European automotive

Who will make money from the connected car?


A recurring theme at this year’s AFC Summer conference was the changes facing the auto finance ecosystem, with Tony Whitehorn, former president & CEO of Hyundai Motor UK, discussing the concept of the connected car and how its development will change the future of the automotive industry.

Over the past 10 years, the automotive industry has gone through a period of immense upheaval. Traditional business models, supply chains and market players are all being challenged by a wave of new models and ideas and new entrants that are shaking up the market.

Connectivity is expected to be the defining feature of ‘the car of the future’ and will revolutionise the way in which we travel from A to B. The connected car will be made up of an ecosystem of connected technologies which will enable it to transfer and process large amounts of data.

“Back in 2020, 45% of all cars that came into the UK had some degree of connectivity. Today, it is over 90%.”

Whitehorn highlights that there are three levels of connectivity:

1) The car as an enabler – the car is fitted with the hardware to allow it to produce and communicate data.
2) The OEM as an issuer – the OEM adds a payment facility to its cars.
3) The OEM as an acquiror – the car becomes an entire payment method, and this is where serious money can be made by the OEM as they own the whole payment system. This is what the OEMs want to achieve but that is not going to happen at the very outset, especially when they are up against GAFA (Google, Apple, Facebook/ now Meta and Amazon).

As Whitehorn points out, the OEMs know that they have to start with the car as an enabler, otherwise the move to the OEM as an issuer and finally to the OEM as an acquiror will not happen.

When we discuss mobility, it is simply the frictionless movement of people, notes Whitehorn. And the biggest issue today causing friction is the driver having to get out of the car and pay for products or arrange services in advance. Once you have connectivity and you add an in-car payment tool, then the friction disappears and the journey becomes frictionless.

Connected cars can provide this unique frictionless customer experience while simultaneously delivering cost and revenue benefits to mobility companies, including OEMs, suppliers, dealers, insurers, fleets and technology companies.

“On the pure connectivity side, the connected car gives you information, it gives you a better journey, and people are willing to pay for that better customer experience.”

However, the connected car can be extremely costly for OEMs. In recent times, OEMs margins have shrunk massively, mainly due to the huge investment in connectivity and electrification, and the OEMs need to accrue some of this investment back. And connectivity is a way to do this.

Using connectivity, the OEM can monetise the customer’s journey by monitoring what the driver uses and doesn’t use, and therefore can reduce their costs by only adding specifications to the car that the customer wants and needs.

While OEMs see significant revenue potential in connectivity, there have been a number of recent examples of consumer resistance; for example, in South Korea where BMW offered heated-seats subscriptions to disgruntled drivers whose new BMWs included seat heating as standard.

While automotive connectivity is changing faster than ever and significantly increasing the potential for data monetisation for players across the ecosystem, the 2021 McKinsey report, Unlocking the full life-cycle value from connected-car data, believes that it is data suppliers, such as OEMs and vehicle fleets, who are well positioned to benefit, along with insurance players, companies in the automotive aftermarket, cities, infrastructure providers, and other data customers. However, the Report urges all stakeholders to act fast, “given the industry’s current underperformance on data monetisation, new players with innovative approaches could rapidly gain an advantage over slower-moving incumbents.”


When monetising data, there is a big debate raging about who actually owns the data, with legislation lacking around how the data can be used.

The customer who is paying for the hardware is not monetising the data, according to Whitehorn. They get a good customer experience, and that is essentially what they are paying for when they get greater connectivity.

On the other hand, Whitehorn believes that it is the most traditional automotive players — OEMs — who actually own the data. But in the current landscape, it is the OEMs who may find staking a claim in car data monetisation most challenging. Car data monetisation will challenge all of their current realities — such as product cycles, control over the value chain, consolidated monetisation models, and limited interaction with the end user — and lead them to quickly make changes to their approaches.

As the McKinsey Unlocking the full life-cycle value from connected-car data report confirms, “OEMs are well positioned to monetise their direct customer access and data, since very few companies have such regular and extensive interactions with their end customers. Despite the potential, many OEMs have only scratched the surface when monetising data, and their efforts often fail because they provide a poor customer experience and encounter execution issues, resulting in low retention.”

Software vs. engineering companies

As the connected car has evolved, traditional OEMs have found that they do not have all the technological expertise or experience to develop and implement all of the necessary technologies themselves. This has therefore opened up what was a relatively closed market to a wave of new entrants.

The industry is now made up of a diverse group of players, including start-ups, industry stalwarts and telecommunication companies. However, the greatest threat to the OEMs is probably that posed by the tech giants, such as Apple, Google and Microsoft, who are investing in automotive innovation. These companies have the resources, reputation and knowledge to shake up the automotive industry.

But we will wait to see if these tech giants will be able to convert their technological innovation into commercial success.

“The greatest threat to the OEMs is probably that posed by the tech giants, such as Apple, Google and Microsoft, who are investing in automotive innovation.”

Whitehorn highlights Tesla as an example of a software company expanding into the vehicle market.

For auto OEMs, building and operating service businesses is a new significant challenge. Pushing beyond the basics and making all channels “digital ready” is going to require a fundamental shift from the current ways of working at a traditional automotive organisation that may be less conducive to the digital innovation required to succeed in car data monetisation.

The OEMs are not masters of technology; they are engineering companies. And they are steeped in the legacy of being an engineering company, not a digital software organisation. The challenge for the OEM is to transition from being an engineering company to a service company. As Whitehorn notes, the OEMs do not have the “culture” or specific digital skills which hinders their ability to innovate like the high-tech players who they are competing against.

With the connected car, the OEM needs to have the infrastructure of a traditional auto engineering company, the software and digital skills of a tech giant and an in-car payment system from a payment provider. They therefore need to create partnerships to gain the necessary components.

Volkswagen recently announced a tie up with J.P. Morgan to deliver such payments services. J.P. Morgan expects that the connected vehicle, the digital payments experience and customised payment services will all become core features of business models in the future. “Auto payments encapsulate many of the characteristics of the wallet of the future,” added Max Neukirchen, Global Head of Merchant Services at J.P. Morgan.

The role of the dealer and broker

With the development of the connected car comes a shift in the traditional roles seen in the auto finance industry. Whitehorn believes that the role of the dealer is integral during these changing times, but we need to understand where they fit into this new connectivity model.

Like the dealers, Whitehorn accepts that the broker will always be around when there is excess supply over demand, and that is when intermediaries come to the forefront. Today, brokers in particular are struggling to get hold of the product, because the primary source goes to the dealer. However, this will change by 2023-2024 when we will once again have excess supply over demand. The OEM member on the agency model will therefore go to other intermediaries, which will be the broker network.

What the future holds

The connected car is the future of the auto finance industry, with connectivity levels expanding over the next five to ten years and consumers increasingly seeing the value in connectivity.

As a result of these developments, connectivity has allowed some of the world’s biggest tech companies to gain access to a market that, until now, had been effectively closed to new entrants. We will wait and see who has the capabilities, expertise and experience to further develop the connected car and stake a claim in car data monetisation – OEMs or tech giants.

Car data will become a key theme on the automotive industry agenda over the next few years and, if its potential is fully realised, it will be highly monetisable.

Analysis from David Betteley AFC Auto content leader

The auto industry is at a crossroads with connected car data. The OEMs have it but don’t know what to do with it. At the same time Google, Amazon, Apple and others are working on ways of partnering with OEMs through Android and iOS to provide better customer services. If the OEMs aren’t careful, they may find that the tech giants steal the opportunity to monetise connected car data from them. If the OEMs try to go it alone, they risk losing out on the big opportunities because the tech industry has already established a big lead.

Right now, OEMs realise that they need to do two things: develop services, and not just financial services, as the main profit generator in the business; and transition from being simple manufacturers of mechanical products to being a manufacturer and tech companies. The opportunity to make money from simply selling more vehicles ended 50 years ago.

Tech is the key to leveraging value from connected cars. With the right tech capability, connected car data has the potential to be monetised in the same way that data from smart devices has. But the capabilities of the OEMs lags behind tech companies.

OEMS have been using connected car data for preventative maintenance for two decades. But additional uses have been slow to emerge. One critical issue is who owns the data. It seems ironic that the customer has to pay for the hardware in the vehicle that produces the data but then doesn’t own the data. In truth even within the OEMs, regulatory concerns have prevented the sharing of data in a way that would allow them to leverage value from it.

Whitehorn talks about the connected car providing “frictionless” services to customers, but with the uncertainty over who owns the data, the current connected car service offerings are a long way from being frictionless.

Culture is a problem for OEMs used to selling car features. Some of the OEMs’ experiments have been ridiculed as they try to transition these into car services. We all know about the car manufacturer who is trying to charge extra to turn on a feature (heated seats) that is already installed in the car, and was formerly available at no additional cost!

There may be opportunities for OEMs and their customers that the tech giants can’t deliver. The car is able to combine charging level data with sat nav information, for example, to steer the driver to the OEMs favoured charging partners.

Connected car data provides a digital audit trail of how a car has been driven through its lifetime. A car that has demonstrably been driven carefully will not only be easier to sell, it will command a higher residual value.

Connected car data is also of potentially immense value to the industry itself in deciding end of contract residuals and enabling “pay-by-use” products to be developed, both things having the tantalising prospect of delivering use-based subscription services to customers at prices they can afford to pay.

The OEMs probably stand a greater chance of exploiting these connected data opportunities than in competing with the tech companies who are leveraging their core capabilities to deliver the rest.

European automotive

Navigating the auto finance industry in uncertain and challenging times


Mike Dennett and Spencer Halil discussed the blurring of boundaries between traditional fleet and retail auto finance markets, driven by customer demand, increasing digitalisation and post-pandemic changes.

BMW Group Financial Services and Alphabet have reorganised bringing both organisations under the single leadership of Mike Dennett as chief executive officer. Addressing an audience of over 200 delegates at the latest Solifi sponsored webcast, Dennett explained their priority was on providing a “holistic premium customer experience”. Results from BMW Group’s powerful customer forums and customer listening paths across fleet and retail revealed many common elements – both positive and negative – across both business and consumer auto finance customers. As Halil points out, “there were some common threads running through both of the organisations”, with Dennett noting that the joint customer focus of the BMW Group Financial Services and Alphabet businesses facilitated their coming together.

“The holistic premium customer experience was one of the goals in bringing the businesses closer together.”


Better together

BMW Group first started to look at merging their retail and fleet businesses with a pilot project called EVOLVE, designed to support the company to become stronger together while adapting to the changing business environment and fiscal environment. “By working together, we can get the best out of our people, our systems, and our processes to support our customers more accurately,” reveals Dennett.

Halil feels that bringing the two sectors together provides “the best of both worlds, where you get that variety and flexibility along with that simplicity, convenience and digitalisation. And the opportunities in this sector will come to those organisations that manage that combination effectively.”

“This coming together of leasing and retail is principally about providing flexibility, choice and value to a broader range of customers.”


Dennett believes that the merging of fleet and retail sectors in the auto finance industry is a “hybrid and a blend and it is shifting”.

“Fleet was to some degree reducing, the corporate benefits were reducing and going more towards salary sacrifice and back to either individual ownership or usership. But with BEVs and the potential advantages of BIK at the moment, then perhaps it is swinging back the other way,” notes Dennett. “I think it’s pretty dynamic and I think it will remain pretty dynamic, partially driven by fiscal policy and fiscal benefit in the corporate sector and if you look at the individuals, salary sacrifice and those coming out of corporate schemes, they might be looking at something different to someone who has owned their car for years.”

Connected cars – opportunities

Dennett sees car data as a tool to enable the auto finance company to provide a better customer experience and tailor services that are appropriate to the customer needs, by providing the information needed to understand market trends. This presents a potentially profitable opportunity, although lenders need to be mindful over the regulation and data protection requirements, and the question of who owns that data.

“Data is the power behind the connected car which can be used to understand market trends and behaviour.”


Halil feels that sharing data with fleet customers will support them in areas such as looking at their carbon footprint, increasing engagement with the management of their fleets. The focus of the connected car, according to Halil, should be on sharing the data back with customers to enrich their experience, not just gathering data for the sake of it: “Customers will only pay for it if they see it adds value.”

Headwinds facing the industry

There are many headwinds facing the industry today including the cost-of-living crisis, rising inflation and interest rates and supply chain delays, which Dennett likened to a cooking pot with ingredients that don’t go together!

Dennett warns: “It is important that we get on top of that as an industry both in terms of underwriting policy and making sure we are identifying customer vulnerabilities but also supporting customers throughout. It will be a real challenge.”

Halil sees regular communication and contact with customers, whether retail or fleet, as key in helping them understand that the auto finance company is there to support them facing today’s challenges and navigating that uncertainty.

This comes against a background of rising interest rates which are creating a lot of volatility and margin pressures in the auto finance industry which will inevitably be passed on to the customer, and when less discounts are available to customers on the forecourt, due to car supply issues, customers at the end of a contract will experience a large cost increase when they change their car for a similar model.

The price differential between ICE and BEV remains, although the gap is narrowing. And over time there will be some transaction pressure on the price of BEVs, but Mike Dennett believes that there will have to be an adjustment in the price gap going forward, even though he does not see the market slowing towards BEVs.


While Dennett welcomes the recent publication of the new Consumer Duty, he cautions that the key to the far-reaching principle will be in the interpretation of price and value. BMW Group have been working with industry associations including the BVRLA, FLA and NFDA to discuss and agree an interpretation.

Delivering price and value to the customer will have a far-reaching impact on the value chain, especially the OEMs and captives in that chain. Dennett stresses that within the BMW Group, they “work hand-in-hand together” with the OEM so that they are all fully compliant, transparent and “there is a common understanding”.

Highlighting the PACE (Premium Alphabet Customer Experience) initiative at Alphabet, Halil explains that there was already a focus on the customer who is always at the forefront of their strategy and thinking. While they fully embrace the requirements of the FCA’s new Consumer Duty rules, Halil believes that they have “already travelled much of that journey”, and says the new principle “amplifies what was already within the regulation and makes it clear that you have to fully embrace the spirit of what is intended”.

“Consumer Duty amplifies what was already within the regulation… you have to embrace the spirit of what is intended.”


Dennett sees Consumer Duty as a clarification, taking things one step on from treating customers fairly (TCF). BMW Group are looking at the differences between TCF rules and Consumer Duty rules and evaluating their current processes, taking it as an opportunity to review what already stands. Halil highlights the “enhancements and evolutions” where BMW will be further refining the way in which they create and develop their products and launch them to the marketplace, making sure that products are being back-tested, monitored and supervised at every aspect of the product’s life and how it interacts with the customers.

Now that the Consumer Duty regulation has been published, Mike Dennett believes commission disclosure will again be a big point for discussion with further clarity and guidance needed from the FCA.

Recruitment of talent

As CEO of both BMW Group Financial Services and Alphabet, Mike Dennett passionately believes that “bringing through the younger generations is our future.”

The various intern programmes, apprenticeships and global leadership development schemes across the BMW businesses, both in the production and commercial businesses, are “providing opportunities for people to develop and excel,” according to Dennett. “Every day is an opportunity for us all to learn, and it is important to learn from everybody, and get those perspectives and diversity in to our workplace and into the decisions we are making.”

“Bringing through the younger generations is our future.”


Apprenticeships offer a “dual hybrid development” of being in the workplace and learning in tandem and applying the theory to the workplace, giving a “much broader better development”. The current “war on talent” in the business world is a driver to bring in talent to the auto finance industry.

Hybrid working – known as “blended working” at BMW Group – is actively encouraged, with BMW Group already implementing this style of working pre-pandemic. Dennett sees blended working as a really powerful option for the younger generation who are “not just looking for financial reward, they are looking for flexibility and looking for a great place to work”. Dennett also notes that the next generation of talent is “looking to have responsibility, looking to be empowered, looking at a diverse workforce where we can learn from the diversity of our surroundings”.

Analysis from David Betteley AFC Auto content leader

With BMW Financial Services and Alphabet coming together to unite their offerings to the customer, along with Lex Autolease and Black Horse being brought under a single combined leadership structure by Lloyds Banking Group, the merging of fleet and retail businesses is definitely a growing trend in the auto finance landscape.

Additionally, the changing attitude of customers and the journey from ownership to usership to subscription to Car as a Service is bringing together both the fleet and retail parts of the auto finance industry where businesses can utilise their knowledge and experience and help the customer – whether corporate or consumer – get the right product and service for their needs.

However, some 62% of the webcast delegates believe that there is still a future for purely retail and/or fleet providers.

As BMW Financial Services’ Mike Dennett highlighted, whether the auto finance industry will stay as separate fleet or retail divisions or as a blended-hybrid business, the focus will simply be on ‘the customer’ who will always be at the forefront of the industry. This is the same in every business, with the customer being the final decision maker.

With the publication of the new Consumer Duty principle and rules, the focus has shifted to delivering “good outcomes for customers”. Alphabet and BMW Financial Services will be fully embracing the new guidance, keeping the customer at the heart of the business and remaining focused on ensuring “good outcomes” for the customer through customer forums, communication, and in the way their products are created, developed and launched in the marketplace.

And while Dennett sees the current uncertain economic situation as a “real challenge” for the industry, both he and Halil feel that the customer and their vulnerabilities must be identified and they must be supported throughout these difficult times.

European automotive

ALD LeasePlan : acquisition is about much more than scale and synergies


ALD’s acquisition of LeasePlan at the beginning of this year created a 3.5 million fleet and a raft of process and cost synergies, but the true value of bringing two industry heavyweights together lies in the creation of a new global sustainable mobility player, according to Tim Albertsen, who heads up the combined operation, dubbed NewALD.

“NewALD is in a very good position to be a very important mobility player, given we are already used to creating 50% of our revenues from services around the cars, and not from financing,”

Albertsen Declared

“If you’d looked at this transaction five or seven years ago, it would have been all about scalability. That’s not the case today, when the market is moving so fast, and people are no longer looking to buy cars any time soon. People don’t want ownership, they want ‘usageship’, and that’s underpinned by our product. You could say that in future, every single car will be financed. The question is, who will grab that market?” Albertsen explained.

Second life

The ALD/LeasePlan merger opens the way for a new approach to the traditional trade cycle. Speaking exclusively on an Asset Finance Connect webinar, Albertsen identified big opportunities in second life leasing, perhaps in cooperation with online traders such as Cazoo or via a new offering from NewALD.

ALD already has a digital remarketing platform which handled 400,000 cars last year, and in 75% of instances, the buyer chooses to lease.

“It’s often said that when you buy a used car, you buy a potential problem. If you can lease that car including services, then you are buying access to mobility,” Albertsen pointed out.

In 2021, 30% of cars delivered by ALD were BEVs, but with the battery technology evolving so fast, the resale value of the asset is not necessarily attractive. “But that doesn’t mean the car doesn’t still have value. Unlike ICE vehicles, EVs are simpler and can run thousands of kilometres without trouble. That creates an asset which you can sweat two or three times over,” Albertsen said.

Interest in EVs is driven by corporates with a strong ESG agenda looking to show practical ways in which they are reducing their C0² emissions, and those with a younger workforce and a strong interest in addressing climate concerns.

Helping customers navigate the transition to EVs, including understanding the charging infrastructure and usage patterns, and building a total cost of ownership model, is an area where NewALD can offer services. Mobility as a service options are also being driven by corporates looking to expand their transport options to all employees, not just those qualifying for a company car.

Albertsen also sees growing opportunities in the “pay per mile” space. “It’s been close to impossible to get customers to pay for a connected car as there are no good use cases, no real savings, and everyone is flooded with data.

“But now with true connectivity, we are starting to see products like ‘pay as you drive’ or pay how you drive’ insurance, and clearly that could be an interesting business model in urban mobility using different assets.”

While car sharing has failed to take off, partly because most drivers saw this option as inconvenient, the past two years have demonstrated that flexible, exclusive use of a car has become key. ALD’s purchase of Fleetpool, a leading German car subscription company, was in response to significant growth in this area.

“Subscription offers big potential – while it’s still centred on the car, it definitely fulfils the need from the consumer, with ownership fading fast. This way, drivers get a car and if in three months they don’t need it, they don’t have a car.

“Ride hailing is already there in urban mobility terms, and that could be a good segment for us serving operators and their fleets,” Albertsen maintained.

Future challenge

Albertsen said that merging ALD and LeasePlan meant combining the best of two very different groups with a different approach to market, but with a lot of synergy. “There’s a lot of pride in both groups and the ideal is not to destroy value but to create something new.”

NewALD has established a dedicated Integration Management Office to handle the merging of the two entities, which is expected to take between 18 and 24 months, and to ensure there is minimal disruption to the running of the new business.

But the bigger ripples are likely to be felt across the market, with Albertsen declaring: “The automotive sector is probably the most competitive in the world, and as soon as they get back to normal production there are going to be a lot of cars to sell, and manufacturers are going to need to be on our panel.”

Analysis from David Betteley AFC Auto content leader

It’s a bold man who states “The market is moving in our direction”, but Tim Albertsen’s declaration following the ALD/LeasePlan merger looks likely to stand the test of time.

Courtship between two industry giants has been going on for a while, but what has undoubtedly helped seal the marriage is a major shift in the automotive market, from ownership to usership. Driven by advances in digital innovation and changes in consumer attitudes, this trend has gained momentum during the pandemic.

Within the next decade, NOT owning a car will become the norm as car sharing technology makes the transition possible. The catalyst will be the electrification of car fleets, offering cheaper running costs, less downtime due to breakdown and repairs and gradual automation. These are the “carrots” that will change customer sentiment, but at the same time the “stick” will come from regulation and the increased tax burden on car ownership.

Fleet operators have long had the advantage here as they were significantly more service focussed that the OEMs, who are saddled by large fixed investments in their factories and the need to manufacture and sell cars to service that fixed overhead.

Moreover, fleet companies have other skills that the OEMs (and their captives) don’t possess in anything like the same measure. As Albertsen points out, ALD and LeasePlan are expert in vehicle sourcing and are already making over 50% of revenue from the provision of in-use services to users. They have also acquired or built flexible term leasing and rental products.

OEMs therefore, will increasingly have to sell cars to shared mobility fleets – and this will be an ever-increasing challenge to the health of the current network of sales and service intermediaries. Traditional dealers will see themselves bypassed, just as they have been with digital-only brand like Tesla, Link and Polestar which do not have legacy dealer networks.
In turn, shared mobility fleet owners such as NewALD will be able to market new services to their existing corporate clients, based around shared fleets that the client can operate as a revenue driver instead of what it is today….. a cost base.

Albertsen foresees a future where second and third life leasing becomes the norm, facilitated via an online remarketing platform for used EVs. That approach mitigates the risks for fleets and corporates in switching to rapidly developing EV technologies, but it also ramps up the pressure on dealers who lose access to quality used cars.