Eurozone car makers have 'competitive advantage' thanks to ECB bond actions
Published 16/06/2016 | 02:30
German, French and other Eurozone car makers can undercut rivals from elsewhere in the EU thanks to the ECB's QE programme and cheap loans, according to industry insiders.
Big Eurozone manufacturers that have their own banks are passing ultra cheap borrowing costs on to car buyers using forecourt finance. Rivals are having to slash margins to compete.
The ECB only started buying coporate bonds a week ago, but the move was well flagged and borrowing costs for Eurozone corporations fell in advance of the official launch. Car makers' bonds have been among the first purchases by the ECB. The ECB cannot buy bank bonds, but companies, mainly car makers including Volkswagen, BMW, and Renault, all own banks based in the Eurozone. They benefit from ultra low borrowing costs, and can pass savings on to customers who use car finance. The ECB also lends to manufacturers' in-house banks.
Companies such as Ford, Suzuki and Land Rover and Nissan, which rely on Irish domestic banks to finance customers, fear they are at a competitive disadvantage.
Volvo Ireland managing director Adrian Yeates said there is an "oversight" in financial regulation in Ireland from which some car manufacturers are benefiting. "It's not a loophole because it's within the EU (rules), there's no suggestion there is anything untoward in what they're doing. The difference is the German banks in particular have access to money at much lower rates than car manufacturers dealing with Irish banks would have."
Sales and marketing director at Honda John Saunders said competing with manufacturer-led financial institutions has introduced a "huge degree of competitiveness", adding: "In response to that we have to look at a cost of competing head-on with some of these rates. We then also have to look at specification upgrades, which introduces a separate line of value but again it gives you something to compete with just a cut rate of finance."
Hyundai Ireland managing director Stephen Gleeson said: "The simple truth of it is you've got the likes of Volkswagen Bank, Renault Bank and BMW offering, anywhere between zero and 3pc or 4pc. Obviously we're up at around 7pc." Some manufacturers claim that without slashing margins their customers would end up paying more to drive a cheaper car.