Wednesday 28 September 2016

Volkswagen Bank lent out €350m to drivers last year

Personal Contract Plan business doubles as Irish car sales go off the chart

Published 07/02/2016 | 02:30

Putting the shine on a valuable marque at Volkswagen, where financing last year topped €350m
Putting the shine on a valuable marque at Volkswagen, where financing last year topped €350m

Volkswagen Bank loaned more than €350m to Irish motorists last year - a 53pc increase on 2014 and a strong indication of the booming new-car market.

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The high level of motor-related lending highlights in particular a big increase in the number taking out Personal Contract Plans (PCPs).

These sophisticated hire-purchase agreements are making it easier for motorists to use, rather than own, a new car and are playing an increasing role in higher registrations.

In its case, Volkswagen Bank is reporting a more-than-doubling (105pc) of its PCP business last year amid expectations of further substantial growth in 2016.

Details of its €350m lending coincide with the bank's imminent move from its Dublin headquarters at the Sandyford Industrial Estate to the company's motoring hub at Liffey Valley, which houses the Volkswagen, Skoda, Audi and SEAT brands of passenger and commercial vehicles.

Building work to increase capacity and create new office space at Liffey Valley has been completed and the move to what the company calls a "centralised campus" begins this week.

Expansion of business at the bank is expected to create 20 jobs - 61 are currently employed. The company's insurance arm also has six employees. Between all elements on the new group site, total employment will reach around 250 over the next 18 months.

All of this comes against the backdrop of the group becoming mired in the diesel-emissions scandal (115,000 Irish owners are affected) since last September.

As of now, there is little to suggest that overall sales, or economic activity here, have been negatively impacted. The scandal broke in the low-volume car-sales autumn period, so the scope for damage was limited and in fact the group ended the year as the market's biggest seller.

For the month just gone, Volkswagen's new-car percentage increase (16.24pc to 3,737) was the smallest of the top 10 brands for January. But as it usually makes up a lot of ground over the year, it would be unwise to suggest any decline in total-year registrations against rivals at this point.

There is no doubt, however, that the bank benefitted substantially from last year's upswing in new-car registrations, with its number of PCP agreements up 41pc on 2014.

Personal Contract Plans now account for just over 71pc of Volkswagen's overall business (up from 55pc in 2014). That figure will almost certainly expand further with deals for new and used cars.

PCPs involve paying a deposit (cash or trade-in), agreeing the repayments, term and future value of a car. At the end of the specified contract period - usually three years - participants can hand back the keys, buy the car for the pre-agreed amount or use the equity in the car to sign up for a new deal.

Volkswagen has used PCPs to strategise sales with lower interest rates (1.9pc) for models with higher trim levels. These cost more, but with a slightly larger deposit, repayments are the same level as lower-trim vehicles.

The bank now finances 37.5pc of the group's cars (up from 29.4pc in 2014).

Volkswagen group managing director Lars Himmer said the campus move would create "positive synergies" between the sales and finance businesses. The general manager of Volkswagen Bank Ireland, Stefan Smith, said it would ensure "closer alignment" of the businesses.

Sunday Indo Business

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