Volvo's new captive launches retail lending, broadens programs

Volvo's new captive finance arm, Volvo Cars Financial Services U.S., completed its launch goals this year with the start of retail lending services Dec. 1. The captive began commercial lending in May.

U.S. Bank has been Volvo's preferred lender in the United States since late 2009. Before that, Volvo used Ford Credit. Ford Motor Co. bought Sweden's Volvo Cars in 1999 but sold it to Zhejiang Geely Holding Group Co. Ltd. of China in 2010.

Volvo Cars Financial Services U.S. has a small sales staff. It sets its own underwriting and origination policies, but it relies on Bank of America for funding and for technology and on CenterOne Financial Services for servicing.

The captive's launch was nearly two years in the making, says its CEO, Tony Nicolosi. He ran the former Volvo Finance North America until Ford Credit took over Volvo's captive finance responsibilities in 2005. In the interim, he worked for AB Volvo, the former parent company.

Nicolosi, 52, spoke with Automotive News Special Correspondent Jim Henry.

Dealers have lobbied for a captive finance company for years. Does a captive really make that much difference?

U.S. Bank -- which, by the way, was a good relationship -- was never able to give us the integrated, captive solution. Loyalty is at least 10 to 15 percent higher with a captive than with a third-party bank.

It's a combination of credit policy and the product offering. We have already added more lease terms. Instead of only 36 or 48 months, today we have a 24-month term. We have also added 39- and 42-month leases. We added a college graduate program. We added a program for expatriates working in the U.S. We will have several products we didn't have before.

Nicolosi: "People underestimate the difficulty of setting up a captive finance company."

What's your penetration now with U.S. Bank?

Today it's about 24 percent lease and 25 percent retail -- that is, loans. What that means is that out of every 100 deals, 24 of them are leases. Virtually 100 percent of the leases are with U.S. Bank. Of the remaining 76 deals, 25 of them are loans with U.S. Bank. The rest are loans with somebody else, or cash, or maybe a home-equity loan.

What's the goal for the new company?

For 2013, we think it will be even -- 32 percent lease and 32 percent loan penetration. That is, 32 out of 100 deals will be leases. Those will more than likely be with us because we will have subvention, and nobody else is going to do that. Out of the rest, about 32 will be loans with us. So you could say total penetration, loans and leases, is going to be almost two-thirds of the total.

The old Volvo Finance was more vertically integrated; the new Volvo Car Financial Services is mostly outsourced. Will bank employees be Volvo-dedicated, or shared?

When I rejoined in 2011, the one thing I knew was that we were not going to re-create the old company. That had about 210 employees. That would be costly in the beginning. Everybody knows any new financial service company is going to lose money the first couple of years.

Our head count starting out is probably 20 or 22 people in sales and marketing and also accounting.

The funding, the originations, all customer- and retailer-facing parts of the business will be Volvo-dedicated. Those people will have Volvo business cards and Volvo phone numbers.

I'm sure there will be some back office functions, which are not customer-facing, which could be shared.

It sounds like a long process.

People underestimate the difficulty of setting up a captive finance company. We are a legal entity. Actually, we needed two legal entities, one for retail installment contracts and one for leasing. For loans there are about 35 states that require licensing. For leases there are about 21.

They need all sorts of information from me personally because I have to sign the documents. They have gotten to know me at my local police station. I was probably fingerprinted at least 20 times.