Daimler Financial Services bets big on lease deals

July 19th, 2011 - 7:32 pm ICT by IANS  

Chennai, July 19 (IANS) In an attempt to accelerate the sales growth of the Mercedes Benz luxury cars, Daimler Financial Services, the financial arm of German auto giant Diamler AG, is looking at lease financing on a big way, said a top compnay official.

“The key driver for growth will be leasing. From owning a car, it is now the right to use a car. In Germany, 40 percent of the cars are on lease and similar is the case in the US,” Daimler Financial Services AG (DFS) chairman Klaus Entenmann told reporters here Tuesday.

Launching the Indian subsidiary Daimler Financial Services India Pvt Ltd (DFSI), Entenmann said leasing business will fetch a new class of car buyers - used car buyers - for Mercedes Benz while the sales of new cars would also pick up.

In the process, the Mercedes Benz car dealers will be happy with more business - selling new as well as used cars and generating revenues from their sales and service.

“In the case of lease deals, the residual value of a car will be finalised up front. The lessee can return the vehicle after the lease period or buy it off. When the leased cars are returned, then the dealers can look at used cars sales as another revenue stream,” said Peter Honegg, managing director and CEO at Mercedes Benz India Private Ltd.

According to Sidhartha Nair, managing director at DFSI, the volumes in the Indian car leasing market are growing.

He said the passenger cars in commercial fleets funded by operational leasing, which were 40,000 units in 2009, are expected to touch 100,000 units in 2013.

According to Entenmann, it is unviable for setting up a financial services arm in a country where sales of Daimler-made vehicles are less than 3,000 units per year.

However, Mercedes Benz India breached that number in 2008 itself. But with Daimler group introducing buses and slated to launch its trucks next here, setting up the financial arm could not be delayed any further.

Entenmann said around 2.5 million vehicles - cars, vans, trucks and buses - are financed by DFS globally.

“Two out of five Daimler cars and every fourth Daimler commercial vehicle are financed or leased by us,” said Entenmann who heads the $12.8 billion revenue DFS.

According to him, the owner of a financed vehicle is more loyal to the company than a person who makes a cash purchase.

“Customers who finance or lease vehicles choose more high value equipment options and replace their vehicles more frequently than cash buyers,” he said.

Entenmann said the Indian subsidiary is expected to have a book size of around $500 million in five years time.

The initial equity in the Indian subsidiary is $50 million.

Tying up with the Pune based non-life insurer Bajaj Allianz General Insurance Company the non-banking finance company (NBFC) will also offer customised insurance policies to cover the Daimler vehicles.

Nair said the company will also fund Daimler vehicle dealers for retailing activities like network expansion and investment products.

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