HISTORICAL NOTES I 6 - Volkswagen Group
AKTIENGESELLSCHAFTHISTORICAL NOTES I 6A series of publications from Volkswagen Aktiengesellschaft, Corporate History Department 6V O L K S W A G E N F I N A N C I A L S E R V I C E S A G Bank, Leasing, Insurance – A Chronicle of 60 Years of Financial Serviceswww.volkswagen.deE-Mail: history@volkswagen.deFSC NummerGedruckt auf FSCzertifiziertem PapierHISTORICAL NOTES Volkswagen AktiengesellschaftCorporate History DepartmentLetter box 197438436 Wolfsburg/GermanyVOLKSWAGENVolkswagen Financial Services AGBank, Leasing, Insurance – A Chronicle of 60 Years of Financial Services
HISTORICAL NOTESA series of publications from Volkswagen Aktiengesellschaft, Corporate History DepartmentVolkswagen Financial Services AGBank, Leasing, Insurance – A Chronicle of 60 Years of Financial Services
IMPRINTEDITORSfor the Corporate History Department of Volkswagen AktiengesellschaftManfred Grieger, Ulrike Gutzmann, Dirk SchlinkertTEXTEike-Christian HeineMatthias DuddeREPRODUCTION AND DIGITAL IMAGE PROCESSINGSHIFT MEDIA, HertenDESIGNdesign agenten, HanoverPRINTED BYHahn-Druckerei, HanoverISSN 1615-1593ISBN 978-3-935112-38-3 Volkswagen AG 2009Wolfsburg 2009
CONTENTSVolkswagen Financial Services AGBank, Leasing, Insurance – A Chronicle of 60 Years of Financial Services1.The Global Mobility Service Provider06From Lender to Banker: Volkswagen Bank16Mobility for a Fixed Term: Volkswagen Leasing30Safe Driving: Volkswagen Insurance38Chronicle482.3.4.5.
The GlobalMobility Service Provider
6 THE GLOBAL MOBILIT Y SERVICE PROVIDERThe Financial Services strategyIn November 1988, the then Chairman of the Board ofManagement, Carl H. Hahn, stood in front of the Supervisory Board and described the strategy for the reorientation ofVolkswagen AG’s financial services, thus: The competitionshows that “there is enormous earnings potential on theperiphery of the automotive sector.” Pointing to the revenuegenerated by the financial divisions of American manufacturers, the Chairman announced his intention to setup a “financial services company to coordinate our international FS activities.” At the time, Volkswagen was spearheading the European automotive industry and was forgingnew ways of generating profit the length of a vehicle’s valuechain and using services to build lasting customer loyaltyto the Group marques. At an executives conference just afew months later, Dieter Ullsperger, Director of Controllingand Finance at Volkswagen AG, outlined the aims of thenew “financial services strategy”, the cornerstones ofwhich were to build up financial services in Germany,to make business activities more European in characterand to broaden the range of services offered.In the first move in this direction, automotive financing,leasing and insurance activities were stepped up in Germany. The Group already had a long tradition in these fields;in fact, two subsidiaries of the Volkswagen Group had beenoperating for more than 20 years in the financial servicessector in Germany. “V.A.G Kredit Bank GmbH” (VAGKB),founded in 1949 as “Volkswagen FinanzierungsgesellschaftmbH” (VFG), was operating on a twofold basis in autumn1988: in Retail Financing, car loans were offered to customers buying the Group marques Volkswagen, Audi and Seat.The second linchpin was short-term financing of loans todealers for vehicles in stock and demonstration vehicles.With a Retail Financing volume of DM 2.5 billion and aDealer Financing volume of DM 2 billion, the Brunswickbased VAGKB was the largest bank specialising in vehiclefinancing in the Federal Republic of Germany in 1989.The market leader in the field of automotive leasing wasanother wholly-owned subsidiary of Volkswagen AG. Brunswick-based “V.A.G Leasing GmbH” (VAGL), establishedin 1966 as “Volkswagen Leasing GmbH” (V WL), providedprivate and corporate customers in Germany with leasingpackages for Volkswagen Group marques. Turnover in 1989totalled DM 3 billion from 281,000 leased vehicles.The last of the trio of companies involved in the “financialservices strategy” was an independent insurance intermediary, which had been closely associated with Volkswagenfor four decades. In 1989 “Volkswagen VersicherungsdienstGmbH” (V VD), which was established in 1948, reported atotal of 658,000 insurance contracts and turnover of DM134 million. In the concept presented by Ullsperger, thebusiness activities of the three companies would focus onthe domestic market and merge to form a holding companyin the medium term.
7THE OFFICE BUILDING IN BRUNSWICK, 1990The financial services strategy pursued two further aims: topress ahead with expansion in the European markets andto open up new business segments. Norbert M. Massfeller,who took over the management of the finance division atthe Volkswagen Group in July 1989, was given responsibility for implementing the strategy. A banker and graduate ofbusiness administration, he was involved in establishing aEuropean-wide credit card-system during his time onthe board of “Eurocard International, S.A.” in Brussels.Before making the move to Volkswagen, he had beenresponsible for restoring the good fortunes of “NorisVerbraucherbank GmbH” in the capacity of managingdirector of the Nuremberg banking house.
8 THE GLOBAL MOBILIT Y SERVICE PROVIDERNew products, new companiesVAGKB’s entry into the direct banking business initiatedthe first stage in implementation of the financial servicesstrategy. The “Volkswagen und Audi Card-System”, whichhad been available since 1990, brought together two of theleading credit card providers and included an account withan attractive interest rate. Deposit-taking business wasnow the third line of business alongside Dealer and RetailFinancing, a move clearly signalled by a change of name to“V.A.G Bank GmbH” (VAGB). The direct banking business,which today offers the full banking service ranging fromonline current accounts and credit cards to securitiestrading, mortgages and consumer credit, has been operatedas a separate brand called “Volkswagen Bank direct” sinceApril 1997. This segment sold its products by telephoneand Internet without a costly branch network. Customerdeposits, which had grown to 12.8 billion euros by 2008,helped the Volkswagen Group to keep down the refinancingcosts of financing and leasing business.A key corporate move towards stepping up businessactivities was the formation of “Volkswagen Finanz GmbH”(V WF) on 4 March 1991, under which the Bank and Leasingcompany were consolidated nine months later. The transferof shares in the Brunswick financial services providersto the new holding company meant that around one eighthof the balance-sheet total of the Volkswagen Group wasconcentrated in the one subsidiary.Radical political changes in Central and Eastern Europeprecipitated the Europeanisation envisioned in the financial services strategy. When building a dealer network inEast Germany and introducing the financial services rangeto the new federal German states, the Brunswick financialservices providers gained valuable experience in breakinginto new markets. This know-how was useful in buildingup pan-European financial services under the Brunswickholding company, which followed Volkswagen AG’s driveinto the Eastern European markets in line with the maxim“financial services follows automotive.” After the takeoverof Škoda by the Volkswagen Group in spring of 1991,V WF founded its first foreign subsidiary in the ČSFR inmid-1992.The Brunswick financial services provider also moved intothe Western European export markets one step at a time andtook over the provision of financial services from the European Group companies. It all started with the foundation ofa British company in summer 1993 and the takeover of theItalian and French Volkswagen financial services providersat the beginning of 1994.
9THE CONFERENCE AND FINANCE CENTRE IN BRUNSWICKV WF was the corporate precursor of the consolidation of allfinancial services under one roof. On 1 April 1994 it became“Volkswagen Financial Services AG” (V WFS), with Massfeller as Chairman. The new company had its own ratingsince 1996 and took advantage of easier access to the international money markets to lower the cost of refinancing.Since the switch to V WFS, the Brunswick financial servicesproviders trade as “Volkswagen Bank GmbH” (V WB) and“Volkswagen Leasing GmbH” (V WL).Under the holding company, business expansion was sustained by a large number of new financial services products.In the core business of automotive financing, “Credit”,which was introduced in 1996, became the most importantproduct in the portfolio. Fleet solutions generated potentialfor growth in the leasing business; an opportunity whichdid not go unrealised thanks to technical innovations likethe IT-supported information and analysis system “CARS”,introduced in 1997.
10 T H E G L O B A L M O B I L I T Y S E R V I C E P R O V I D E RNew business linesThe takeover of V VD and its European subsidiaries in1999 strengthened the international competitiveness ofV WFS and the presence of Volkswagen financial serviceson the domestic market. Innovative package solutions like“Prämie light” had been developed in close collaborationwith V VD. The integration of V VD paved the way for bundling financing, leasing and insurance services in new waysand for using Volkswagen Bank direct as an additionalchannel for insurance services.Consolidation under an Aktiengesellschaft created newstrategic opportunities in the insurance business aswell. The most recent example is the establishment of“Volkswagen Reinsurance AG” on 13 September 2005.Reinsurance enabled V WFS, through the offices of V VD,to exert more influence on the product and premium mixof its long-standing partner Allianz Versicherungs-AG.For instance, it meant lower premiums if the customerordered extra safety features for his vehicle. The arrival ofinsurance services along with the existing servicing andrepair services extended the automotive value chain, whichboosted profits from comprehensive financial servicesand increased customer loyalty to the Group marques.The financial services of the Volkswagen Group took ona new aspect upon the formation and takeover of international companies. V WL outsourced fleet managementto “ifm international fleet management Gesellschaft mbH”in 1999. After a short spell under the Europcar Group, thefleet business switched to “LeasePlan N.V” in November2004. V WL brought its vast experience in fleet managementof the marques to bear in the growth market of fleet leasing.In V WL and the Amsterdam-based LeasePlan, V WFS chosetwo companies to cater for the varied requirements of thedifferent customer groups. In particular, V WL met therequirements of the Volkswagen Group’s key accounts,which operate mainly within Germany, in close partnershipwith the trade organisation. The LeasePlan Groupimplemented mobility solutions for fleet customers ofinternational orientation and multiple-brand fleets.
11ADVERTISEMENT, 1995
12 T H E G L O B A L M O B I L I T Y S E R V I C E P R O V I D E RVOLKSWAGEN FINANCIAL SERVICES LINKS 37 COUNTRIESTHROUGH ITS HOLDINGS AND SERVICE CONTRACTS
13CONCEPT CAR UP!Financial Services goes globalOriginally European in focus, V WFS became a globalcompany in 1996 when Volkswagen AG transferred controlof the Group’s financial services in the Asia-Pacific regionto the Brunswick holding company. The first subsidiaryoutside Europe under the umbrella of V WFS came along in1996 with the assumption of financial services in Japan.V WFS took the next step in globalisation at the end of 2005,under the chairmanship of Burkhard Breiing, when it wasassigned the coordination of the Volkswagen Group’s worldwide financial services activities. Volkswagen AG graduallytransferred to V WFS the shares in the Group’s financialservices providers in the Latin American region in additionto control of the Group’s global financial services.In 2008, V WFS-controlled financial services accounted for74.7 billion euros of Volkswagen AG’s balance-sheet total of167.9 billion euros. At 57.3 billion euros, more than a thirdof the Volkswagen Group’s result was attributable to V WFS.Those financial services on what was called the “peripheryof the automotive business” in 1988 are today core businesslines at Volkswagen AG.
From Lender to Banker:Volkswagen Bank
16 F R O M L E N D E R T O B A N K E R : V O L K S W A G E N B A N KCredit drives theGerman economic miracleFrom the very start of the Beetle’s boom years, customerscould buy their Volkswagen on credit. This is because on24 June 1949, Hermann Knott, General Counsel ofVolkswagenwerk GmbH, presented to the “Board of Control” the management’s plans to found a financing companyfor Volkswagen. The Board of Control represented the collective interests of the various offices of the British militarygovernment responsible for the administration of theWolfsburg plant in trusteeship. In Germany, Knott explained, the creation of a financing company was “animperative and urgent matter for the Volkswagen plant, ifit is to remain competitive and maintain its sales base intothe future.” Car loans enabled customers with insufficientcash to purchase a Volkswagen. There was also the fact thatin 1949 more customers were availing themselves of bank finance and this was an opportunity for the Volkswagenwerkto tap additional earnings potential.With Board approval, the memorandum of associationestablishing “Volkswagen FinanzierungsgesellschaftmbH” (VFG) as a subsidiary of Volkswagenwerk GmbH wasofficially signed on 30 June 1949. The object of VFG was to“grant loans for the purchase of motor vehicles and otherproducts of the Volkswagenwerk or its affiliated enterprises.” While the establishment of a financing companyserved to strengthen sales and extend the value chain, it alsorepresented a continuation of the business practice of theinterwar period. Back in the 1920s, car makers in Germanyhad run their own finance companies for granting carloans.Similarly, VFG’s business model was to borrow money itselfand lend it at a higher interest rate via the dealer network tocustomers for the purchase of a Volkswagen. The company’sincome was the difference between the interest rates. Flatrate credit fees were also charged. Volkswagenwerk GmbHprofited from this business model because the vehiclescredit-financed by VFG gave the same return as a newvehicle sold for cash. A profit transfer agreement ensuredthat the VFG profits contributed to Volkswagenwerk GmbH’sbottom line.The first managing director of VFG, which opened forbusiness selling loans for new and used vehicles in October1949, was Rudolf Engel. Born in Cologne in 1903, he hadtrained in banking and had worked for the General MotorsGroup and Adam Opel AG in the instalment credit businessand in finance management. It was during his time atthe helm that VFG purchased the offices situated on theSüdstrasse side of the Wolfsburg factory premises.The initial capitalisation of DM 20,000 did not providemuch scope for VFG’s lending business. By August 1950 thefinancing volume had grown to DM 8.6 million, at that pointVolkswagenwerk GmbH increased VFG’s nominal capitalto DM 100,000, setting the company on firmer financialfooting. This capital increase made refinancing on thecapital market possible. On the basis of these financialresources, the Landeszentralbank responsible for bankingsupervision approved an agreement under which Braunschweigische Staatsbank would provide the funds throughthe discounting of bills.
17FAMILY OUTING DURING THE ECONOMIC MIRACLE
18 F R O M L E N D E R T O B A N K E R : V O L K S W A G E N B A N KFrom the start, VFG’s business was closely tied toVolkswagen’s distribution organisation. It was primarilythe dealers and sellers who informed prospective customersabout VFG’s finance offers and signed the loan contracts onthe basis of bills of exchange. For this the dealers receivedcommissions from VFG and in exchange assumed liabilityfor the customers. If they were unable to meet their monthlybills the dealers were liable.Initially, VFG itself did not make the contacts with dealers,but it put “Volkswagen Versicherungsdienst GmbH” (V VD)in charge of acquisition and advertising. It was not untilJune 1956 that VFG began to build up its own field salesforce. VFG worked with V VD not only on field sales, but alsoon finance products. Loans from VFG were subject to fullycomprehensive insurance with V VD, and the insurancepremium could also be financed in full as well. Insurancecover eliminated VFG’s risk of customer default in the eventof an accident. The favourable finance terms for companyemployees available as of 1951 also included special V VDinsurance rates.In August 1950, dealer financing was added to the loanportfolio for workers, staff and business people. VFG gavedealers loans for Transporters, and demonstration vehicleswere also financed for dealers. These loans bridged the gapbetween the vehicle leaving the factory and being sold bythe dealer. Dealer financing accounted for less than a tenthof VFG’s turnover until the 1960s.ASSEMBLY IN WOLFSBURG, 1950Retail financing remained VFG’s core business in the earlyyears. Expanding the product range stimulated growth ofVFG in the wake of record sales of Beetle and Transporter,which became symbols of the young Federal Republic bothat home and abroad during the economic miracle. Falling interest rates and cuts in charges enabled VFG to offerever cheaper credit. Since West German real incomes wereincreasing at the same time, the financing business sawthe emergence of new customer groups. The number ofcustomers who were paying for their Volkswagen with instalment credit rose from 7,283 in 1950 to 27,881 in 1962.
19Despite meteoric business expansion in the early years – by1962 the number of financing contracts had almost quadrupled and the number of employees almost trebled from17 to 48 – VFG-financed Volkswagen vehicles decreased asa percentage of total deliveries by Volkswagenwerk GmbH inthe Federal Republic. In 1951, 14.4% of domestic deliverieswere paid for with VFG loans; ten years later it was a mere8.9%. VFG turnover still buoyant but was down fromthe time of the sales boom in Beetle and Transporter.Restrictive lending caps due to VFG’s slim capital base posedan obstacle to growth. While the nominal capital increaseby the Wolfsburg parent to DM 1.5 million in April 1951fulfilled a requirement set by the Landzentralbank thatequity should cover at least ten percent of the credit volume,VFG had to demand the downpayment of one third of thepurchase price and strictly limit the term to twelve monthsto make sure they did not exceed the permitted credit volumeof DM 15 million. Even when the banking supervisorauthorised a credit limit of 20 times the nominal capitalin 1954, the capital base was insufficient for long-termgrowth, since the credit volume of DM 30 million hadalmost been exhausted by the end of the year.VFG’s capital base did not improve until the profit transferagreement was terminated on 25 November 1954. Profitswere no longer being drawn off by Volkswagenwerk GmbH;instead, after the payment of a dividend, they were used tobroaden the capital base for future business expansion.By 1962, equity had increased by DM 3.5 million to DM5 million by making transfers from the end-of-year profits.This capital base allowed VFG to borrow up to DM 100million from various banks.RUDOLF ENGELDespite the business expansion facilitated by capitalincreases, VFG felt the effects of stiffening competitionbetween the credit institutions. VFG’s 1962 annual report complained that the dealers were selling fewer loansbecause they had to assume liability. The reason was that arival product was facilitating the purchase of cars on creditwithout dealer liability: the “personal loans” promoted bybanks through advertisements in the press and mailingsoffered private customers a loan of up to DM 6,000. Since
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ers buying the Group marques Volkswagen, Audi and Seat. The second linchpin was short-term financing of loans to dealers for vehicles in stock and demonstration vehicles. With a Retail Financing volume of DM 2.5 billion and a Dealer Financing volume of DM 2 billion, the Brunswick
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