VW Financial Unit Plans to Double Contracts as Forecast Raised

  • Unit plans to add digital offerings to lure more auto buyers
  • Serving more used-car customers to be key, division chief says

Volkswagen AG’s financial-services division raised its earnings forecast and outlined plans to double business by 2025 as part of its parent company’s efforts to rebound from the emissions scandal.

Boosting digital offerings and services for used-car buyers will be key to a strategy to increase contract volume to more than 30 million agreements from 16.9 million currently, Lars Henner Santelmann, the head of the unit, told journalists late Monday. Encouraged by strong growth in China, recovering southern European car markets and progress on a reorganization in the first quarter, the division is now “confident” 2016 operating profit will about match last year’s record 1.9 billion euros ($2.13 billion), he said. The unit had predicted an earnings drop, with only a chance of equaling the 2015 figure.

“The diesel crisis is helping us accelerate our revamp,” Santelmann said at the briefing in Hanover, Germany.

The division, which offers car loans, dealer financing, fleet management and banking and insurance, is a consistent earnings contributor for Volkswagen, Europe’s largest car manufacturer. The manufacturer has set aside 16.2 billion euros for expenses to fix 11 million cars worldwide and pay for fines and lawsuits after admitting eight months ago to rigging emissions tests on diesel-powered autos.

The financial unit will invest about 500 million euros in coming years in technology to enable customers to buy more of its products via the Internet. At the same time, it’s sticking to a plan to cut 310 million euros in costs through 2017.

The unit’s total assets rose 15 percent last year to 157.9 billion euros, while operating profit increased 13 percent, even with a 286 million-euro hit from costs related to the diesel-engine scandal. Its refinancing conditions have eased substantially since the scandal erupted in September. Spreads on the secondary market are now at about 70 basis points, or 0.7 percentage point, after jumping to 270 basis points from 40 when the emissions rigging came to light as concerns swirled about whether VW had sufficient resources to stem the financial fallout.

VW’s debt was downgraded by all major credit-rating companies in the wake of the scandal. VW group CFO Frank Witter, who previously ran the financial-services unit, said last month that he plans to double the group’s liquidity buffer to about 20 billion euros to reflect the carmaker’s rapid expansion in recent years and maintain a bigger cushion in volatile markets. VW’s cash reserves stood at 24.5 billion euros at the end of 2015.

“We do think the credit rating of Volkswagen AG and VW financial services will go up again,” Santelmann said.

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