Unicredit - Auto Finance in Europe

9 January 2020 Credit Research
Sector Thinking
Auto Finance in Europe:

Resilient growth, funding needs and disruptive industry forces
by Dr. Sven Kreitmair, CFA, Head of Credit Research, Credit Analyst Automotive & Mobility (UniCredit Bank, Munich)
1. Automotive finance issuers in the euro-

Click here for an
AUDIO INTRODUCTION denominated bond market
to this report ■ Usually auto finance operations are structured into one
legal entity or a group of legal entities that is controlled
by the auto manufacturer’s parent. We categorize the
Summary auto finance sector for bond issuers in our coverage as
Financial services businesses account for a significant share follows: 1. insulated automotive banks (FCA Bank, FCE
of automotive groups’ financial liabilities, total assets, equity Bank, PSA Banque France, RCI Banque, VW Bank),
and EBT. Apart from ABS and customer deposits, bond 2. captive finance operations of auto manufacturers
issues are an important part of funding to refinance credit (BMW Financial Services, Daimler Financial Services, VW
and leasing business. Just like financial services liabilities, Group Financial Services, Ford Motor Credit, GM Financial,
bond issues of captives have shown a remarkable increase Toyota Motor Credit Corp.) and 3. automotive leasing
in outstanding volumes over the past few years. Bond companies (LeasePlan, Sixt Leasing).
investors typically do not focus their credit analysis on ■ Among automotive banks, there are different
automotive captive finance issuers and their standalone shareholder models: 1. Banks fully owned by the
characteristics given that the bond-issue rating is in many automotive group: FCE Bank (Ba1s/BBB-s/BBBn) is
cases fully or at least partially dependent on the automotive indirectly 100% owned by Ford Motor Company (Ba1s/BBB-
parent’s rating. In this report, we look at the captive’s s/BBBn), RCI Banque (Baa1s/BBBn/--) is 100% owned by
relevance to its automotive parent and their resilience in Renault (Baa3s/BBB-n/BBBn) and VW Bank (A1s/A-n) is
terms of growth, profitability and leverage ratios over a 100% owned by Volkswagen AG (A3s/BBB+s/BBB+s);
period of more than 10 years. Disruptive trends such as new 2. Banks that are 50/50 JV-owned, by the automotive
mobility concepts, digital products, electrification and company and a bank that has a IG rating that is stronger
increased banking regulation provide new sources of than the rating of the automotive company. PSA Banque
financial-services income, but also create new challenges. France (A3s/BBB+s/--) is 50% owned by Peugeot’s
Some mobility service business segments (e.g. car sharing, (Baa3s/BBB-s/BBB-s) Banque PSA Finance (A3us/--/--) and
ride-hailing, Mobility-as-a-Service), electric vehicles and 50% by Santander Consumer Finance SA (A2s/A-s/--). FCA
autonomous driving are in their early growth stage with high Bank (Baa1s/BBBn/--) is 50% owned by FCA
investments needs. As a result, profitability of many mobility (Ba1p/BBB+wp/BBB-s) Italy and 50% by Crédit Agricole
services is currently not high in many cases, although their Consumer Finance (--/A+s/A+s).
equity valuation can be, which offers another opportunity in
the sector. CHART 1: BOND MATURITIES OF AUTO BANKS
Contents RCI Banque FCA Bank VW Bank FCE Bank PSA Banque France
10,000
1. Automotive finance issuers in the euro-denominated bond
market 9,000
8,000
2. Diversification of funding sources
7,000
3. Relative value and recommendations
6,000
in EUR bn
4. Rating methodologies for automotive finance companies

5,000
and rating stability through the cycle
4,000
5. Relevance of automotive captives for the auto
3,000
manufacturing parent
2,000
6. Growth and profitability
1,000
7. Capital generation and leverage trend
0
8. Financial services and mobility sector overview 2020 2021 2022 >2022
9. Outlook 2020/21 and 2030 scenarios

Appendix: Auto finance industry sector and issuer charts; Source: Bloomberg, UniCredit Research
Related automotive sector flashes/reports
UniCredit Research page 1 See last pages for disclaimer

Sector Thinking
■ Assuming a 90% financial services debt share at ruled out. Depending on the entities’ reorganization, this
BMW, Daimler and VW, we estimate that around 75% might lead to more bond issuance.
(or EUR 122.6bn) of the iBoxx Euro Automobiles &
Parts sector (IG rated) or almost 10% of the total ■ German Sixt Leasing (not rated), which is 41.9%
iBoxx Euro Non-Financials sector (IG-rated) of owned by and fully consolidated at its parent, German
benchmark bonds with fixed coupons has been rental company Sixt SE (not rated), has in total EUR
issued to refinance automotive financial services 500mn in outstanding euro-denominated bonds. Dutch
debt. From 2006 to 2019, the iBoxx Euro Automobiles & LeasePlan, which has a bank license, has EUR 14.7bn in
Parts sector grew by EUR 131bn, a CAGR of 13.0%, bonds outstanding. Of these, there is one subordinated
compared to the iBoxx Euro Non-Financials index, which AT1 bond of EUR 500mn outstanding, the LPTY 7.375%
grew by a CAGR of 11.0% in the same period. (Ba3/B+/--). LeasePlan’s HoldCo bonds are issued by
Lincoln Finance (LNCFIN; B1/BB+/BB-), which is a
■ Given the comparatively short-term nature of necessary
holding/financing vehicle set up with the acquisition of
refinancing of automotive finance activities, the
LeasePlan. We do not cover French automotive leasing
Automobiles & Parts IG index has a quite small
company ALD SA (--/BBB+s/A-s), which has in total
duration. The short duration also leads to frequent issuance
EUR 3.9bn in euro-denominated bonds outstanding. ALD
needs of maturing bonds.
SA is 79.8% owned by Société Générale (A1s/Ap/As).
IBOXX NON-FINANCIAL SECTORS OVERVIEW
■ There is also a EUR 500mn bond outstanding from Opel
350 Finance international B.V. OPELFN 5/20. In November
100 2017, the acquisition of Opel/Vauxhall financial operations
Automobiles & 300
by a JV, 50% owned by PSA Peugeot (Baa3s/BBB-s/BBB-
Parts (A-)
80 Telecommunicati s) and 50% by BNP (Aa3s/A+s/A+s), was finalized (see
Sector spreads (in bp)
Hybrid bond spreads (in bp)
Utilities (BBB+)ons (BBB+)

Basic Industrial Goods press release). Three of GM Financial’s (Baa3s/BBBs/BBBs)
Retail
Resources (BBB+)
Media (BBB) 250
60 (BBB+) Construction &
& Services (A-) bonds were taken over by Opel Finance International BV,
Materials (BBB)
HealthFood & (A-)
Care
Netherlands. Today, Opel Finance has only one euro-
200
40 Chemicals
Travel & Leisure Oil & Gas (A) Beverage (A-) denominated bond left outstanding, under the ticker
(BBB+) (BBB+)Technology (A) Personal &
Household OPELFN 5/20. It is rated Baa3/BBB/BBB+ and totals EUR
20 Hybrid Bonds
(BBB)
Goods (A-) 150 500mn. Although the OPELFN bond is eligible for the
CSPP, it has not been purchased by the ECB. We do not
0 100 expect this remaining OPELFN bond to be refinanced via
3.4 4.4 5.4 6.4 7.4
mDur the bond market as the other two bonds that have already
matured were refinanced via other sources.
Source: iBoxx, MarkIT, Bloomberg, UniCredit Research
■ By issuing subordinated debt, automotive captive
finance companies with a bank license can improve
■ Among the five auto banks that issue euro-
their regulatory capital ratios and optimize their
denominated bonds, RCI Banque has EUR 19.5bn in
capital structure. Subordinated debt constitutes also
bonds outstanding, which is by far the highest amount
eligible liabilities for the minimum requirement for own
among its auto bank peers. FCA Bank has EUR 8.6bn,
funds and eligible liabilities ("MREL") in the context of the
VW Bank EUR 7.1bn, FCE Bank EUR 6.6bn and PSA
BRRD regulation. Finally, the issuance of subordinated
Banque France EUR 2.6bn. We note that at the Ford
debt might support the senior rating of the issuers as
Group, Ford Motor Credit has been the sole issuer of euro-
more outstanding subordinated debt provides a buffer for
denominated bonds recently. In FCE’s 3Q report, the
senior debt. Examples are the recently issued Tier 2 bond
company said that in order to provide flexibility to respond to
RCI Banque 2.625% 2/30 bond (Ba1/BB/--), callable in
Brexit uncertainties, Ford Motor Credit Company LLC would
February 2025, and Leaseplan’s AT1 bond, the 7.375%
continue to issue euro and sterling debt and on-lend to FCE.
Perp (Ba3/B+/--), callable May 2024. We note that VW
■ On 18 December 2019, FCA and Groupe PSA agreed to issued also nine subordinated hybrid bonds in a total
merge. The completion of the proposed combination is amount of EUR 12.5bn. Nevertheless, these are not
expected to take place in 12-15 months, i.e. by the end of issued by VW’s Financial Services arm.
1Q21. So far, there are no public details available on the
plans regarding the two companies’ financial services units.
As the merged company expects an investment-grade rating,
a reorganization over time of its currently rather complex
financial services activities together with various bank
partners (e.g. Santander, Crédit Agricole, BNP) cannot be

Sector Thinking
2. Diversification of funding sources TABLE 1: FUNDING DIVERSIFICATION OF AUTO CAPTIVES
CHART 2: FINANCIAL SERVICES LIABILITIES GROWTH
BMW Financial Services/Other entities Daimler Financial Services

Volkswagen Financial Services Toyota Motor Credit Corp
Ford Motor Credit GM Financial
200,000
Financial Services debt in EUR mn
150,000
100,000
50,000
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LTM 9M19
Source: company reports, UniCredit Research Source: company reports, UniCredit Research
■ Between 2006 and 2018, financial services liabilities ■ At most auto captives, bonds represents the highest
grew on average at a CAGR of 7.0% (EUR 392bn in share of funding at more than 50% in many cases. We
total) to EUR 705bn at the six automotive note that for VW, BMW and Daimler, customer deposits
manufacturing groups BMW, Daimler, VW, Toyota, are also an important funding source with a share of
Ford, GM. Growth was particularly strong at VW with a between 8% and 15%. ABS is a source of secured
CAGR of 10.7%. funding that represents around 17-20%. ABS and
deposits can be seen as funding tools that are fairly
CHART 3: FINANCIAL LIABILITIES GROWTH AT AUTO BANKS independent of the respective auto captive’s rating. In its
fixed income presentation of 24 October 2019, Daimler
RCI Banque FCE Bank VW Bank
indicated a funding target of 10% deposits, 20% ABS,
FCA Bank Banque PSA France
70,000 20% bank loans and 50% capital market. At its current
EUR 160bn in total funding, this would mean an increase
Financial liabilities in EUR bn
60,000
of its ABS funding to EUR 32bn (from EUR 14.2bn in
50,000 3Q19) and of deposits to EUR 16bn (3Q19: EUR 12.5bn).
40,000
TABLE 2: FUNDING DIVERSIFICATION OF AUTO BANKS
30,000
RCI PSA
VW Bank Banque FCA Bank Bq. Fran. FCE Bank
20,000
1H19 1H19 1H19 FY18 3Q19
10,000 EUR EUR EUR EUR GBP
CP/CD 0.7 1.4 0.3
0 Bonds 6.9 20.1 9.0 2.3 5.5
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19
Bank borrowings 6.7 2.6 6.6 0.6
Other borrowings 12.7 1.0 3.1 2.7 4.8
Source: company reports, UniCredit Research
Central banks 2.5 1.2 0.8
ABS 2.5 3.5 5.4 2.3 4.2
Deposits 33.8 16.7 1.1 2.3 2.0
63.2 47.8 26.7 11.0 16.5
CP/CD 1% 3% 1% 0% 0%
Bonds 11% 42% 34% 21% 33%
Bank borrowings 11% 5% 25% 5% 0%
Other borrowings 20% 2% 12% 25% 29%
Central banks 0% 5% 4% 7% 0%
ABS 4% 7% 20% 21% 25%
Deposits 53% 35% 4% 21% 12%
100% 100% 100% 100% 100%

Sector Thinking
■ Another funding source is commercial paper, which ■ On 14 November 2019, we upgraded our
usually has a low- to mid-single-digit share of funding recommendation on bonds from Ford Credit and FCE
sources, except at Toyota, where it is a high 29% Bank to marketweight from underweight. Ford Motor
share given the company’s strong short-term rating. (Ba1s/BBB-s/BBBn), the ultimate parent of Ford Credit
Central bank TLTRO funding for some European auto (Ba1s/BBB-s/BBBn) and FCE Bank (Ba1n/BBB-s/BBBn),
banks represents around 4-7% of funding at RCI, FCA cut its FY outlook when it reported 3Q19 results. In 3Q19,
Bank, PSA Banque France. the North America EBIT margin was down to 8.6% vs.
8.8% yoy and the company-adjusted EBIT margin was up
CHART 4: CUSTOMER DEPOSITS HAVE INCREASED to 4.8% vs. 4.4% yoy. Company-adjusted FCF in 9M19
SIGNIFICANTLY AT VW BANK AND RCI BANQUE
was up to USD 2.3bn vs. USD 1.3bn yoy and liquidity was
RCI Banque FCE Bank VW Bank
USD 35.4bn. Ford was still expecting adjusted FCF
FCA Bank BMW Daimler growth for the full year (before dividends, pension
Banque PSA France contributions, restructuring costs). However, 4Q
45,000
headwinds – higher warranty costs, higher-than-planned
Liabilties to customers, deposits
40,000
incentives in North America, and lower volumes in China
35,000
– intensified since Ford last provided guidance for 2019.
30,000
As a result, Ford lowered its guidance for FY company-
in EUR bn
25,000
adjusted EBIT to USD 6.5-7.0bn (previously: USD 7.0-
20,000
7.5bn; FY18: USD 7.0bn), FY-adjusted EPS (company
15,000
definition) is now anticipated to be USD 1.20-1.32
10,000
(previously: USD 1.20-1.35; FY18: USD 1.30). After the
5,000
results release, S&P downgraded Ford/Ford Credit/FCE
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19 Bank to BBB-, but assigned a stable outlook. Moody’s
also has a stable rating outlook.
■ Given credit metrics stabilization at Ford in 2Q and
■ Since the financial crisis, customer deposits have improvement in 3Q, we have a marketweight
increased significantly in relevance as a funding tool recommendation on FCE/Ford Credit bonds for IG
for the auto bank industry. The CAGR of average investors with a HY bucket. The company’s euro-
deposits (RCI Banque, FCA Bank, FCE Bank, VW Bank, denominated cash curves (Ford Motor Credit, FCE Bank)
BMW, Daimler) in 2008-2018 was 10.0%. In absolute trade in the high-BB area, i.e. with a 50bp spread premium
terms, deposits at VW Bank and RCI Banque increased to GM Financial’s. Before raising our recommendation for
by EUR 40.8bn. In total, deposits at RCI Banque, FCE IG investors to overweight, we would like to see a further
Bank, VW Bank, FCA Bank, BMW and Daimler increased sustainable improvement in credit metrics to the BBB rating
in this period by EUR 55.7bn to EUR 85.5bn at FYE 2018. category. This is important to keep the average rating of
This contributed to lower average funding costs and to Ford bonds (Ba1s/BBB-s/BBBn) in IG indices. For our
increased funding diversification for auto captives. comment on Ford’s 3Q19 results, please refer to our Daily
Credit Briefing, 24 October, p. 7.
3. Relative value and recommendations
CHART 5: FORD CURVE TRADES WITH PREMIUM TO OTHER
TABLE 3: BOND RECOMMENDATIONS BBB AUTO FINANCE BONDS
Issuer (ratings) and company links Recommendation FY19 release
FCEB_Cash FC_Cash FCABNK_Cash
BMW (A1s/A+n) Marketweight 18 Mar 2020 GMFIN_Cash RCI_Cash VWFS/VWL
Daimler (A3n/A-n/A-s) Marketweight 11 Feb 2020 VWB PSABFR_Cash LPTY_Cash
250
FCA Bank Marketweight n.a.
(Baa1s/BBBn/BBB+s) (from Overweight)
FC 2.386% 2/26
Ford Credit / FCE Bank 200 FC3/24
1.355% 2/25
Marketweight 4 Feb 2020 FC 3.021%
(Ba1s/BBB-s/BBBn) FCEB 1.615%
5/23
GM Financial (Baa3s/BBBs/BBBs) Marketweight 5 Feb 2020 150 FC 1.514% 2/23
bp
FCEB 1.134%
LeasePlan (Baa1s/BBB-s/BBB+s) Marketweight n.a. 2/22
FCEB 0.869%
FCEB 1.875%
9/21
PSA Banque France (A3s/BBB+s) Marketweight n.a. 100
6/21
FCEB 1.66%
RCI Banque (Baa1s/BBBn) Marketweight 13 Feb 2020 2/21
50
Sixt Leasing (not rated) Hold 14 Apr 2020 LINCFI 1% 5/23 LINCFI 1.375%
LINCFI 0.125%
LINCFI 0.75% 3/24
LINCFI 1% 2/22
Toyota (Aa3s/AA-s/A+s) Marketweight 6 Feb 2020 LINCFI 1% 5/21
10/22 9/23
0
VW / VW Financial Services Overweight 17 Mar 2020 0 1 2 3 mDur 4 5 6 7 8
(A3s/BBB+s/BBB+s) /VW Bank (A1s/A-n)
Source: Bloomberg, UniCredit Research Source: iBoxx, Bloomberg, Markit, UniCredit Research

Sector Thinking
■ FCA Bank (Baa1s/BBBn/BBB+s) bonds have tightened CHART 7: VW HYBRIDS HAVE OUTPERFORMED IBOXX AUTO
SECTOR INDEX
closer to PSA Banque France (A3s/BBB+s) bonds on
the back of the announcement of the planned merger
500 VW 5.125% PERP (Other) VW 3.75% PERP (Other)
of FCA and PSA. As a result, we recommend taking profit VW 4.625% PERP (Other) VW 3.5% PERP (Other)
450
(and change our recommendation to marketweight from VW 2.5% PERP (Other) VW 2.7% PERP (Other)
overweight) and switching to RCI Banque (Baa1s/BBBn) 400 VW 3.875% PERP (Other) VW 4.625% PERP (Other)
VW 3.375% PERP (Other)
bonds, which trade at a 25bp spread premium to VW 350
iBoxx € Automobiles & Parts
Financial Services/VW Bank bonds. 300
bp
CHART 6: FCA BANK BONDS HAVE OUTPERFORMED 250
200
160 FCABNK 1.25% 1/21 FCABNK 1% 2/22 (1/22)

150
FCABNK 1.25% 6/22 (5/22) FCABNK 0.625% 11/22 (10/22)
140 FCABNK 0.5% 9/24 iBoxx € Automobiles & Parts 100
BTPS 3.75% 8/21 50

120
Jan-19 Apr-19 Jul-19 Oct-19 Jan
100
Source: iBoxx, Bloomberg, Markit, UniCredit Research
80
bp
60 ■ Positively, in November, VW confirmed its strategic

40 financial targets for 2025 (see press release) with regard
to operating return on sales, return on investment,
20
capex ratio, R&D cost ratio, net cash flow and net
0 liquidity. In a press release (see weblink), it announced that
Jan-19 Apr-19 Jul-19 Oct-19 Jan-
in 2020-24 it plans to invest EUR 33bn in electric mobility
Source: iBoxx, Bloomberg, Markit, UniCredit Research
and EUR 27bn in hybridization and digitalization. In 2020,
VW expects operating profit before special items to remain
■ We are keeping our overweight recommendation on at 6.5-7.5%; it targets a level of 7-8% by 2025. In the
VW’s bonds in the auto sector. We think that VW’s Automotive division, it expects return on investment to be
2019 guidance indicates a relatively stable credit-metric between 12% and 14% from 2020 onwards and more than
trend. An additional reduction in leverage could come 14% starting in 2025. The company says the group will
from the disposal/listing of valuable assets (e.g. MAN’s continue to pursue strategic targets pertaining to the capex
Energy Solutions, Lamborghini). VW’s adjusted ratio and R&D cost ratio and expects both to be 6% from
automotive debt leverage seems to be more or less stable 2020 onwards. The aim is to achieve net cash flow of at
at around 2x and we still think its rating will eventually least EUR 10bn and net liquidity at the Automotive division
return to single A (on average). This would bring its senior of more than EUR 20bn by 2025. According to Bloomberg,
cash curve in line with, or at least closer to, that of its however, VW’s revenue-growth projection for 2016-20 was
German peers (given the sheer size of its outstanding cut from 25% previously to “at least 20%”.
bonds). ■ After the release of LeasePlan’s 3Q18 results and the
■ According to our calculations, VW’s (A3s/BBB+s/BBB+s) revision outlook on its BBB- rating at S&P, LeasePlan
adjusted automotive gross debt/EBITDA (UniCredit bond spreads significantly widened but in 1Q19 quickly
Research) was again stable at 1.9x qoq in 3Q19. recovered back to fair levels. Since then they have been
Moody’s (Sep-19) hurdle ratios are: EBITA margin 7% trading in line with the indices. We have a marketweight
(LTM 1H19: 8.4%), debt/EBITDA > 2.5x (LTM 1H19: recommendation on LeasePlan bonds and prefer to go
1.8x), EBITA/interest expense 5-7x (LTM 1H19: 8.8x). deeper in the capital structure with the AT1 bond (issued in
S&P’s are: debt/EBITDA <2x (LTM 9M19: 1.1x); FFO/debt May 2019, callable from May 2024), which is Ba3/B+ rated
45-60% (LTM 9M19: 79.9%), positive adjusted automotive and trades slightly below 500bp. We are keeping our hold
FOCF positive to > EUR 10bn (LTM 9M19: 12.6bn), recommendation on the two LNCFIN bonds. The LNCFIN
change in governance/ management framework. We 3.625% 4/24 is callable on or after 1 October 2020 at
believe that these major metrics already point to a rating 101.813 and is trading at around 103.4; the LNCFIN FRN
upgrade, although in the uncertain sector environment, 4/24 is callable on or after 1 April 2020 at 100 and is trading
the rating agencies might not want to upgrade any auto at around 100.9. Although price upside potential is limited,
names and they have indicated that they still have some we would recommend the bonds as carry instruments for
ESG concerns regarding VW. buy-and-hold investors: in the event of another LeasePlan
IPO attempt, these bonds would most likely be called in our
view.

Sector Thinking
CHART 8: SUB AND HOLDCO BONDS ISSUED BY LEASEPLAN ■ Moody’s rating assessment is based on its banks
AND RCI BANQUE
methodology (25 November 2019). The first step includes
LNCFIN 3.625% 4/24 (10/20) LNCFIN 3.875% 4/24
assigning a Baseline Credit Assessment (BCA) that analyzes
LPTY 7.375% PERP (AT1) iBoxx EUR HY B a bank’s financials and operating environment to capture its
iBoxx EUR HY BB RENAUL 2.625% 2/30 standalone probability of failure. The BCA is not a credit
900
rating and reflects the agency’s opinion of the bank’s intrinsic,
800
700
or standalone, strength absent any extraordinary support
600 from an affiliate or government, relative to the global
population of rated banks. As a next step, Moody’s support
bp
500
400 and structural analysis includes affiliate support, loss given
300 failure (LGF) analysis and government support components.
200
100 TABLE 5: MOODY’S AUTO BANKS METHODOLOGY
0
PSA
-100
RCI Banque FCA VW
Jan-19 Apr-19 Jul-19 Oct-19 Jan-
Banque France Bank Bank
Review date 27-Sep-19 5-Sep-19 27-Jun-19 30-Sep-19
Source: iBoxx, Bloomberg, Markit, UniCredit Research Weighted macro profile Strong Strong Strong- Moderate +
- Solvency Asset Risk a3 a3 a3 ba2
- Capital aa3 a2 baa2 baa2
4. Rating methodologies for automotive finance - Profitability a2 a3 a3 ba1
companies and rating stability through the cycle Combined solvency score a2 a3 baa1 ba1
- Liquidity funding structure b2 caa2 caa1 caa3
■ Both S&P and Moody’s use their bank rating methodology

- Liquid resources
Combined liquidity score
ba2
b1
b1
b3
ba2
b2
caa2
caa3
for automotive finance companies with a bank license that Total financial profile baa2 baa3 baa3 b1
issue bonds. - Business diversification -1 -1 -1 -1
- Opacity and complexity 0 0 0 0
TABLE 4: S&P’S AUTO BANK RATINGS - Corporate behavior 0 0 0 0
Total qualitative adjust. -1 -1 -1 -1
RCI FCE FCA VW
Sovereign or affiliate constraint Aa2 -- Baa3 A3
Banque Bank Bank Bank
Scorecard-calculated BCA range baa2 – ba1 baa3-ba2 baa3-ba2 b1-b3
Review date 22-Aug-19 25-Jul-19 26-Jun-19 10-Dec-18
Assigned BCA baa3 ba1 ba1 b2
Economic risk score 4 4 4 1
Affiliate support notching 0 1 1 3
Industry risk score 3 3 5 3
Anchor bbb+ bbb+ bbb a- Adjusted BCA baa3 baa3 baa3 baa2
Business position -2 -2 -2 -2 LGF notching senior unsecured 2 2 2 3
Additional / government support notching 0 0 0 0
Capital and earnings 1 1 1 2
Moody’s rating Baa1 A3 Baa1 A1
Risk position 0 0 0 0
Funding/liquidity -1 -1 0 0 Source: Moody’s, UniCredit Research
SACP bbb- bbb- bbb- a-
GRE support 0 0 0 0
Group support 1 1 1 0
■ Captive finance operations rating methodology at
Sovereign support 0 0 0 0 Moody’s. Moody’s rating methodology from 23 December
Additional factors 0 0 0 0 2015 is titled “Captive Finance Subsidiaries of Nonfinancial
S&P rating BBB BBB BBB A- Corporations”. Moody’s methodology comprises the
Source: S&P, UniCredit Research following assessments: 1. assessing the difference between
the standalone credit quality of the parent (using the relevant
■ At S&P, the rating assessment is based on the following industry rating methodology) and the captive, 2. assessing
factors: The starting point is the anchor rating, which is the potential for any drag on the parent rating due to
based on the agency’s Banking Industry Country Risk potential support of the captive (equity shortfall in the
Assessment (BICRA) scores in the countries in which the captive’s capital structure in relation to a target leverage
auto bank operates. The anchor is the result of a matrix range) as the ratio of Tangible Common Equity/Tangible
combination of a) economic risk (depends on weighted Managed Assets, and 3. assessing lift to the captive’s credit
average economic risk score from 1-10, i.e. from low to high, quality provided by parental support (support agreement
in the different geographies the bank operates in) and b) features, willingness of parent to provide support).
industry risk (depends on the country where the bank is
■ Captive finance operations rating methodology at
domiciled and primarily regulated). The anchor rating is then
S&P. S&P’s approach from 14 December 2015 is called
notched by business position, capital and earnings, risk
“The impact of captive finance operations on nonfinancial
position, funding, liquidity, support (ALAC, GRE, group,
corporate issuers”.
sovereign) and additional factors.

Sector Thinking
The approach is to adjust the parent’s financial risk profile CHART 10: CAPTIVE RATING USUALLY REMAINS IG DURING
RATING PRESSURE ON PARENT
based on the asset and leverage risk of the captive. The
captive’s asset and leverage risk assessment is determined
A
by a matrix of captive leverage (debt/equity) and portfolio RENAUL
FCABNK
RCIBK
PEUGOT
FCAIM
PSABFR
quality assessment (asset-quality-related risks and portfolio A-
losses and underwriting standards as a forward-looking BBB+

assessment of company-specific portfolio risk).
BBB
■ Automotive leasing companies: LeasePlan Corporation BBB-
N.V. has a banking license and operates LeasePlan Bank.
BB+
As such, it is regulated as a financial institution by the DNB
and the AFM. As a financial services company, Sixt BB
Leasing SE is supervised by the Bundesanstalt für BB-
Finanzdienstleistungsaufsicht (BaFin – Federal Financial
B+
Supervisory Authority) and must comply with the minimum 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
requirements for risk management of credit and financial
services institutions (MaRisk). Source: Bloomberg, UniCredit Research
CHART 9: AUTO FINANCE MOSTLY RATED IN THE BBB AREA

■ It is also remarkable that Renault’s 100%-owned
captive RCI Banque has always been IG-rated, also
AA-
A+
FCEB RCIBK PSABFR during 2009-2014, when the rating of its parent,
FCABNK LPTY ALDFP
A Renault, was in the sub-IG area. Also FCA Bank’s rating
A- have been more stable in the period around 2014 than
BBB+ FCA’s rating.
BBB
BBB-
BB+
5. Relevance of automotive captives for the auto
BB
BB-
manufacturing parent
B+
B CHART 11: FINANCIAL SERVICES BUSINESS SHARE OF
B- AUTOMOTIVE GROUP NUMBERS*
CCC+
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 100%
2017 2018
90%
Financial services share (average)
Source: Bloomberg, UniCredit Research

80%
■ To access funding at competitive conditions and also 70%
60%
through cyclical downturns, it is important for the
captive rating to be in the IG area. As explained above, 50%
most ratings of captives without a banking license are 40%
aligned to the respective parent’s ratings. Through the 30%

cycle, however, many auto manufacturers are exposed to 20%
rating downgrades, sometimes to the sub-IG area. As a 10%
result, European automakers FCA and Peugeot, which 0%
were rated in sub-IG area through the cycle, operate their Total assets Financial liabilities Equity EBT
captives with a bank license in a JV with an IG-rated

bank. *BMW (FS/Other entities/eliminations), Daimler, VW, Ford, GM, Toyota, Renault
■ Automotive captives are important businesses for their

automotive (OEM) manufacturer groups. We calculate
that the OEM group’s financial services business represents
(based on average) around 50% of its total assets, more than
90% of its financial liabilities, 25% of its total equity and
generates around 15% of its earnings before tax (EBT).

Sector Thinking
Deloitte1 states that in addition to their earnings contribution, 6. Growth and profitability
automotive captives (also known as automotive banks) also
perform key functions for the respective automobile
■ Major growth drivers of financial services business
contracts, revenues and assets are in particular: sales
manufacturers, such as customer interface, customer loyalty,
growth of new and used vehicles (considering product mix
data manager, mobility services and fleet management
changes, e.g. trend to more expensive SUV’s) and the
solution providers. KPMG2 calculates that in the period 2006-
captive’s penetration rates across its parent’s brands in the
2010, captives (covering BMW, Daimler, Ford, Toyota, VW)
countries it is active in, the attractiveness of leasing and
typically comprised approximately 50% of total assets on the
financing conditions (e.g. general interest rate level) for
OEM’s balance sheet and on average were responsible for
customers, and also sales growth of additional products such
more than 10% of the OEM’s total revenue. On average, the
as services, fleet management and mobility solutions.
captive’s share of total equity was around 20%. The captives’
share of EBT varied greatly over time (from 11% to 100%) ■ In CAGR 2006-2018, the financial services business of
due to fluctuating EBT values of the OEMs. the six auto manufacturing companies BMW, Daimler,
VW, Ford, GM and Toyota was the following: revenue
■ At FCA and Groupe PSA, a significant portion of their
+8.6%, financial liabilities +7.0% and net income +6.1%.
financial services segment entities are joint ventures
This was above CAGR unit sales and industrial revenue
(e.g. FCA Bank or Banque PSA Finance) or
growth of these companies, which was in the same period at
cooperations and are therefore not fully consolidated.
+1.7% and 2.2%, respectively. We think that this is mainly
As a result, consolidated share ratios at group level are
due to increasing penetration rates in their asset-based
distorted. For example, the share of financial services debt
business (credit, leasing, wholesale) but also growth from
to total group debt is only 4% and 16%, respectively, at
their expanding service-based business (fleet services,
Peugeot and FCA. Peugeot’s finance segment corresponds
insurance, connected services, payments, mobility services,
to Banque PSA Finance (BPF), which is classified as a
charging & parking). For example, in the period 2008-1H19,
financial institution. This mainly stems from the partnership
VW Financial Services increased its penetration rate by
between BPF and Santander Consumer Finance for
7.7pp to 34.1% (and including China by 15.8pp to 48.3%). In
Peugeot, Citroen and the DS brands as well as from the
the period 2015-1H19, VW Financial Services’ insurance/
partnership with BNP Paribas for the Opel and Vauxhall
services contract portfolio expanded by 56.7% and its
brands. On 1 November 2017, Peugeot finalized the
financing/leasing contract portfolio by 32.1%. At the end of
acquisition of GM Financial’s European operations
1H19, RCI Banque’s penetration rate in the countries it is
comprising the existing Opel Bank, Opel Financial Services
active was 43.0% and Banque PSA France’s 27.5%.
and Vauxhall Finance brands. In FCA’s EMEA segment,
dealer and retail customer financing has been managed CHART 12: SIGNIFICANT FINANCIAL SERVICES REVENUE
since 2007 primarily by FCA Bank, a JV with Crédit GROWTH OVER THE LAST FEW YEARS
Agricole Consumer Finance S.A. (“CACF”). FCA Bank
provides services to the Maserati and Ferrari luxury brands, BMW Financial Services/Other entities Daimler Financial Services
as well as to certain other OEMs. CACF and FCA agreed in
Ford Motor Credit GM Financial
July 2019 to extend their JV to 31 December 2024. The 40,000
Financial Services revenue in EUR mn
agreement will be automatically renewed unless notice of 35,000
non-renewal is provided no later than three years before 30,000

25,000
the end of the term. Consistent with the current agreement,
20,000
a notice of non-renewal would trigger certain put and call
15,000
rights, potentially leading to the acquisition of FCA Bank by 10,000
FCA to preserve its support to the FCA business; if such 5,000
rights are not exercised, the agreement will run to 0
31 December 2024. In its important NAFTA segment, FCA
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LTM 9M19
relies on independent financial service providers including

Santander Consumer USA Inc. (SCUSA). In February
2013, FCA entered into a ten-year term agreement, subject Source: company reports, UniCredit Research
to early termination in certain circumstances. In FYE 2018,
SCUSA and Ally Financial Inc. provided wholesale lines of ■ According to KPMG, the greater stability of financial
credit to 10% and 34%, respectively, of FCA dealers in the services EBT is due to the annuity structure of most
US, and they provided around 37% and 15%, respectively, financing and leasing contracts and the use of the
of leasing and financing to FCA’s US retail customers. reducing-balance method, which leads to higher
1 values over the length of contracts; the OEM profits
See Deloitte website
2 from a continuous revenue stream.
KPMG, Global automotive finance and leasing 2012

Sector Thinking
CHART 13: AUTOMOTIVE EBT VS. FINANCIAL SERVICES EBT* CHART 14: COST OF RISK HAS DECLINED SINCE 2009
Financial Services Automotive Unit sales FCA Bank BMW Daimler Average
1.0
7,000
0.9
6,000
Cost of risk in % of loan portfolio

0.8
Average EBT in EUR mn
5,000
0.7
4,000
0.6
3,000
0.5
2,000
0.4
1,000
0.3
0
0.2
-1,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LTM 9M19
0.1
0.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19
*Sum of BMW and Daimler Source: company reports, UniCredit Research Source: company reports, UniCredit Research
■ Typical efficiency and risk considerations of financial CHART 15: QUITE STABLE USED CAR PRICE DEVELOPMENT
IN GERMANY AFTER 2016
services operations are captured by ratios like
cost/income, but also by cost of risk Germany CPI Used Cars (ls) VDAGCR Index
(credit/receivables write-offs percentage of loan 6
3,900,000
portfolio) and residual-value risk. In the following chart,
New passenger car registrations

4
we show the average cost of risk or credit loss (cost of 3,700,000
yoy growth/inflation rate
risk) ratios of seven companies (RCI Banque, FCE Bank, 2 3,500,000

Banque PSA France, FCA Bank, VW Financial Services, 3,300,000
0
BMW, Daimler). The average peaked at 0.9% in 2009 and
3,100,000
gradually dropped to 0.2% in 2018. In 1H19, the average -2
ratio increased to 0.3%. 2,900,000
-4
■ Residual value risk increases when the captive can
2,700,000
resell or release its vehicles after the lease term only -6 2,500,000
Sep-06
May-07
Sep-08
May-09
Sep-10
May-11
Sep-12
May-13
Sep-14
May-15
Sep-16
May-17
Sep-18
May-19
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
Jan-16
at a price below the asset’s residual value. A recent Jan-18
prominent example is diesel-powered cars that lost used

car value as a result of the diesel crisis. Used car prices Source: German Federal Statistical Office, Bloomberg, UniCredit Research
can be also influenced by scrappage incentive schemes,
as in 2009-2010, when sales of new cars increased as ■ In its captive rating methodology, S&P stated that
used car prices dropped. As a risk mitigant, however, operating leases introduce unpredictable residual risk
Roland Berger says that leasing and fleet management (the risk of lower-than-expected proceeds from the
companies own only the latest models and completely sale of the asset at the end of the lease period) that is
renew their fleet every three to four years. Their exposure incremental to asset-quality risk (the risk that lease
to technology risk is therefore very limited. payments will not be made on time and in full). S&P’s
residual-value factor intends to capture risks that are
highly unpredictable by nature and could result in loss
levels that diverge from historical performance. In some
cases, losses from residual value may not be disclosed
and therefore not captured in the net loss ratio. An asset
mix with greater focus on operating leases would more
likely expose a captive to unpredictable losses. For
example, VW Financial Services’ total contract portfolio
consisted of 21% leasing contracts and the remainder
insurance/services and financing contracts.

Sector Thinking
7. Capital generation and leverage development ■ The European Banking Association (EBA) defines
Return on Equity (ROE) as net income/equity. In
CHART 16:
NET INCOME OF AUTO CAPTIVES WITH BANK LICENSE
contrast, BMW and VW define their ROE as EBT/average
equity and Daimler as EBIT/shareholder equity. In the
RCI Banque FCE Bank following chart, we show ROE (net income/equity) of five
Banque PSA France VW Bank
900
FCA Bank European auto captives with bank licenses. In the period
800
2015-2018, ROE was on average between 11.4% and
700
12.2%. In FY18, the average ROE of these banks was
Net income in EUR mn
12.2%. RCI Banque and Banque PSA France had the

600
highest ROE at 16.8% and 16.7%, respectively, in FY18.
500
400
CHART 18: FORD, GM AND TOYOTA WITH NEGATIVE ROE IN 2008
300
200 BMW Financial Services/Other entities Daimler Financial Services

100
GM Financial Ford Motor Credit
0 40%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Financial Services ROE

30%
(net income/equity)
Source: company reports, UniCredit Research 20%
CHART 17: ROE OF AUTO BANKS 10%
0%
RCI Banque FCE Bank Banque PSA France
-10%
VW Bank FCA Bank
25% -20%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LTM 9M19
ROE (Net income/Equity)
20%
15%
Source: company reports, Bloomberg, UniCredit Research
10%
■ The average ROE of the financial services business of
5%
six companies (BMW, Daimler, VW, Toyota, Ford, GM)
was 10.4% in FY18 and ranged between 6.6% and
0% 14.0% (excluding the outliers in 2008 and 2017). The
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 cyclical decline lead to negative ROE in 2008 only at
Ford, GM and Toyota, whereas Daimler, VW and BMW
Source: company reports, Bloomberg, UniCredit Research
still had positive ROE. The increase in financial services
net income in FY17 at Toyota, Ford and GM was mainly
■ Important ratios of financial services businesses that
due to a revaluation of deferred tax assets and liabilities
debt investors need to consider are in our view
resulting from the Tax Cuts and Jobs Act of 2017 in the
debt/equity and equity ratios and, for captives with a
US.
bank license, the CET 1 ratio. In order to keep these
ratios within a certain target range, it is important to ■ As mentioned above, in S&P’s methodology, financial
accompany growing financial services business with services debt/equity is an important leverage measure.
higher levels of equity. Equity generation can be achieved We note that the average multiple of six companies (BMW,
in several ways: Injection of equity capital by the Daimler, VW, Ford, Toyota, GM) increased in the cyclical
parent(s), generation of net income higher than the downturn in 2008/2009 to 10.5x. The average multiple
dividend payment to the parent(s) or issuance of declined to 7.3x in 2018. We note that in FY18, Daimler had
subordinated debt, which is accountable for the CET 1 the highest multiple among the six financial services
ratio under banking regulations. businesses, i.e. at 10.2x. In contrast, BMW had the
smallest multiple at 3.0x.
■ In terms of net income generation among captives
with bank licenses, in particular RCI Banque, VW
Bank, but also FCA Bank have increased their net
income level since FY14 significantly. The combined
net income of the financial services business at BMW,
Daimler, VW, Toyota, Ford and GM increased at a CAGR
of 6.5% in 2006-2018 to a total of EUR 9.5bn.

Sector Thinking
CHART 19: FINANCIAL SERVICES DEBT/EQUITY MULTIPLE ON CHART 21:

AVERAGE 7.8X IN FY18 CET 1 RATIO DEVELOPMENT AT AUTO CAPTIVE BANKS
BMW Financial Services/Other entities Daimler Financial Services 17%

RCI Banque FCE Bank Banque PSA France
Volkswagen Financial Services Ford Motor Credit
VW Bank FCA Bank
GM Financial Average 16%
Toyota Motor Credit Corp
20x 15%
Financial Services debt/equity
CET 1 ratio
15x 14%
10x 13%
12%
5x
11%
0x
9M19
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LTM
10%
2014 2015 2016 2017 2018 1H19
Source: company reports, Bloomberg, UniCredit Research Source: company reports, Bloomberg, UniCredit Research
■ In Moody’s captive methodology, equity/total assets

plays an important role. The average equity ratio of the
8. Financial services and mobility sector
six companies increased from 9.5% in 2006 and peaked
overview
at 12.5% in 2011. In FY18, it was at 11.2%. We note that
CHART 22: VW FINANCIAL SERVICES – RANGE OF SERVICES
Daimler had the lowest equity ratio at 7.7% and BMW had
the highest ratio at 14.9%. BMW has traditionally the
highest equity ratio with levels above 12% since 2013.
CHART 20: EQUITY RATIOS OF SELECTED AUTO CAPTIVES
BMW Financial Services/Other entities Daimler Financial Services

Ford Motor Credit Average
16%
Financial services equity ratio
14%
12%
10%
Source: VW Financial Services
8%
6%
■ The product portfolio of VW Financial Services is an
4% example of the combination of asset-based and
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LTM 9M19
service-based captive business. As shown in the chart

above, the classic asset-based business model (banking,
leasing, insurance, services) has the highest profitability.
Source: company reports, Bloomberg, UniCredit Research This is followed by mobility services (fleet, used cars,
charge & fuel, rental, parking) and payment. One reason
■ The average CET 1 ratio among the five European mobility and payment is less profitable is that the contact
auto captives with a bank license was 14.0% at the frequency in is much higher compared to banking,
end of 2Q19 (FY18: 14.1%; FY17: 14.0%). FCA Bank leasing, insurance and services. In addition, VW has
and Banque PSA France had the lowest CET 1 ratios. stated that the automotive transformation will not only lead
to new sources of income, but also to new sources of
risks, which we show on the table below.

Sector Thinking
TABLE 6: FINANCIAL SERVICES BUSINESS: NEW SOURCES employee cars that are offered as a form of compensation
OF INCOME, RISKS AND BUSINESS PARTNERS
(benefit in kind). This European model is rather unique from
Classic New mobility Digital a global perspective. The main motives are favorable tax
business model concepts products Electrification
Income Car and dealer Rental products, Payment- Classic business,
treatment but also behavioral (e.g. status symbol).
financing, fleet business, services, cyber- new mobility Historically, companies used to own their company cars
leasing, parking, fuel, toll insurance, concepts and
insurance, functions on digital products and manage their fleets in-house. In recent years, this has
services demand for e-cars,
charging drastically changed, with more and more companies buying
products full-service leasing contracts instead of vehicles to reduce
Risk Interest and Revenue risk, Cyber risks, Revaluation of
liquidity risk, utilization risk, traffic law risks classic risks,
fixed assets and, accordingly, total assets while transferring
default and operating risk (autonomous especially the residual-value risk of the vehicles to external parties. In
residual-value (own operations) driving) residual-value
risk risk (ICE vs. addition, more and more companies outsource the
electric motor)
management of their fleets to specialized companies with
Partners Retail customer Mobility Digitally savvy Environmentally
(1:1), dealers, customers (1:n), customers, digital aware customers, the aim of realizing further cost reductions. Historically, the
BaFin, ECB municipal companies energy providers,
authorities, public battery business has been dominated by fleet management
transport producers,
charging
companies fully or partially owned by large banks. Today,
infrastructure these are still among the largest players. In recent years
providers
however, several car manufacturers have (re-)entered the
Source: VW Financial Services, UniCredit Research multi-brand fleet management market or substantially
expanded their operations.
■ Daimler divides its automotive financial services
customers into three demand types: traditional CHART 24: NEW CAR REGISTRATIONS IN EUROPE (EU 16) IN
business, fleet management and digital mobility solutions. MILLIONS
CHART 23: CAPTIVE CUSTOMER DEMAND TYPES
Source: Deloitte
■ The typical fleet management service offering covers the

entire vehicle lifetime, including purchasing,
financing/leasing, and services, as well as reselling the
vehicle on termination of the contract. Deloitte4 states that
Source: Daimler November 2019 “historically, fleet management companies in Europe grew
out of the banking industry. Banks identified vehicle leasing
■ According to Deloitte, the automotive market in Europe as an asset-based business model with profitable interest
is characterized by two major customer segments.3 margins, the potential for additional recurring service
Almost all new vehicles sales are registered either to revenue, and manageable risk. In addition to banks, some
private or to corporate customers (with a small number of, OEMs grew naturally into fleet management, evolving from
for example, government customer registrations). Deloitte retail leasing contracts to managing and financing large
says that nearly two out of three new cars are sold to the corporate fleets leveraging the financial power of their
corporate channel (OEM self-registrations to employees, captives. Leading European bank-backed fleet management
rental cars and corporate fleets). The majority of these companies are Arval (owned by BNP Paribas Group) and
vehicles are registered as company cars, i.e. as corporate ALD Automotive (owned by Société Générale). Leading
car pools or corporate fleets; this segment is therefore captive-related multi-brand FMCs are Alphabet (BMW FS)
called “true fleet”. Companies have vehicle fleets for various and Athlon (Daimler FS) and, most recently, PSA’s
reasons, e.g. they are needed for the business objective “Free2Move”.
(e.g. service cars or sales cars) and the high relevance of
3 4
Deloitte, Fleet management in Europe, 2017 Deloitte, Fleet management in Europe, 2017

Sector Thinking
Volkswagen Leasing (VWFS) is a major player in this field in the EU-181) countries (approx. EUR 56bn in 2016) will
but is, despite having recently acquired CarMobility!, currently grow steadily at about 5.0% p.a. to 2025 when it will be
rather focused on its own group brands and is therefore not around EUR 86 bn. This growth is being accompanied by
analyzed in further detail in the Deloitte study. an increase of CaaS penetration in the car parc, which will
lead to a total CaaS car parc of approx. 15mn passenger
■ Deloitte notes that the structure of many fleet
vehicles in 2025. The expected growth in volume and
management companies has changed in recent years.
value is fueled by a two-fold dynamic of the traditional
The European market leader, LeasePlan, for example,
(corporates and SMEs) and emerging (private customers
was founded as a subsidiary of ABN Amro banking group
and mobility providers) customer segments who seek full-
but later became owned in an equal joint venture of
service leasing packages to optimize total cost of vehicle
German Metzler Bank and the Volkswagen Group. In
usage and to cover a lack of expertise in fleet
2016, the previous owners sold LeasePlan to a
management, according to Roland Berger. Although both
consortium of institutional investors led by a Dutch
segments are expected to drive growth, the traditional
pension fund. In a highly consolidating market today, the
segments are expected to grow at a slower pace than the
Top 5 players in Europe own more than 50% of the
emerging segments, which are expected to experience a
market.” The remainder of the market is fragmented and
significant increase in CaaS penetration, Roland Berger
consists of a large number of domestic companies that
states. The consultancy says that in Europe, incumbent
rarely have more than 30,000 cars under management,
market leaders catering to the corporate segment are well
according to Deloitte.
positioned vis-à-vis new entrants as most of the markets
TABLE 7: TOP-5 FLEET MANAGEMENT COMPANIES IN are mature with high entry barriers; however, there will is
EUROPE an ongoing battle for market share in the SME and
emerging market segments.
ALD
LeasePlan
Auto-
motive Arval Alphabet Athlon ■ Car-as-a-Service (CaaS) is a segment of the evolving
Units in 1.6mn 1.4mn 1.0mn 650,000 340,000 automotive landscape between the historical model of
operation (2018: 1.8mn) outright ownership and the emerging model of
(as of 2016)
mobility-as-a-service (MaaS). CaaS provides a variety of
Regional 89% EU 90% EU > 3mn with 90% EU 100% EU
diversification (2018) global services that allow for the long-term use of a vehicle
partner
Element without the onerous obligations of ownership. These
Headquarters Netherlands France France Germany Belgium services comprise the funding of a vehicle with the
Shareholder LP Group Société BNP BMW Daimler provision of additional services that may include, but are
B.V., a Générale
consortium of not limited to vehicle procurement and sale, telematics,
institutional
investors
fuel and mileage management, vehicle maintenance and
Important LP Group May 2016, June 2015, September July 2016, repair, insurance, fleet management services, vehicle
transactions BV’s ALD Auto- Arval 2011, Daimler FS recovery and damage management services. According
acquisition of motive acquired Alphabet acquired
LeasePlan acquired General acquired Athlon for to LeasePlan in its 2018 annual report, the Car-as-a-
Corp NV for Parcours Electric’s ING Car EUR 1.1bn
EUR 3.7bn SAS for European Lease, a Service market was forecast at around EUR 75bn in 2018
EUR fleet subsidiary of
300mn business ING Group,
and is expected to grow at a CAGR of 5.3% between
for EUR 2018 and 2025. The following key trends are driving
637mn
growth and shaping the Car-as-a-Service market:
Source: Deloitte, UniCredit Research ownership to subscription megatrends, mobility providers,
autonomous vehicles, digitalization and sustainability.
■ Roland Berger 5 states that globally, Europe is the
leading market in both size and maturity with a very ■ According to LeasePlan, the inefficient, fragmented
high penetration of operating leases, making it the EUR 65bn European market for 3-4 year old used
most attractive for the development of services- vehicles has the following key characteristics: large,
oriented solutions. According to Roland Berger, global growing and predictable, fragmented, opaque and
car leasing volume distribution by region is 54% EMEA, suffering from low customer confidence. Digitalization
24% APAC and 22% Americas. Roland Berger estimates is driving transparency, efficiency and disintermediation
that in total the Car-as-a-Service (CaaS) for passenger from intermediaries, traders and dealerships. The used
vehicles is expected to outpace mobility demand as well car market offers the potential for leasing and fleet
as new car sales due to an expected shift toward CaaS management companies to sell their own used cars B2B
solutions. In total, the CaaS market for passenger vehicles and B2C, but also for third parties. VW Financial Services
stated that it aims to increase its contract portfolio from
5
20.3mn to 30mn, mainly due to the heycar and multi-
Roland Berger, Embracing the Car-as-a-Service model – The European
leasing and fleet management market, January 2018
brand used car business.

Sector Thinking
According to VW, mobile.de and autoscout24 account for 9. Outlook and 2030 scenarios
85% of the German online market for used cars, while
dealers’ and auto manufacturers’ own websites make up ■ In general, VW Financial Services expects demand for
the remainder of the market. VW’s heycar (website) is automotive financial services business to continue to
being developed as an alternative in close cooperation rise in emerging markets, where market penetration
with dealers; Daimler Financial Services has a 20% stake has so far been low, such as in China. VW added that
in heycar. regions that already benefit from developed automotive
financial services markets will see a continuation of the
■ In February 2019, BMW and Daimler launched their trend towards customers requiring mobility at the lowest
YOUR NOW joint venture (see website), which offers possible cost. According to VW, integrated end-to-end
mobility services for car-sharing, ride-hailing, solutions, comprising mobility-related service modules such
parking, charging and multimodal platforms. In as insurance and innovative packages of services will
December 2019, BMW and Daimler said that the services become increasingly important in this regard. Additionally,
offered by the JV will be clustered into three pillars: demand is expected to increase for new forms of mobility,
1. FREE NOW (formerly mytaxi app; MaaS). 2. SHARE such as car sharing and for integrated mobility services
NOW (DriveNow, car2go). 3. PARK NOW & CHARGE including parking, refueling and charging. VW says that, in
NOW. The introduction of a new financial holding, emerging markets, demand for financial services products
effective 1 January 2020, is intended to support efficient is rising in the mid-sized trucks and heavy truck category. In
management of these three pillars. these countries in particular, financing solutions support
■ Given the early growth stage and necessary vehicle sales and are thus an essential component of the
investments, the profitability of many mobility sales process. In mature markets, VW projects increased
services is currently not high in many cases, although demand for telematics services and services aimed at
equity valuation can be. In this context, we note that reducing total operating costs. VW expects this trend to
Daimler’s car2go Group GmbH had a fleet of around continue in the period 2020-2023.
14,000 vehicles at FYE 2018, achieved revenues of
CHART 25: DAIMLER MOBILITY PLAN FOR 2019-2022
EUR 26.7mn and net income of EUR -27.9mn in FY18.
This compares to DriveNow’s revenues of EUR 53.5mn
and a net loss of EUR -2.2mn in FY17 with a fleet of 6,250
vehicles at FYE 2017. Uber Technologies had EBIT of
USD -2.8bn in FY18 and an EV of USD 46.7bn (according
to Bloomberg). Lyft had EBIT of USD -1.0bn in FY18 and
an EV of USD 10.1bn. Ford’s Mobility segment had EBIT
of USD -674mn in FY18 on increased investments and
development costs for autonomous vehicles and Ford
Smart Mobility. GM’s autonomous vehicle unit, GM
Cruise, reported adjusted EBIT of USD -728mn in FY18.
In May 2019, GM Cruise raised USD 1.15bn in new equity Source: Daimler, November 2019
from a group of investors, which increases its post-money
valuation to USD 19bn. 6 In July 2019, Daimler and BMW ■ For 2020/21, Daimler Mobility sees several headwinds.
launched their long-term strategic automated driving In Financing, Leasing & Insurance, despite normalization
cooperation, which will focus on joint development of next- of credit risk, the company expects slower growth in
generation technologies for driver assistance systems, industrial divisions, margin pressure and regulation/equity
automated driving on highways and automated parking demands and in Digital Mobility Solutions, Daimler points
(all to Level 4). In July 2019, VW and Ford announced7 to a competitive environment and high capital
that they were going to expand their global collaboration requirements. In Fleet Management & Operations, it is
to advance autonomous driving and electrification. VW preparing for further growth and is marketing and
joined Ford in investing in Argo AI, an autonomous vehicle integrating additional fleet activities.
platform company, which means a valuation of more than
USD 7bn for Argo AI. The tie-up allows both automakers
■ According to Deloitte 8, the traditional business model
of captives is being challenged by several disruptive
to independently integrate Argo AI’s self-driving system
forces at the same time. Increasing regulation is having
into their own vehicles, delivering significant global scale.
an enormous effect on capital requirements, operating
models and the IT of captives.
6 8
techcrunch.com Deloitte “Future of Captives | Deloitte Deutschland Future of Captives: What
7
See VW press release will be the core business for Automotive Captives in 2030?”, February 2018

Sector Thinking
Changing customer demand, from ownership to usage, fueled by two trends: 1. residual-value forecasts becoming
makes the emergence of new mobility concepts possible. increasingly imprecise due to rising uncertainty and growing
Changes in the automotive world, such as autonomous complexity in the automotive manufacturing world, 2. tighter
and electric vehicles, add further uncertainty. Digitalization regulatory requirements leading to higher capital
facilitates market entry for new competitors dedicated to requirements and increasing operating costs, making it
catering to specific customer demands. too costly to keep old operating models and IT legacy
systems compliant with an ever-increasing regulatory
CHART 26: burden. As a result, in Scenario 3, OEMs decide to reduce
SELECTED DISRUPTIVE FORCES IN THE CAPTIVE MARKET
the size of captives’ balance sheets.
CHART 27: SERVICE-BASED BUSINESS GROWTH EXPECTED

IN EVERY SCENARIO
EBT asset-based EBT service-based Captive assets (rs)

7.0 300
6.0 250
5.0
200
4.0
in EUR bn
150
3.0
100
2.0
1.0 50
0.0 0
2016
Scenario
Scenario
Scenario
Scenario
2030
2030
2030
2030
1
4
9
Source: Deloitte
■ Deloitte expects the relative importance of the Source: Deloitte, UniCredit Research
traditional asset-business to decline due to changing
customer demand for more-flexible usage models. To ■ We think that the rating impact of such scenarios is
capture additional profits, captives will have to develop hard to predict and are also depends on if the rating
new service-based business and the attendant operating methodology is for captives or for banks.
models. As a result, many captives have already started Nevertheless, we believe that the parent needs to
to complement their asset-based financing business accompany such processes with the respective stability of
(credit, leasing, wholesale) with service-based business leverage and equity ratios, which is also demanded by the
(fleet services, insurance, connected services, payments, regulators at that time.
mobility services, charging & parking) on a global basis,
Deloitte says.
■ Deloitte proposes four scenarios for the future of Author
captives in 2030. These are: Scenario 1: owner of the Dr. Sven Kreitmair, CFA
mobility ecosystem; Scenario 2: mobility platform Head of Credit Research
orchestrator; Scenario 3: empty shell; Scenario 4: Credit Analyst Automotive & Mobility
(UniCredit Bank, Munich)
incremental evolution. The two extreme scenarios are 1 +49 89 378-13246
and 3. [email protected]
■ In Deloitte’s Scenario 1, a beneficial regulatory

environment and established dominance in global
mobility services have enabled captives to become the
new powerhouse of their respective OEM group in 2030.
This leads to higher captive assets, but also higher asset-
based and service-based EBT. This contrasts with Scenario
3, in which OEMs are alert to the increasing risk their
captives pose for their own business continuity, mainly
9
Deloitte “Future of Captives: Future of Captives: What will be the core
business for Automotive Captives in 2030?”, February 2018

Sector Thinking
Auto finance peer table

Key figures FY18 FCA Bank PSA Banque France RCI Banque FCE Bank PLC VW Bank GmbH VW Financial Services LeasePlan Corp. NV ALD SA (--/BBB+s/A-s)
(FY17) (Baa1s/BBBn/BBB+s) SA (A3s/BBB+s/--) (Baa1s/BBBn/--) (Ba1s/BBB-s/BBBn) (A1s/A-n/--) AG (A3s/BBB+s/--) (Baa1s/BBB-s/BBB+s)
(EUR mn) FY18 FY18 FY18 FY18 (in GBP mn) FY18 FY18 FY18 FY18
Website www.fcabank.it www.psa-banque- www.rcibs.com www.fcebank.com www.volkswagenbank.de www.vwfsag.de www.leaseplan.com www.aldautomotive.com
france.com
Shareholders 50/50 Crédit Agricole SA 50/50 Santander 100% Renault SA 100% Ford Motor 100% VW Financial 100% Volkswagen AG 100% LP Group B.V, 79.8% Societe Generale
(Aa3s/A+s/A+s), FCA Consumer Finance S.A (Baa3s/BBB-n/BBBn) Company Services AG (A3s/BBB+s/BBB+s) which represents e.g. (A1s/Ap/--), 2.06% Capital
(Baa1s/BBBn/BBB+) (A2s/A-s/A-s) Banque PSA (Baa2n/BBBs/BBBs) (A3s/BBB+s/--) ADIA, ATP, Broad Street Group Cos Inc, 1.54%
Finance SA (A3s/--/--) Investment, GIC, PGGM, Alken IM LLP
TDR Capital (none of
these investors has a
controlling interest)
Banking 954 (841) 492 (451) 1,930 (1,628) 939 (843) 2,267 (1,743) 1,732 (1,844) 1,454 (1,563) 1,343 (1,333)
revenue/income
Pre-tax profit 548 (521) 321 (262) 1,215 (1,077) 281 (283) 978 (992) 818 (643) 523 (587) 689 (714)
Net income 388 (383) 218 (167) 858 (721) 209 (213) 703 (656) 548 (904) 424 (467) 556 (568)
Net loans 23, 588 (21,254) 11,813 (10,214) 46,587 (43,430) 18,526 (16,798) 65,143 (64,912) 59,012 (49,804) 3,279 (3,261) 687 (600)
Total assets 30,535 (27,187) 13,153 (11,390) 53,394 (49,709) 21,695 (19,598) 83,042 (78,747) 80,462 (68,953) 27,280(25,142) 23,254 (21,222)
Total customer 1,823 (1,483) 2,251 (1,897) 16,781 (15,844) 1,198 (388) 39,602 (41,066) 12,345 (9,673) 6,003 (5,481) --
deposits
Total equity 2,878 (2,512) 1,305 (1,176) 5,307 (4,719) 2,647 (2,408) 11,639 (11,301) 8,106 (7,624) 3,336 (3,224) 3,668 (3,398)
Equity/total assets 9.4% (9.2%) 10.0% (10.3%) 9.9% (9.5%) 12.2% (12.3%) 14.0% (14.4%) 10.1% (11.1%) 12.2% (12.8%) 15.8% (16.0%)
Tier-1 capital 2,730 (2,377) 1,106 (1,104) 4,921 (4,442) 2,597 (2,369) 9,945 (10,233) 13,989 - FY17 (12,966) 3,031 (2,849) --
Tier-1 ratio 12.5% (12.0%) 12.1% (12.8%) 15.5% (15.0%) 14.8% (14.7%) 15.5% (15.6%) 11.7% - FY17 (12.0%) 18.3%(18.1%) --
Assigned BCA ba1 baa3 Baa3 n.a. Baa2 n.a baa3 n.a.
(Moody's)
SACP of captive (S&P) bbb- bbb- bbb- bbb- a- n.a bbb- n.a
Business by segment Outstanding loans: 59% Outstanding loans: 69% Average performing loans Net loans: 61% retail, 39% Loans and receivables Customer receivables: Corporates: 79.9% Revenue: 21.9% service
retail, 31% dealer, 10% end-users, 31% corporate outstanding: 77% wholesale from customers 41% retail, 10% dealer, SMEs: 18.4% revenues, 47.3% leasing
rental dealers customer, 23% dealer; attributable to: 49% retail, 49% leasing contract revenues, 30.8%
Private individuals:4.7%
20% dealer, 31% Leasing proceeds from cars sold
Business by region Total portfolio by country: France only Net loans: 90% Europe Net loans: 31% UK, 29% Loans and receivables Customer receivables Customer base: 12% UK, Revenue: 73.5% Western
48% Italy, 8% UK, 17% (31% France, 16% Germany, 13% Italy, 7% from customers FY17: 45% Germany, 12% Netherlands, 9% Europe, 9.7% Continental
Germany, 8% France, 5% Germany, 12% Italy, 10% France, 6% Spain, 14% attributable to: 48% 33% Other Europe, 15% Italy, 8% United States, & Eastern Europe, 13%
Spain, 14% other UK, 10% Spain, 11% other Europe Germany; 27% UK, 8% Asia Pacific, 7% Latin 7% Germany, 7% France, Nordic, 3.7% rest of the
other), 4% Brazil, 3% Asia- France; 7% Italy; 10% America 6% Spain, 39% other world
Pac., 3% RoW other
UniCredit Research page 16 See last pages for disclaimer.

Sector Thinking
Auto finance industry sector charts

150 20 135 15%
Manheim Used Vehicle Value Index (LS)
Manheim Used Vehicle Value Index YoY (RS) 15 130
140 10%
Linear (Manheim Used Vehicle Value Index (LS)) 125
10
130 120
5 5%
115
YoY
120 0 110 0%
-5 105
110
-5%
-10 100
100 95
-15 Black book index used vehicle retention index -10%
90
Index change yoy in % (rs)
90 -20
85 -15%
11/1/00
11/1/05
11/1/10
11/1/15
9/1/01
7/1/02
5/1/03
3/1/04
1/1/05
9/1/06
7/1/07
5/1/08
3/1/09
1/1/10
9/1/11
7/1/12
5/1/13
3/1/14
1/1/15
9/1/16
7/1/17
5/1/18
3/1/19
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
WCARUKI Index UK CPI Second-hand cars BMW Financial Services/Other entities Daimler Financial Services
140 Volkswagen Financial Services Toyota Motor Credit Corp
2,900,000 Ford Motor Credit GM Financial
130 3,000
New passenger car reg's LTM
2,700,000
2,500
Financial Services
2,000
EBT (in EUR mn)
2,500,000 120
1,500
2,300,000 1,000
110
500
2,100,000 0
100
-500
1,900,000
-1,000
90 -1,500
1,700,000
-2,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LTM 9M19
1,500,000 80
Jan-06
Sep-06
May-07
Jan-08
Sep-08
May-09
Jan-10
Sep-10
May-11
Jan-12
Sep-12
May-13
Jan-14
Sep-14
May-15
Jan-16
Sep-16
May-17
Jan-18
Sep-18
May-19
BMW Financial Services/Other entities Daimler Financial Services BMW Financial Services/Other entities Daimler Financial Services
Volkswagen Financial Services Toyota Motor Credit Corp Volkswagen Financial Services Toyota Motor Credit Corp
Ford Motor Credit GM Financial GM Financial Ford Motor Credit
5,000 60%
Financial Services EBT margin in %
4,000
net income (in EUR mn)
40%
3,000
Financial Services
2,000 20%
1,000
0%
0
-20%
-1,000
-2,000 -40%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LTM 9M19
LTM 9M19
Italy Spain France UK Germany Growth rate yoy (rs) LMCAPODV Index
4,000,000 98 10%
Global PC/LCV sales LTM in mn units
New passenger car registrations (LTM)
3,500,000 96
5%
3,000,000 94
2,500,000 0%
92
2,000,000 90
-5%
GLOBAL
1,500,000 88
-10%
1,000,000 86
August 2018
500,000 84 -15%
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Oct-08
Apr-12
Oct-15
Apr-19
Aug-07
May-09
Dec-09
Jul-10
Sep-11
Nov-12
Aug-14
May-16
Dec-16
Jul-17
Sep-18
Nov-19
Jan-07
Mar-08
Feb-11
Jun-13
Jan-14
Mar-15
Feb-18
Source: LMC Automotive, UniCredit Research

Sector Thinking
FCA Bank
Total assets
Equity Net banking income and rental margin Net income EBT
Equity ratio (rs) 1,200
Core Tier-1 ratio (rs)
S&P's RAC ratio (before diversification, rs)
S&P's RAC ratio (after diversification, rs) 1,000
35,000 14%
30,000 12% 800
in EUR mn
EUR mn
25,000 10%
600
20,000 8%
15,000 6% 400
10,000 4%
200
5,000 2%
0 0% 0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1H19
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1H19
Financial (Net interest) margin Rental Dealer financing

Net fees and commission Retail net banking income/APO (rs)
Net provision for risk/Impairment losses
Administrative expenses EBT/APO (rs) RoE (rs)
700 25,000 16%
Average portfolio (APO) in EUR mn
600 14%
20,000
500 12%
10%
in EUR mn
400 15,000
8%
300
10,000 6%
200
4%
5,000
100 2%
0 0 0%
1H…
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LTM
Credit Agricole Group Securitizations Banks Bonds ECB T-LTRO Deposits FCA JLR
25,000
30
25 20,000
Portfolio by group in EUR mn
20 15,000
in EUR bn
15
10,000
10
5,000
5
0
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Net operating expenses Cost/income ratio (rs) Cost of risk Cost of risk/average portfolio (rs)
350 60% 160 1.2%
300 140
50% 1.0%
120
250
40% 0.8%
100
in EUR mn
in EUR mn
200
30% 80 0.6%
150
60
20% 0.4%
100
40
50 10% 0.2%
20
0 0% 0 0.0%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1H19
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1H19
Source: LMC Automotive, UniCredit Research

Sector Thinking
PSA Banque France

Equity Prudential equity EBT Net income Cost of risk Dividend RoE (rs)
Equity/total assets European solvency ratio 350 25%
1,400 14%
300
1,200 12% 20%
250
1,000 10%
in EUR mn
15%
in EUR mn
200
800 8%
150
600 6% 10%
400 4% 100
5%
200 2% 50
0 0% 0 0%
2016 2017 2018 2014 2015 2016 2017 2018
Corporate dealers Retail

Bond maturities as of 23 May 2019 300
1,200 Corporate and equivalent Unallocated
250 Insurance and services
1,000 200
150
800
100
in EUR mn
in EUR mn
50
600
0
400 -50
-100
200
-150
0 -200
2019 2020 2021 2022 >2023 2014 2015 2016 2017 2018
Loans outstanding Financing penetration rate

14,000.0
29.2%
12,000.0
29.0%
10,000.0
28.8%
in EUR bn
8,000.0
28.6%
6,000.0
28.4%
4,000.0
28.2%
2,000.0
0.0 28.0%
2016 2017 2018 2014 2015 2016 2017 2018
2016 2017 2018 Total debt Bank facilities Capital markets

9,000 Securitization Deposits Other financing
12,000
8,000
7,000 10,000
6,000
8,000
in EUR mn
in EUR mn
5,000
6,000
4,000
3,000 4,000
2,000
2,000
1,000
0 0
Corporate Dealers End User 2016 2017 2018

Sector Thinking
RCI Banque
50 Other
Customer Dealer Asia-Pacific 3% 100% = EUR 47bn
45 3%
40 Spain
10% France
35 31%
30
in EUR bn
Other Europe
25 11%
20
15
Italy
10
12%
5 Germany
16%
Loans outstanding UK
0 Brazil
FY18 10%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19 4%
Financing penetration rate Renault Nissan-Infiniti Renault Samsung Motors Dacia Total
43% 22,000
New financings by brand in EUR mn
20,000
41%
18,000
39%
16,000
37% 14,000
35% 12,000
33% 10,000
8,000
31%
6,000
29%
4,000
27% 2,000
25% 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19
Equity
Residual risk Provisions Provisons as % of risk
Core Tier-1 in EUR mn (Basel III fully loaded)
2,500 7.0%
6,000 Equity/Total Assets 20%
Core Tier-1 ratio (incl. floor)
6.0%
Core Tier-1 ratio (excl. floor) 2,000
5,000
S&P RAC after diversification
15% 5.0%
4,000 1,500
in EUR mn
in EUR mn
4.0%
3,000 10%
3.0%
1,000
2,000
2.0%
5%
500
1,000 1.0%
0 0% 0 0.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
EBT Net income Dividend RoE (rs) Cost of risk Cost of risk/average performing loans (excl. country risk)
1,400 25% 250 1.2%
1,200
20% 1.0%
200
1,000
0.8%
in EUR mn
15% 150
in EUR mn
800
0.6%
600
10% 100
0.4%
400
5% 50
200 0.2%
0 0% 0 0.0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1H19
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1H19

Sector Thinking
Related Automotive Sector Flashes/Reports

» Sector Flash - Automobiles & Parts: Negative debt leverage and profitability momentum continues in 3Q19 - 14 November 2019
» Automobiles & Parts/European auto sector: Electrification in the 2020s … - 4 November 2019
» Automobiles & Parts: Potential combination between PSA and FCA - 30 October 2019
» Automobiles & Parts/Auto supplier sector: Focus on names with more resilient … - 18 October 2019
» Automobiles & Parts/Truck sector: Potential new bond issuers, disruptive technological … - 10 October 2019
» Automobiles & Parts/Germany's Big 3 auto manufacturers: Klimapaket … – 23 Sep 2019
» Automobiles & Parts: Germany's big three auto manufacturers - tariff-exposure … – 12 Aug 2019
» Automobiles & Parts/German auto suppliers: Transformation needs in volatile times – 4 Jul 2019
» HY car rental companies: Growth amid structural change – 19 June 2019
» Automotive Credit Conference Handbook – 27 May 2019
» Germany’s Big 3 auto manufacturers: Reduced rating headroom – 2 April 2019
» Looking further into 2019 – 24 January 2019
» Global light vehicle sales outlook – 15 January 2019
» Corporates: Hard Brexit - Impact on our covered universe in a worst-case scenario – 14 January 2019
» Fitch's ESG relevance scores – 9 January 2019
» Hydrogen fuel cell or battery electric vehicles? – 4 January 2019
» Battery cell production in Germany and the rest of Europe – 29 November 2018
» Guidance pressure as rating momentum in 2H18 has turned negative – 28 September 2018
» Diesel share prospects – 18 July 2018

» Tariff repercussions – 27 June 2018
» Valuation pressure & break-up stories – 29 January 2018
» Autonomous driving: closer than it appears? – 15 November 2017
» Ionity: a Pan-European High-Power Charging JV – 6 November 2017

» Electric vehicles charging network expansion – 4 October 2017
» China sets 10% new energy vehicles quota for 2019 – 29 September 2017
» From electrification squeeze to robo-taxi fleets – 12 October 2017
» EU battery and CO2 roadmap leads to investment needs – 12 October 2017

» E-Mobility transformation gathers pace – 20 July 2017

Sector Thinking
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Vienna, Austria
f) UniCredit Bulbank, Sveta Nedelya Sq. 7, BG-1000 Sofia, Bulgaria. Regulatory authority: Financial Supervision Commission (FSC), 16 Budapeshta str., 1000 Sofia, Bulgaria
g) Zagrebačka banka d.d., Trg bana Josipa Jelačića 10, HR-10000 Zagreb, Croatia. Regulatory authority: Croatian Agency for Supervision of Financial Services, Franje Račkoga 6,
10000 Zagreb, Croatia
h) UniCredit Bank Czech Republic and Slovakia, Želetavská 1525/1, 140 92 Praga 4, Czech Republic. Regulatory authority: CNB Czech National Bank, Na Příkopě 28, 115 03
Praga 1, Czech Republic
i) ZAO UniCredit Bank Russia (UniCredit Russia), Prechistenskaya nab. 9, RF-119034 Moscow, Russia. Regulatory authority: Federal Service on Financial Markets, 9 Leninsky
prospekt, Moscow 119991, Russia
j) UniCredit Bank Czech Republic and Slovakia, Slovakia Branch, Šancova 1/A, SK-813 33 Bratislava, Slovakia. Regulatory authority: CNB Czech National Bank, Na Příkopě 28,
115 03 Praha 1, Czech Republic and subject to limited regulation by the National Bank of Slovakia, Imricha Karvaša 1, 813 25 Bratislava, Slovakia. Regulatory authority: National
Bank of Slovakia, Imricha Karvaša 1, 813 25 Bratislava, Slovakia
k) UniCredit Bank Romania, Bucharest 1F Expozitiei Boulevard, 012101 Bucharest 1, Romania. Regulatory authority: National Bank of Romania, 25 Lipscani Street, 030031, 3rd
District, Bucharest, Romania
l) UniCredit Bank AG New York Branch (UniCredit Bank, New York), 150 East 42nd Street, New York, NY 10017. Regulatory authority: “BaFin“ – Bundesanstalt für
Finanzdienstleistungsaufsicht, Marie-Curie-Str. 24-28, 60439 Frankfurt, Germany and New York State Department of Financial Services, One State Street, New York, NY 10004-1511
Further details regarding our regulatory status are available on request.
ANALYST DECLARATION
The analyst’s remuneration has not been, and will not be, geared to the recommendations or views expressed in this report, neither directly nor indirectly.
All of the views expressed accurately reflect the analyst’s views, which have not been influenced by considerations of UniCredit Bank’s business or client relationships.
POTENTIAL CONFLICTS OF INTERESTS
You will find a list of keys for company specific regulatory disclosures on our website https://www.unicreditresearch.eu/index.php?id=disclaimer.
RECOMMENDATIONS, RATINGS AND EVALUATION METHODOLOGY
You will find the history of rating regarding recommendation changes as well as an overview of the breakdown in absolute and relative terms of our investment ratings, and a note on the
evaluation basis for interest-bearing securities on our website https://www.unicreditresearch.eu/index.php?id=disclaimer and https://www.unicreditresearch.eu/index.php?id=legalnotices.
ADDITIONAL REQUIRED DISCLOSURES UNDER THE LAWS AND REGULATIONS OF JURISDICTIONS INDICATED
You will find a list of further additional required disclosures under the laws and regulations of the jurisdictions indicated on our website
https://www.unicreditresearch.eu/index.php?id=disclaimer.
E 19/3
UniCredit Research page 22

Sector Thinking
UniCredit Research* Credit Research
Erik F. Nielsen Dr. Ingo Heimig

Group Chief Economist Head of Research Operations
Global Head of CIB Research & Regulatory Controls
+44 207 826-1765 +49 89 378-13952
[email protected] [email protected]
Head of Credit Research
Dr. Sven Kreitmair, CFA

Head of Credit Research
+49 89 378-13246
[email protected]
Financials Credit Research
Franz Rudolf, CEFA Dr. Michael Teig

Head Deputy Head Matthias Dax
Covered Bonds Banks Sub-Sovereigns & Agencies, ESG
+49 89 378-12449 +49 89 378-12429 +49 89 378-13946
[email protected] [email protected] [email protected]
Tobias Keller Julian Kreipl, CFA

Florian Hillenbrand, CFA Banks Covered Bonds
Securitization +49 89 378-12960 +49 89 378-12961
Natalie Tehrani Monfared

Regulatory & Accounting Service,
Insurance, Real Estate
+49 89 378-12242
[email protected]
Corporate Credit Research
Christian Aust, CFA

Head Gianfranco Arcovito, CFA
Industrials, Oil & Gas Utilities, Hybrids Sergey Bolshakov
+49 89 378-17564 +49 89 378-15449 EEMEA Corporates & Financials
Jonathan Schroer, CFA

Dr. Sven Kreitmair, CFA Ulrich Scholz, CFA, FRM Telecoms, Media/Cable, Logistics,
Automotive & Mobility Telecoms, Technology Business Services
+49 89 378-13246 +49 89 378-41847 +49 89 378-13212
Jana Schuler, CFA Dr. Silke Stegemann, CEFA

Industrials Health Care & Pharma, Food & Beverage
+49 89 378-13211 +49 89 378-18202
[email protected] [email protected]
UniCredit Research, Corporate & Investment Banking, UniCredit Bank AG, Am Eisbach 4, D-80538 Munich, [email protected]
CR 19/14
Bloomberg: UCCR, Internet: www.unicreditresearch.eu
*UniCredit Research is the joint research department of UniCredit Bank AG (UniCredit Bank, Munich or Frankfurt), UniCredit Bank AG London Branch ( UniCredit Bank, London), UniCredit Bank AG Milan Branch
(UniCredit Bank, Milan), UniCredit Bank AG Vienna Branch (UniCredit Bank, Vienna), UniCredit Bank Austria AG (Bank Austria), UniCredit Bulbank, Zagrebačka banka d.d., UniCredit Bank Czech Republic and
Slovakia, ZA O UniCredit Bank Russia ( UniCr edit Russia), UniCredit Bank Romania.
UniCredit Research page 23

Unicredit - Auto Finance in Europe

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Unicredit - Auto Finance in Europe

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9 January 2020 Credit Research

Auto Finance in Europe:

1. Automotive finance issuers in the euro-

4. Rating methodologies for automotive finance companies

9. Outlook 2020/21 and 2030 scenarios

UniCredit Research page 1 See last pages for disclaimer

Hybrid bond spreads (in bp)

Utilities (BBB+)ons (BBB+)

UniCredit Research page 2 See last pages for disclaimer

2. Diversification of funding sources TABLE 1: FUNDING DIVERSIFICATION OF AUTO CAPTIVES

CHART 2: FINANCIAL SERVICES LIABILITIES GROWTH

BMW Financial Services/Other entities Daimler Financial Services

Source: company reports, UniCredit Research

UniCredit Research page 3 See last pages for disclaimer

UniCredit Research page 4 See last pages for disclaimer

Financial Services/VW Bank bonds. 300

160 FCABNK 1.25% 1/21 FCABNK 1% 2/22 (1/22)

BTPS 3.75% 8/21 50

60 ■ Positively, in November, VW confirmed its strategic

UniCredit Research page 5 See last pages for disclaimer

■ Both S&P and Moody’s use their bank rating methodology

UniCredit Research page 6 See last pages for disclaimer

losses and underwriting standards as a forward-looking BBB+

CHART 9: AUTO FINANCE MOSTLY RATED IN THE BBB AREA

Source: Bloomberg, UniCredit Research

■ To access funding at competitive conditions and also 70%

most ratings of captives without a banking license are 40%

aligned to the respective parent’s ratings. Through the 30%

captives with a bank license in a JV with an IG-rated

Source: company reports, UniCredit Research

■ Automotive captives are important businesses for their

UniCredit Research page 7 See last pages for disclaimer

agreement will be automatically renewed unless notice of 35,000

non-renewal is provided no later than three years before 30,000

relies on independent financial service providers including

UniCredit Research page 8 See last pages for disclaimer

Cost of risk in % of loan portfolio

New passenger car registrations

risk) ratios of seven companies (RCI Banque, FCE Bank, 2 3,500,000

at a price below the asset’s residual value. A recent Jan-18

prominent example is diesel-powered cars that lost used

UniCredit Research page 9 See last pages for disclaimer

12.2%. RCI Banque and Banque PSA France had the

200 BMW Financial Services/Other entities Daimler Financial Services

Financial Services ROE

CHART 17: ROE OF AUTO BANKS 10%

UniCredit Research page 10 See last pages for disclaimer

CHART 19: FINANCIAL SERVICES DEBT/EQUITY MULTIPLE ON CHART 21:

BMW Financial Services/Other entities Daimler Financial Services 17%

■ In Moody’s captive methodology, equity/total assets

BMW Financial Services/Other entities Daimler Financial Services

service-based captive business. As shown in the chart

UniCredit Research page 11 See last pages for disclaimer

CHART 23: CAPTIVE CUSTOMER DEMAND TYPES

■ The typical fleet management service offering covers the

UniCredit Research page 12 See last pages for disclaimer

UniCredit Research page 13 See last pages for disclaimer

UniCredit Research page 14 See last pages for disclaimer