VW Credit pursues growth on several fronts

Kevin Kelly is CEO of VW Credit Inc. in Auburn Hills, Mich. The captive finance company, which has managed assets of $11.5 billion in the United States, includes VW Credit, Audi Financial Services and Bentley Financial Services.

Kelly, 55, joined parent company Volkswagen of America Inc. 24 years ago. He has been CEO of VW Credit for two years. Before that, he was corporate controller for VWoA.

Staff Reporter Jim Henry interviewed Kelly Sept. 10.

You won the J.D. Power 2001 Dealer Financing Satisfaction Award? Isn't it really a best rates award, since that's what dealers always tell lenders they're looking for?

It's a lot more than the best rates. It's not the best rates. We know that dealers have lenders knocking on their door, with better rates. We do other things in working with their dealers; we try to give value to the whole proposition. For instance, we rolled out a new dealer "Extranet," where they can fill in applications online, and if the score for the customer is within our guidelines, there is immediate approval.

Do you have lots of off-lease volume?

That volume hasn't really had a major impact on us this year. Three years ago, we had this "24-month test drive" lease program. Those cars came back last year. This year, we actually have fewer off-lease cars than we had the previous year, which is kind of unusual in the industry. As we continue to grow, those numbers will get larger. The market's down a little bit in SUVs - thank heaven - so we've done very well.

Can we assume those two-year leases were heavily subvented? Are you still forced to use a lot incentives?

For Volkswagen, we did have some years that the brand struggled, but those are part of the history of the brand. The marketing guys have done a remarkable job with an image campaign, and now incentive levels for VW are extremely low, compared to the industry.

Is your mix turning away from leasing and into loans?

We really try to push the retail loans, the automotive brands as well as the finance company. We like to keep a balance. In years past, leasing was very strong. There definitely seems to have been a movement more to loans.

Are you putting less incentive money into leasing?

I wouldn't say that, but maybe there is a better balance in subvention. It isn't all one-sided (toward leasing) anymore. Residual values on Volkswagen products are very strong, and that helps us tremendously.

Dealers gave you especially high marks on floorplan. Do you offer free floorplan or some other incentive?

The dealers know that giving us the wholesale business helps us reinvest in the brand-building process. We do some of the things we can do because of the fact that we capture a significant amount of their wholesale business. If you give your best business, the wholesale, to someone else, and the (captive) finance company only gets the lease business, we obviously have a problem.

What's your floorplan penetration as a percent of the dealer total?

For the Volkswagen brand, low 40s. For Audi, mid-30s.

Do you, the captive finance company, help pay for exclusive showrooms?

The automotive brands have got a program in place for dealers predicated on dealer size. They have some financial assistance. In the finance company we look at that dealer very favorably. We obviously go out of our way to put the financing through. We make no secret of the fact that our mission is to support the brands, in a profitable manner.

Describe your college graduate program.

The VW brand is obviously very appealing to those younger demographics. But let's face it, they don't have a lot of credit; they may have a lot of debt. We waive the security deposit, make their first monthly lease payment and basically give them a higher credit rating than maybe they would have if you only looked at their debt-to-income (ratio). That has proved to be very successful. We look at it as a way to get them in the family, and, hopefully, we will be able to keep them in the family.

How do you price for those with little or no credit history?

We price those at our prevailing "A" credit tier, which is certainly much better pricing than they can get anywhere else. You want to have the lowest possible barrier to entry.

I understand that offering credit cards is one of your main goals in starting your own bank.

There will be a lot of things - everything from credit cards to helping dealers manage their own financing. We haven't really finalized things yet.

Has your business gotten any bounce from the fact that banks are bailing out of the auto business?

We are here for the long term, and banks are in and out of it. When the banks start deserting retail and wholesale, and tightening standards, the dealers don't like to hear that. The dealer wants a partner who's going to be there for them, regardless of what the short-term consequences are going to be.

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