A Journey Through Time: The Rise of Volkswagen Leasing

Volkswagen was the pioneer in the field of motor vehicle leasing in Germany. On October 18, 1966, the Wolfsburg-based automaker founded "Volkswagen Leasing GmbH" (VWL). With this new subsidiary, which was built up under the management of Richard Berthold, Volkswagen responded to developments in the United States, the birthplace of leasing. By taking an early and determined stance in the leasing business, Volkswagen ensured that this new sales instrument remained under the control of Volkswagenwerk AG.

Carefree mobility

Since its inception, VWL has positioned itself as a leasing company offering Volkswagen models together with comprehensive services. If a customer opted for Service Leasing, the monthly lease payment covered wear-and-tear repairs, lubrication and maintenance (including oil changes under Service Package A and tire replacement under Service Package C), as well as motor vehicle tax. In addition, the "Damage Service" allowed for the cashless settlement of accident damages. From February 1975 onwards, this offering was called "Service Package B." 

It was characterized above all by low contributions for third-party liability and comprehensive insurance. These rates were calculated at a flat fee, independent of the customer's individual claims history. For private customers, subscribing to this package was mandatory.

Benefits for both sides

In addition to a financing calculation that took into account the used car value at the end of the contract, leasing differed from credit financing primarily in that a Beetle, Golf, Passat or Transporter remained the property of the leasing company. This business model offered advantages to both customers and carmakers alike. For manufacturers, vehicle turnover increased, since with leasing the old vehicle was replaced by a new one after a maximum of three years. At the same time, leasing strengthened customer loyalty to the brand and the dealer.

Since the customer had to return the leased vehicle to the Volkswagen dealer at the end of the specified contract term, this provided an ideal opportunity to negotiate a follow-up contract. The full-service offering was also beneficial for workshops, since lessees took their vehicles to Volkswagen dealer workshops and authorized repair shops for inspections and repairs.

The regular workshop visits prompted by maintenance needs also ensured that the dealer network had a supply of attractive, well-maintained Volkswagens available for resale as used cars once they were returned by the lessees.

For commercial customers, the advantage of leasing lay in the fact that the monthly payment was treated for tax purposes like rent, which could be claimed in full as a business expense. Since, for example, acquiring a Transporter did not require a large upfront investment, leasing served to preserve equity capital. The full-service offering from VWL was also attractive to larger customers, as the administrative costs incurred in managing and overseeing a fleet, particularly through personnel, could be saved through VWL's comprehensive service.

Promotion for an unfamiliar product 

From the very outset, advertising, brochures, and dealer training were central to VWL's operations, as it was necessary to inform customers about a product that was still unfamiliar to them and to convince them of its merits with compelling arguments. After the work of the first few years had focused primarily on winning over the dealer network for the new financial service "leasing," VWL entered the profit zone in 1969. With a fleet of 4,151 vehicles and revenue of 10.7 million DM, VWL achieved a return on equity of 100 percent. The profit of 1 million DM was split equally: half was transferred to Volkswagenwerk AG, and the other half was used to increase equity capital.

When the Supervisory Board of Volkswagenwerk AG approved the company's formation in September 1966, Friedrich Thomée, Director of Finance and Administration, had assumed that a balanced operating result could be achieved once the fleet size reached around 2,000 vehicles. At that time, he set a target of 20,000 leasing contracts as a business objective for VWL, projecting that this volume would generate a "handsome profit". 

Unabated growth and move to new offices

VWL remained on a growth trajectory even during the severe crisis that gripped Volkswagenwerk AG between 1973 and 1975. Even in the crisis year of 1974, the number of leased vehicles increased by more than ten percent, and profitability remained excellent. Fueled by the success of the new generation of Volkswagen vehicles, VWL continued its spectacular growth. 

In July 1978, the company was renamed V.A.G Leasing GmbH (VAGL). In 1981, revenue surpassed the half-billion DM threshold for the first time, with 198 employees concluding 89,347 new leasing contracts. The following year, the steadily growing workforce, together with employees of VAGKB (V.A.G Kredit Bank GmbH), moved into offices on Gifhorner Straße in Braunschweig.

Competition gets tougher

The success of Japanese automakers in European markets intensified competition at the beginning of the 1980s. Domestically, the Volkswagen brand was forced to seek new ways to promote sales and reduce inventory ahead of the launch of the new Golf.

Volkswagen's financial services providers played a central role in this effort. Like VAGKB, VAGL also contributed to a significant boost in sales through promotional packages for private leasing customers, notably by offering "Zero Leasing." Under this offer, the sum of special payments, leasing installments and the calculated used-car value corresponded to Volkswagen's recommended retail price. This offer was made possible because it was supported equally by manufacturers, dealers, and VAGL.

The campaigns tailored to private leasing ensured that in the years ahead the proportion of private lessees increased and VAGL's contract portfolio could be continuously expanded.

Political upheaval in Eastern Europe; Škoda Leasing is founded

Following the political changes of 1989/1990, Volkswagen AG expanded its business into Eastern Europe. In late 1991, "Škoda Leasing" was opened as a branch office of VAGL and a leasing arm for the Volkswagen Group's fourth brand. By the time the Volkswagen financial services providers were consolidated under the umbrella of VWF (Volkswagen Finanz GmbH) in 1992, VAGL had become the largest provider of automotive leasing in Germany, boasting a portfolio of around 350,000 vehicles, years of experience in fleet management, and a successful full-service program.

Source of photos and text: Volkswagen AG Historical Communications