Q&A: 'The customer decides what he drives'

Volkswagen's board member for financial services talks about strategies for LeasePlan

Brunswick, Germany. In 2004, Volkswagen teamed up with Saudi Arabian Olayan Group and the state-owned Mubadala Development Co. of Abu Dhabi to buy the fleet services company LeasePlan for 2 billion euros, with the car company taking a 50 percent stake and its partners each taking 25 percent. Hans-Peter Luetzenkirchen, head of VW financial services, spoke to Automobilwoche about the strategies for their investment.

How do the interim results look one year after the LeasePlan acquisition?

The figures are very positive. We have found everything to be as we expected after the analysis of the business records a year ago. In LeasePlan, we have acquired a well run, highly profitable enterprise.

So there were no surprises in the books?

Absolutely no surprises. This affiliate is a lot of fun.

To what extent has the fleet service provider's integration into VW Financial Services succeeded?

The integration of LeasePlan isn't the goal. We are leaving the company the freedom it needs to act successfully in the market. But naturally we are realizing synergies in the back office, for example in pricing from fuel and tire suppliers. In this area, the first results should show up by the end of the year.

What made LeasePlan so interesting that VW would invest a billion euros to buy it, when it already had its own company, EuropCar Fleet Services (ECFS), spanning multiple brands?

That's true, but ECFS was only set up in four European markets, in Germany, Italy, Portugal and Spain. Important markets like France, the UK, and the Benelux countries were completely missing. Major customers bundle their fleet activities Europe-wide and bid out their business internationally to get better terms. As a fleet service provider, you have to likewise act on a Europe-wide basis to offer services from a single source. We would have been able to expand with ECFS, but that also would have cost money, not to mention a great deal of time. It was fortunate that LeasePlan came our way.

Which, however, brought an end to ECFS. Who is taking the contracts over? And is there a time line for this?

We have sold ECFS's foreign affiliates to LeasePlan. The contracts are signed, but the anti-trust authorities in Portugal and Italy must now have their say. We are expecting a positive decision, so that we can close the deals in September. Within Germany, we have decided to blend ECFS into VW Leasing, since many customers have concentrated on our brands. VW Leasing is taking over employees and contracts on Sept. 1. The services are staying the same, only company name is changing.

So you positioning LeasePlan internationally and VW nationally?

VW is pursuing a two-pronged strategy in its fleet business with LeasePlan and VW Leasing, but without ECFS. LeasePlan is mainly acting as an international brand, with a market share of about 11 percent, which makes it No.1 in Europe. LeasePlan serves major fleets that encompass multiple brands and want service from a single provider. But they don't want to limit themselves to vehicles from a single manufacturer or company. On the other hand, VW Leasing is focusing on somewhat smaller fleet customers, who chose their vehicles from the company's product offerings. As a rule, it's VW, Audi, SEAT and Skoda. In the process, of course, VW will act on the international level, but will concentrate on the business involving the company brands.

What market share are you after for LeasePlan and VW Leasing in the middle-term?

The market will decide that. In Germany, VW's share stands at 16.5 percent, or more than three times as high as LeasePlan's. But LeasePlan is far ahead internationally. They both compete, but offer a specified performance emphasis. Certainly there is a small area where they intersect, where competition turns out to be somewhat greater.

How do you deal with reservations about LeasePlan as a sales unit for VW products? How do you guarantee that it stays independent from the brands?

That independence must be maintained. The customer decides what brand he drives. We aren't influencing LeasePan in any way whatsoever to have it favor the company's brands. That's because we must not lose our credibility. That would damage our investment.

So there was no growth spurt for the VW brands in LeasePlan's inventories?

VW has a 13 percent share, Audi 7 percent, Seat and Skoda 2 percent apiece. This 24 percent has remained stable in the one year that LeasePlan has belonged to us. But here is something much more important: Over the course of this year, we haven't lost a single large customer. It's not important to the customer who the shareholder is, but whether the service and terms are right. That's the only thing that counts.

So that means that no changes in LeasePlan's business model?

Why should we do that? LeasePlan earned 200 million euros this last fiscal year. With our 50-percent share, it's not hard to figure how much of that went to Volkswagen. (Laughs). The rate of return and other key financial indicators are right. The investment was a good decision for the company. Our Arab co-investors are also very satisfied.

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