The financial armament of manufacturers takes advantage of a booming second-hand market

The booming used car market has helped the financial branches of automakers post record profits over the summer, easing pressure on the auto industry as production and sales are hampered by the shortage world of chips.

Volkswagen’s financial services arm, which includes a bank and offers leasing, insurance and financing in more than 45 countries, nearly tripled its profit before tax in the three months between July and September, to 1.5 billion euros, the company announced this week.

The German group’s automotive division, which delivered 2 million vehicles worldwide during that period, earned just € 100 million more, having been forced to cut production by almost a quarter in due to supply chain bottlenecks.

VW’s chief financial officer Arno Antlitz told reporters that the financial services industry had benefited not only from increased demand for used cars, but also from “very good residual values ​​and low risk costs.”

The financial arms of automakers tend to guarantee financing for their dealerships and benefit from both higher value loans and used cars with a higher resale or residual value than expected at the end of their lease.

Prices in the used car market have skyrocketed over the past year due to the squeeze in new car sales caused by the global chip shortage. In many cases, used vehicles change hands for a higher value than their factory-fresh counterparts.

The finance division of VW competitor General Motors also more than doubled its profits in the nine months to the end of September, the U.S. automaker revealed, with pre-tax profit reaching $ 3.9 billion, from 1 , $ 7 billion a year ago.

“Big engines were obviously the strong values ​​of used vehicles. . . and a decrease in amortization charges for the nine months, as well as a decrease in loan loss provisions due to reserve levels that were increased in the first half of 2020 at the start of the pandemic, ”said the CFO Susan Sheffield.

Ford Credit, which funds the American company’s customers and dealers, reported pre-tax profit of $ 3.7 billion in the same period, which included a record second quarter. The figure already exceeds the 2020 total by $ 1 billion.

Daimler’s financial services arm, Daimler Mobility, was hit by bottlenecks in the last quarter, but the Stuttgart-based automaker said it also aims to “use new market potential in the market. used car market as well as through more flexible leasing and rental products, especially for electric vehicles ”.

Not all car manufacturers have in-house financing arms, but some of them are moving to the region, aware of the profits to be made.

Stellantis, the group resulting from the merger of French PSA and Fiat Chrysler, is in the process of opening one in the United States after having bought in September the financial services group First Investors.

“I think it’s really important for the company to have a finco,” Stellantis CFO Richard Palmer said last week. “This is clearly a great source of profitability in the medium term,” he said, citing rival GM’s decision to buy AmeriCredit as the basis of its lending business, which now gives it a “very strong portfolio. solid with a very profitable activity “.

While their main businesses have been squeezed, some automakers have even used their own financial arms to help them finance their overall business. Renault received € 1 billion from RCI Banque, its internal financing subsidiary, after the European Central Bank changed the rules this year regarding dividend payment limits. The injection gives the French automaker “sufficient margin to cover investments and restructuring” for the second half of the year, CFO Clotilde Delbos said earlier this month.

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