A helping hand at the dealership

After housing, buying a car is one of the biggest purchases a person can make, and it's the rare person that can pay for a car upfront. The most popular option is financing, with leasing making up only a small portion of the retail market in the Czech Republic. With changes in consumer laws at the start of January, walking a customer through a loan or financing contract is more important than ever, according to Stefan Rasche, managing director of ŠkoFIN, the largest financing company in the country. The Prague Post spoke with Rasche about why Czechs are hesitant to lease and how ŠkoFIN avoided a rash of defaults during the economic crisis.

The Prague Post: How popular is leasing a car here versus financing?

Stefan Rasche: Private customers typically go for financing; they want ownership. The idea of paying every month and then handing the car back at the end of two years is still developing in the Czech Republic. It's an existing market, but we definitely see more growth on the corporate side for leasing. On our end, we're trying to develop the idea of leasing for retail customers, but it's still the idea that at the end they want to own the car.

Toward the end of 2008, business generally dropped in both the corporate and retail sectors. Customers were more reluctant to enter into financial obligation, but that has picked back up. Car sales are increasing again, and financing has picked up. We've been able to combine financing with other financial products, car insurance for example, and that's helped us. We try to package our products, and that's been successful with both the corporate and retail customers.

TPP: How do you offer financing to customers? Do you have offices attached to dealerships?

SR: We sell through dealerships. We don't have our own personnel there; what we do is rely on the sales forces of dealers. The sales staff at the dealerships get training from our sales force on nearly a weekly basis, and we work with all of the Škoda dealers and VW group dealers in the country.

TPP: Is it an exclusive arrangement with the dealerships?

SR: Unfortunately, it's not. There is some competition on the market, and our competitors are definitely trying to get a foot into that market. But we have a very high rate of loyalty here. More than 80 percent of financing contracts that are concluded at dealerships are made with us. Of all cars sold this year, we expect one-third will be financed by us.

Our long-term goal, for the so-called penetration rates, is that for the retail business we want every second car to be linked to one of our financial products, one way or the other. That means either financing, insurance or some other product. We want to increase our footprint in the corporate fleet business, as well.

TPP: What sort of timeline do you have for those goals?

SR: As a whole group, that strategy aims for 2018. We've got quite ambitious goals, but we've also got quite good support behind them.

TPP: Is ŠkoFIN strictly in the Czech Republic, or are you also present in markets where Škoda sees its biggest growth, such as Russia, China and India?

SR: ŠkoFIN is 100 percent the daughter company of VW Financial Services, which is under VW AG in Germany, the general holding company for all the activities.

The financing has to follow the sales, we say. For example, VW Bank, as it is called, just received its banking license in Russia last year. ŠkoFIN is called that only for historical reasons in the Czech Republic. Twenty years ago when it was founded, Škoda was more or less synonymous with "car" in the Czech Republic, so to call it VW Finance or Leasing would not have made sense, especially since we were primarily a retail service at the time. VW was and still is a premium car on the market, so we didn't want to appear as if we were doing exclusively this type of business.

In February of this year, we received a license for financing in India, and in China we have VW Bank on the market there with a joint venture company.

TPP: Have you had an increase in the share of defaults in your overall loan portfolio because of the crisis?

SR: No, we have not. Luckily, we have not seen any effect from that.

TPP: Why not?

SR: The main issue is really the process. The first step requires that the customer go to our dealers, and our dealers and sales people have been trained so that there is a sort of preselection. Our customers must deliver all the necessary information, and it's based on a scoring system. We try not to simply come back and reject a customer. What happens is that we set certain conditions. We explain that we believe they'll be able to fulfill the payment obligation, but it may require a higher down payment, changing the price or extending the length of the payment. As a result, we've had a very good risk ratio. It's also to do with the underlying "hardware." Customers who have debts first pay rent, then electricity, then their car, and maybe after that you squeeze payments if you have to.

TPP: New legislation that went into effect at the beginning of the year means consumers may cancel loans within two weeks without reason. There were concerns at the time that customers could use this to return cars, which lose value once you drive them off the lot. Was this a real concern?

SR: Regarding the Customer Credit Directive, there were some funny articles saying it was the end of leasing in the Czech Republic, but I think it was sheer nonsense. One thing is that the Consumer Credit Directive only affects leasing, and with private customers, that's a very small market. Hardly anyone leases cars. If you look at new business, about 80 percent of that is credit, and only 20 percent are leases.

There is additional information for the customer; that's the biggest difference. There were fears the customer could misuse this and hand cars back 14 days after they'd leased them. Some people were worried what would happen if a customer handed a car back after two weeks, and of course cars lose 20 percent to 30 percent of their value as soon as you drive them off the lot, but dealers would have no way to recoup that from customers.

We looked into it and assessed the risk and found it to be very low. We try to cover that with our procedures in any case. Normally, the delivery time for a car is a couple of weeks or even months into the contractual time, so in most cases, those two weeks have expired before the car is even delivered.

TPP: You deal with private consumer loans and financing. The state has begun several programs to improve financial literacy for citizens. Do you find that it's lacking or it's something you have to address?

SR: Definitely. That's also why we stress training. Especially with the changes at the beginning of the year, we were very careful to get all the relevant information to our sales staff. We distributed booklets that had a sort of "frequently asked questions" so they knew how to explain this to customers. It's certainly an important part of what we do. You can get financing online, but most people need and want someone who can walk them through what it means for them. It's something you want to be comfortable with and confident of.

Claire Compton can be reached at
ccompton@praguepost.com