Jörn Kurzrock, Managing Director of VW FS Australia, reports on the current situation "down under" and offers a fascinating glimpse into the Australian market.
Hello Mr. Kurzrock, apart from the time of day and year, what is different for you there in Australia?
Kurzrock: Right now the big difference is the coronavirus infection rate. After a major outbreak in February/March last year, the government imposed stringent measures, and at the moment, in what is summer here in Australia, we have virtually zero incidence of new cases.
The entrance hall at Volkswagen Financial Services Australia showcases the icons of the Volkswagen brand from the Beetle to the R-Line. What are the economic repercussions of the pandemic?
Kurzrock: In this respect we are less different from other regions of the world. The economy has fallen into recession. The new car market alone has slumped by over 20 percent. Australia is purely an import market in this domain, and the trade also has a completely different structure to that in a country like Germany, for instance. Here, a good handful of large dealer groups, which are often publicly listed, serve many or even all of the brands represented in the country, each in hundreds of individual dealerships. They dominate three quarters of the market. This means the captive triangle – comprising the group brands, financial service providers and car retail businesses – is actually a rectangle here, with the dealer holding companies also playing a major role.
How well is Volkswagen Financial Services Australia doing within this four-sided complex, and what impact is the crisis having?
Kurzrock: In terms of new business we stand at just under 110 percent in a year-on-year comparison, and overall the figure is 105 percent. You may well ask how that can be when the world around us is collapsing. There's a very clear answer to this. It's the result of the new strategy we adopted together with our region management in 2018 and started to entrench, i.e. before the coronavirus took hold. In addition to the new car business, it particularly focuses on strengthening the used car business, on enhancing customer loyalty and on cooperation with the major dealer chains. And this relates not only to our own Group brands, but to all the dealer groups operating here in Australia and their broad portfolios as well. Thanks to this strategy, we are today in a position to purchase non-Group brand business to which we would not normally have access. This means that although the new car market has endured a significant slump during the pandemic and we were operating in difficult overall conditions, we were able to generate more business than we did in the previous year thanks to our broad positioning.
Indeed, Jaguar and Land Rover are also listed on your website – albeit not prominently – alongside eight of the brands from our Group. From a German perspective that's a bit of a shock at first...
Kurzrock: …I have to jump in and stress something straight away: we are completely committed to our mission for the Volkswagen Group! We operate the external brands business completely transparently as an independent white-label profit center. This gives us financial backup, strengthens our overall situation in the market, and ultimately makes us less dependent on the sales figures of individual brands. In addition, we create the financial means to invest in strategic projects such as digitalization, which is also for the benefit of our Group brands. Our number one goal remains to secure and increase customer loyalty within the brands.
Our number one goal remains to secure and increase customer loyalty within the brands.
How does that work in practice?
Kurzrock: Let's take the leading group AP Eagers, which is listed on the stock exchange and represents 33 car and 12 truck & bus brands on the Australian market. We signed a Strategic Cooperation Agreement with this retail group in 2019. In theory, it should have 100-percent customer loyalty within the group. After all, if a customer of ours buys a Ford or Toyota after a VW, he or she stays in the group. But we also want to keep this customer with us and not lose him or her to other financial service providers. Conversely, parallel to being part of the group's diversified portfolio, we try to redirect, as it were, the existing customers of other brands.
What's important above all is to have a coherent used-vehicle business. Therefore, on the one hand, we address customers with ending contracts – the potential defectors, so to speak – on the subject of new car financing and, at the same time, make attractive used-car offers complete with service packages and warranty products to make it easier for dealers to "turn" the customer our way – all with a clear perspective in mind: to achieve 50 percent penetration in the used car business as well.
That sounds like an intelligent concept...
Kurzrock: There's nothing special about this either! Competitive retail interest rates, which we can offer at relatively healthy margins and commissions, allow us to buy business. And then there's one more thing: many brands don't have captives here, but instead they have cooperation models with banks. Normal commercial banks, however, are not very competitive when it comes to residual values or three-way financing. Australians traditionally borrow against their property for car loans since home equity loans are extremely cheap here. They call it "putting it all on the house." Earlier, at least 50 percent of customers used to show up at the dealership like cash customers as they already had the necessary financing from their bank. That's changed now because banks have become markedly more risk-conscious, in part due to the pandemic.
Doesn't that increase the risks in your books?
Kurzrock: Absolutely not, we're rock solid in this respect. Indeed, our very strategy is to be a tower of strength in the market. Many providers of financing have repeatedly changed their terms and conditions virtually overnight during the crisis. Dealers are then faced with difficult decisions as to whom they should do the financing with. But we don't opportunistically snatch up business where others drop out. We create reliable benefit at the group level. To do so, a little commission is sometimes done without here and there.
What are your plans going forward into 2021? For example, can you imagine taking on the captive role for further brands?
Kurzrock: We don't know what will happen in 2021. We just have to make sure we're prepared for any market situation. We will continue to focus unswervingly on implementing our strategy, and that is exactly what listed company partners need. We respond cautiously to inquiries from third-party importers, always with an eye to sustainable overall success and our mission for the Group.
Thank you for your time!