Falling residual values and weaker car sales are increasing the pressure on Volkswagen Financial Services. Their boss wants to counteract this with savings and reorganization - with consequences for the workforce.
Volkswagen Financial Services (VWFS) is suffering from a sharp decline in the value of used cars, especially combustion engines, and expects depreciation of over one billion euros on leased vehicles for the year as a whole.
VWFS is planning a savings and transformation program called “Captive of the Future” to reduce costs by more than 20 percent and make processes more efficient through standardization and automation.
A workforce reduction at VWFS will “certainly be an issue soon,” although employment is guaranteed until 2030; The Group Mobility division currently employs around 18,000 people.
VWFS boss Anthony Bandmann focuses on the core business and wants to do more business with leasing back, financing, insurance and service contracts.
Braunschweig. Volkswagen's finance division is expecting more than a billion euros in special depreciation on leased vehicles this year. That would be the highest value in at least two decades. The reason: In addition to electric cars, used gasoline and diesel engines are now also losing value.
This particularly affects Volkswagen Financial Services (VWFS), as one of the group's most important profit suppliers. The unit regularly markets lease returns.
VWFS plans to resell around 600,000 vehicles this year, four out of five of which are combustion engines. Their loss of value “hurts disproportionately,” VWFS boss Anthony Bandmann told the Handelsblatt. High fuel prices encouraged buyers to switch to electric cars and depressed the resale value of used diesel and gasoline engines.
This puts a strain on the calculation for lease returns where VWFS bears the residual value risk. If the cars can only be sold for less than the originally calculated residual value, there is a risk of losses. If this becomes apparent during the term of the contract, additional depreciation may be necessary, as is now the case with VWFS. “There is demand, but at a reduced price,” says Bandmann, referring to used combustion engines.
In the first nine months, the operating profit of the Group Mobility division, to which the finance division belongs, fell by almost seven percent to 2.7 billion euros.
In the first half of the year, VWFS had to write off 709 million euros on leased vehicles - more than twice as much as in the same period last year. The depreciation affects combustion engines and electric cars, where the residual values are also under pressure due to discounted new car offers and technical advances in new models.
In order to counteract this, the bandman, who has been in office since January, is preparing a savings and restructuring program with the support of the management consultancy Roland Berger. His name: “Captive of the Future”. In-house leasing companies and banks are referred to in the industry as “captives”.
“We’re still early enough,” said Bandmann. At the same time, he emphasized: “He has never experienced such a combination of different challenges” in his career.
Competition from China and e-car funding are putting residual values under pressure
Cheap new cars from Chinese manufacturers are putting pressure on the prices of young used European brands, says Bandmann. The promotion of new electric cars also further increases competition and puts pressure on residual values. When it comes to leasing rates, a cheap new electric car now competes with a two or three-year-old combustion engine Golf.
VWFS had long benefited from the opposite effect. When chips and later also wiring harnesses were missing during the corona pandemic, new car production stalled. Used car prices shot up, leasing returns brought high profits.
Combustion engine prices are now normalizing, but are still above the 2019 level. The residual values of electric cars are stabilizing after significant declines. However, due to the high proportion of combustion engines, this does not offset the burden, according to management. With “Captive of the Future” Bandmann wants to make the financial division more efficient.
“We urgently need to work on our cost and organizational structure,” explains CFO Ingrun Bartölke in an internal communication that went out to employees this week and was available to Handelsblatt. She speaks of a “polycrisis”: technological change, new competitors, geopolitical uncertainty and more regulation are affecting the industry at the same time.
VWFS costs are expected to fall by more than 20 percent in the next five years, according to Volkswagen headquarters in Wolfsburg. VWFS does not comment on these figures. The concept is to be presented to the supervisory board of the Braunschweig subsidiary at the end of November, and a timetable will follow at the beginning of December. The committee is headed by VW finance chief Arno Antlitz, who is driving the austerity drive with CEO Oliver Blume.
Bandmann is likely to take on the established country organizations. Different processes, data sets and IT systems slowed down efficiency, according to management. Bandmann wants to bundle tasks, standardize systems and automate them more. Outsourcing is also being examined.
Staff cuts at Volkswagen Financial Services “soon to be an issue”
This could have consequences for the employees. Staff cuts will “certainly soon be an issue in Financial Services,” says a company insider. He doesn't mention an order of magnitude. The Group Mobility division, to which the finance division belongs, employed around 18,000 people at the end of June, of which a good 7,000 were in Germany. VWFS is guaranteed employment until 2030.
Strategically, Bandmann is moving away from the mobility plans of his predecessor Christian Dahlheim. He wanted to bundle offers on one platform via an app. Bandmann focuses on its core business. The hopes for sharing and flexible car subscriptions have not been “fulfilled to the extent expected,” according to management circles. Providers have disappeared, others are struggling with profitability. Mobility services no longer appear in investor presentations.
At the same time, the VW parent's weak sales are weighing on the new car business. Instead of ten or eleven million cars, there are now eight to nine million. The brands need low leasing rates in order to utilize their factories to capacity. However, if the residual values drop unexpectedly, the offer becomes more expensive.
Bandmann therefore wants to get more business out of every car: re-leasing or financing returns, retaining customers for longer with insurance and service contracts. The first programs, for example with Cupra, encouraged dealers to take on more used cars at better prices. “Dealer satisfaction and profitability are also increasing,” said Bandmann. The business with returns is intended to help cushion their loss in value.
