, which we believe is a very effective safeguard for employees to help them stay mobile longer in case of need. Here, too, the feedback we received from dealers on this package was extremely positive. And as regards the issue of the temporary reduction in VAT, which had very differing effects on our products, we also managed under considerable time pressure to develop and implement a solution with the dealers that was viable for all sides.
The figures for new registrations over the past few months reveal different trends, but in principle they tend to give cause for hope that the market is gradually on the way to recovery. Do you think that right now there is a growing willingness among customers to use a car rather than own it?
The answer is definitely "yes". Look, nobody knows how long this pandemic and all its economic repercussions will last or how intense the impact will be. These times are characterized by uncertainty, no question about it. But what could be more sensible than leasing or renting a vehicle for a relatively short period of time at the highly favorable conditions I just mentioned so as to remain much more flexible? In order to address this need of our customers even more effectively, we've also developed our own subscription model, and this has received a lot of attention in the market. I'm convinced that financial flexibility in personal mobility has never been more in demand than it is right now.
Change of subject: why do you think leasing in particular holds so much potential for the sale of e-vehicles?
Well, I already declared at the IAA 2019 that our stated goal is to have 80 percent of all the Group's electric vehicles on our books. That's a very ambitious target, we're aware of that, but the goal is perfectly realistic. We believe that many customers, despite all their curiosity about electric vehicles, initially want to be very flexible when acquiring them. Factors like the residual value at the end of the contract and the resultant remarketing prospects are admittedly difficult for private customers to assess – it is, after all, a completely new type of vehicle that is entering the market. Through leasing and its many flexibility options, we assume responsibility on behalf of our customers and therefore give them a high level of confidence in the new technology. In our view, this makes leasing the key to electromobility.
The pressure to discount is simply lower with leasing and financing contracts.
What are the long-term effects that could be of benefit to the dealers through the leasing deals and package offers?
I see two very decisive advantages for the dealership. Firstly, financed or leased vehicles are equipped to a higher standard. This is because additional equipment paid for as part of a monthly installment is not as noticeable in terms of price perception as it is included in the absolute price. This makes it easier for the customer to choose extra features. And the dealer simply sells "more" car as a result. Secondly, dealers benefit from much stronger customer ties because most leasing and financing contracts run for an average of three years. Dealers who are aware of this have several touchpoints available to their advantage during this time for addressing customers individually within the framework of a well-functioning customer relationship management. Take, for example, the maintenance and inspection services that are included in many packages. In my view, these are not just valuable and additional sales opportunities, they also amount to concrete earnings potential in the workshop business. In the case of cash purchases, it often transpires that the customers are subsequently inaccessible to the dealer if, for example, they have their servicing carried out at any old "common-or-garden" workshop. A great many dealers have recognized the advantages of financial services and are using them in their own business model. And there's something else we hear from dealers again and again: the pressure to discount is simply lower with leasing and financing contracts.
Nevertheless, there's sometimes friction between you and the dealers, or rather between you and the VW/Audi dealer association. The criticism is being expressed in particular via some media by the association's chairperson Weddigen von Knapp.
Yes, I know. We are in part being judged pretty harshly and we're accused of unwillingness to engage in dialog and a lack of cooperation. I think it's unjustified, because anyone who implements as many measures for dealers as we do is a reliable partner, in good times and bad. In addition to the various measures to ensure liquidity that I already mentioned, we have also done many other things for and together with the dealers: for example, we've deferred lease payments, refrained from charging interest on arrears in the vehicle return process, and also reset the outstanding amounts for promotion and relegation in remuneration models for 2020 to the 2019 level on a one-off basis. I could list even more measures. But of course there are also issues where the management of VW Leasing is still in discussion with the dealer community: the hourly rates, for instance. Here, it is not permitted under antitrust law to reach general, overarching agreements at the dealer level. As a result, it is individual agreements that are required at the dealer level. And we still have different standpoints on the topic of the direct marketing of used cars. Nevertheless, the fact remains that we are the partner of the dealers. That has been and is our credo.
How far are you in realizing a platform-based digital ecosystem with intelligent product packages?
We are progressing well. Our Chief Digital Officer, Stefan Imme, is moving our entire product and service portfolio in the direction of digitalization. We've already digitalized various application procedures and, together with Verimi, for example, we've recently introduced the digital signature process at the car dealership when buying a car. This is a considerable simplification for both the customer and the salesperson.
What approach are you taking in the digitalization, is there some fundamental idea behind it?
Basically, we want to constantly supply the dealers with additional potential customers and open up supplementary earning opportunities. And we intend to do this by developing and making available faster and more digital processes in all aspects of our financial services. As a digital captive, we are on the direct path to omni-channel selling where we generate benefits for our customers, the brands and the dealers between brand ecosystems, customer platforms, and the integration within dealer websites – online and offline!
Okay, Mr. Legenbauer, that sounds like there are some exciting yet challenging times ahead for you and your team. Even though Christmas will be somewhat different this year, what wishes do you have for the future?
Oh, that's actually quite simple. A lot of things are already going pretty well, but it would be desirable to achieve more stability again, and therefore planning capability, as regards systems and arrearage situations, both in the many projects and in our actual operating business. And then, of course, I would be relieved and delighted if we managed to leave the coronavirus behind us. In business as in life, dealing with the pandemic and surmounting the crisis is crucial to whether we can return at some point to normal conditions.
Mr. Legenbauer, thank you for talking to us.