“2009 will be extremely difficult for us all”, he says before anything else, speaking for VWFS and for the captive finance market at large. “The recession will certainly reduce business opportunity, and we will need to balance our costs accordingly. We have high volumes of new contracts, and very high finance penetration – but increasing levels of arrears, bad debt, and vehicle returns.”

The fact that Wheeler is comfortable to begin an interview with such a roster of challenges says a lot about his confidence in VWFS’ ability to weather them. After all, he is no stranger to hostile conditions. Whereas many asset finance MDs start their careers in sales or back office roles, Wheeler began as a collections manager for Provident Personal Credit in Glasgow, in 1982.

Lets just say collecting in Glasgow was character building, but generally the people had just fallen on bad times. Nevertheless, I really believe if you want to be in the business of lending money, you need to know what happens when you get it wrong. Given that he learnt the workings of the financing business in a climate like this, one would think Wheeler could be the perfect man to lead VWFS through the tribulations of the deepening recession.

One major strategy for VWFS’ continued prosperity, according to Wheeler, is the spreading of risk across many areas of the business: “Trading in such an environment is tough, and requires a blend of products, services and campaigns. We are always reviewing our range of products and propositions in order to minimise risk and maximise performance.”

Along these lines, VWFS has followed in the footsteps of its parent. Volkswagen Group as a manufacturer is known for its prolific approach to unveiling new vehicles – 2008 alone has seen the release of Volkswagen Scirocco, Tiguan and Passat CC; Audi Q5; Skoda Superb; and SEAT Ibiza, plus Volkswagen are gearing themselves for the new Golf and Polo during 2009. Within the sphere of finance provision, things are no quieter. VWFS is engaged in an effort to offer as diverse a range of finance products as possible, in order to take advantage of every conceivable sales opportunity, and during 2008, have launched over 75 different finance campaigns.

Most recently, the company has been working on a system of Retail Service Plans, designed to “help retailers maximise their revenue opportunities regardless of the economic downturn”. The plans work by extending the value and lifecycle of cars owned by customers who are delaying purchase decisions, thus forging goodwill and making a Volkswagen Group vehicle purchase more likely when the right time comes. This year has also seen the launch of a used car service plan.

VWFS has championed the use of service inclusive finance plans since they were first introduced for the Skoda brand in 1997. At the end of 2008’s first half, VWFS’ financial report showed a 258 per cent year-on-year rise in the value of service and maintenance contracts signed. This was due in part to offers like the £209 per month Transporter van plan, and subsequent equivalents for the Caddy and Caddy Maxi vans.

Wheeler is also keen to stress the company’s continued emphasis on insurance products, with a steadily growing motor insurance portfolio and a Quote and Buy website going online in the immediate future. With so many financial products being offered, says Wheeler, VWFS is well placed to pick up revenue wherever opportunity may lie, and equally well placed to survive major sales hits in individual markets.

This risk spreading approach translates across to Volkswagen’s fleet business in the UK, where VWFS leases and manages fleets of anywhere between 1 and 400 vehicles. This focus variety extends once again to financial products attached to the fleet business, with the latest release being a Volkswagen Group Leasing fuel card developed in conjunction with Arval.

The most visible spread of VWFS products across different markets can be seen in the offering of finance across 8 brands: Volkswagen Passenger, Volkswagen Commercial Vehicles, Audi, SEAT, Skoda, Bentley, Lamborghini and Bugatti. “Volkswagen Group,” according to Wheeler, “has the largest and most diverse cross section of brand profiles in the industry”. Whereas each of these brands operates as a different business in terms of sales and marketing, they all benefit from economies of scale in using an overarching finance and back office superstructure provided by VWFS.

“Their approach to the market is different,” says Wheeler, “and often they have different customer bases. We work with each brand to manage a range of finance offers that promote the sale of their cars.”
Of course, the reverse side of this bounty of finance opportunities is the fact that VWFS has such a large flock of brands and financial product niches to tend to. With VWFS playing it safe by operating so many different types of business, how does it hold the whole edifice together?

Wheeler says the solution lies in close communications between different aspects of the business, both within Financial Services and within the larger context of the Volkswagen Group. Talking about the relationship with Volkswagen Group as a manufacturer, he explains: “We have developed a joint strategy across 3 key areas – parts, car sales, and finance volumes. The two companies together drive performance towards these common goals.”

As part of this cooperation, he continues, Financial Services has to be more than simply a money lender. “The philosophy of the companies is also seen as being about ‘the brands creating the dreams (i.e. the vehicles that customers want), and VWFS realising them’. This relationship includes not just manufacturing and financing arms, but importers, retailers and maintenance services also.”

With future prosperity riding on the success of this intense communications strategy, the importance of IT systems for VWFS becomes abundantly clear. This is the reason for Wheeler’s meeting with Dara Clarke: VWFS is currently working with White Clarke Group to implement a new IT infrastructure which will eventually interface with the Volkswagen Group vehicle ordering, logistics, and customer management.

“Having a full view of our customer” says Wheeler, “from the point of vehicle order through to servicing, warranty work, the overall customer experience, their finances, motor insurance, and claim information will be essential in allowing us to provide the outstanding service we need to deliver.”

At present, Wheeler is confident that 2008’s year end results will see VWFS ahead of 2007 in terms of volume across all areas of reporting, but with default on the increase across the industry and margins under pressure, profit is more difficult to predict.

Certainly, 2009 will be a year of consolidation, with a major emphasis on bedding in new systems, maximising process efficiency, and using Volkswagen Groups enormous spread of physical and financial products to take advantage of all possible business opportunities.

A recent staff engagement survey at VWFS’ headquarters in Milton Keynes has shown morale to be extremely high among the company’s 450 staff, and Wheeler is sure that his organisation is in the right frame of mind to deal with the worsening condition of the automotive industry. When asked what he expects from VWFS over the next 12 months, his answer is immediate: “Stability, growth and commitment – commitment from brands, colleagues, retailers and customers. By continuing to work together we can weather the storm of 2009, and be best placed to take advantage of the inevitable growth in 2010 and beyond.”



Transcript of created article created on 10th November 2008 by Leasing Life Magazine