A Strategic Analysis of the European Automotive Point of Sale Finance Market: The 21st Century Profit Centre of the Automotive Industry

Published by: Frost & Sullivan

Published: Jul. 5, 2004

Table of Contents

Abstract

Captive and independent point of sale (POS) finance companies are increasingly concerned about legislations in the European Union that encourage lower interest rates among large financial institutions. Instead of risking their profit margins by following the competition, POS finance companies are turning to dedicated dealer sites to push their services, support brand image and facilitate customer retention. Incentives, rigorous training and targeted promotional offers are crucial to maximise dealer support. It is equally important to include budget-driven marketing campaigns that attract the younger customer segment through low deposit schemes, extended loan terms, one-month free instalments, delayed or low monthly payment options and tax rebates.

This Frost & Sullivan research examines the key issues and trends in European automotive POS finance market while discussing the current marketing and growth strategies of leading market participants. This analysis also identifies important technology, legislative and economic trends influencing the growth of the POS finance market.

Borrowing Culture on the Rise across European Countries

"The borrowing trend is increasing in an improved European economy, resulting in greater growth opportunities for the POS finance market," says the analyst. "This is primarily due to declining interest rates and confident consumers that have greater disposable income." POS finance companies are looking to make the best of the current situation by offering value-for-money services such as free maintenance, repairs, gap insurance and extended warranties in addition to the standard financing options.

However, greater demand means increased competition not only in Europe but also from financial institutions beyond the border. This is also a signal to POS captive finance companies to develop pan-European businesses. In such a case, they would have to consider a centralised finance operation as opposed to the current country-specific model. This is expected to allow them to reduce operation costs and increase their borrowing power due to a larger customer database.

Alternative Service Routes to Ensure Long-Term Growth for POS Finance Companies

The new block exemption regulations will invariably lead to more intense competition, thereby placing captives in a precarious situation, particularly if POS finance is their only source of profits. "Finance captives that are not presently in direct competition with one another could be facing each other in multi-branded dealership sites, throwing open a significant debate about the alternative routes to succeed in the long term," explains the analyst. For example, they could opt for an Internet strategy, which has great potential for growth due to its greater speed, convenience and turnaround time.

Similarly, independents need to rethink their market expansion strategies in the new car segment. With captives dominating this segment and vehicle manufacturers imposing exclusivity clauses in their agreements with dealers, independents are finding it increasingly difficult to access the new car sales, compelling them to return to their roots in the used car and wholesale finance segment.

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