The specialized credit financial businesses of German automakers in Korea enjoyed explosive growth last year, thanks to the surge in sales of their parent carmakers such as BMW, Audi, and Mercedes Benz. Still, their rapid growth is attributed to not just the skyrocketing sales but also their higher loan interest rates.
According to the Data Analysis, Retrieval and Transfer System (DART) of the Financial Supervisory Service, BMW Financial Services Korea’s annual sales increased 8.73 percent year on year to 622.5 billion won in 2013 (US$600.2 million). Its operating profits amounted to 40.9 billion won (US$39.5 million) during the same period, way over those of BMW Korea at 25.7 billion won (US$24.8 million). The car loan provider recorded an operating profit rate of 6.58 percent, whereas BMW Korea posted 1.35 percent with total sales of 1.907 trillion won (US$1.838 billion).
Mercedes Benz Financial Services Korea reached 367.5 billion won (US$354.2 million) in sales and 19.3 billion won (US$18.6 million) in operating profits last year. The profit rate was 5.27 percent, higher than the 3.11 percent of Mercedes Benz Korea, too.
Volkswagen Financial Services Korea recorded profits for the first time since its inception in 2010. Its sales jumped 223.5 percent from a year earlier to 188.7 billion won (US$181.9 million), and the profits were close to 12.3 billion won (US$11.9 million). The company enjoyed a profit rate of 6.55 percent to lead that of Audi Volkswagen Korea by a margin of 4.66 percentage points.
The high profit rates of the three can be attributed mainly to the rapid expansion of the imported car market and their high-rate loans. The market grew 19.6 percent with a total of 156,497 new imported cars registered in 2013 alone. The three German automakers accounted for 105,580 of the total with a sales growth rate of 26.3 percent.
In particular, Volkswagen and Audi sold 25,649 and 20,044 vehicles to grow 39.4 percent and 32.5 percent year-on-year, respectively. BMW sold 33,066 cars to record a market share of 21.1 percent and remain on top of the list for five years in a row. Mercedes Benz sold 24,780 vehicles to grow 21.5 percent.
“These days, the automakers and their installment and lease providers are showing rapid growth at the same time,” said an industry source, adding, “Most customers prefer their services for convenience, which is adding speed to the expansion.”
It is estimated that approximately 80 percent of their customers choose such financial products, with most loan providers limiting their services to the cars supplied by their parent companies. However, they apply much higher loan rates to their customers than other firms like Hyundai Capital and Aju Capital. For example, Volkswagen Financial Services Korea gives a rate of 10.2 percent to those who purchase the Golf, priced at 33.4 million won (US$32,197), whereas another firm gives 7.8 percent.
According to NICE Information Service, the combined assets of the three lease companies and Toyota Financial Korea more than doubled during the last five years. “These companies provide their associated dealers with contract-based incentives along with various promotional programs in order to expand sales,” a representative o the credit rating agency explained, adding, “Their rapid growth is forecast to continue for a while.”