European automotive

EV industry: supply issues and China’s dominance in raw materials

Effects of economic and geopolitical uncertainty on the auto industry

As the automotive industry faces a myriad of challenges, from adjusting to the changing dynamics of the economy in the aftermath of Covid-19 and rising inflation and interest rates from the current cost-of-living crisis, to equipping itself for the mobility revolution including connected and autonomous motoring, electrification and zero emissions, Professor Jim Saker, President of the Institute of the Motor Industry (IMI) discusses the economic and geopolitical uncertainty currently facing the sector.

At the Asset Finance Connect Winter Conference 2022, Professor Jim Saker addressed rising concern around the lack of access to raw materials that are vital for the manufacture of batteries. These resources are largely controlled by China. It is the restrictions on access to these resources and our current lack of ready infrastructure for electric vehicles that Saker believes makes the planned ban on manufacture of ICE vehicles by 2030 unwise.

Growing demand for EVs and shortage of raw materials

With the deadline to carbon net zero looming, the number of electric vehicles (EVs) is increasing and manufacturers are racing to secure and strengthen their position in the battery supply chain, from mineral extraction and processing to battery and EV manufacturing.

The International Energy Agency (IEA) has projected skyrocketing global demand for electric-vehicle-sized lithium-ion batteries increasing by over 40 times by 2030.

However, to meet this ever-increasing demand, auto manufacturers are going to have to overcome a big obstacle: where to get enough of the raw materials, which have to be mined and refined, to power the batteries in all those electric vehicles?

Batteries are one of the most important and expensive components of EVs, and over the past decade, China has deftly maneuvered to dominate the electric vehicle supply chain, particularly when it comes to the raw materials – cobalt and lithium.

Chinese companies are poised to meet the surge in demand. In 2021, more than 3 million electric cars were sold in China — making it the largest market for the vehicles — and the country’s battery industry is growing exponentially to keep pace. China’s share of global lithium-ion battery production capacity was 76% in 2020, while the US share was a mere 8%, with China clearly in pole position.

“With the deadline to carbon net zero looming, the number of EVs is increasing and manufacturers are racing to secure and strengthen their position in the battery supply chain.”

China’s dominance in the battery supply chain

China is the world’s biggest market for EVs and, in its quest to be the global leader in electric vehicle manufacturing, China has overtaken other countries as the world’s battery production capital, with Chinese battery manufacturers such as CATL enjoying a meteoric rise in recent years.

Research into the “new energy” vehicle industry (electric and hydrogen fuel cell vehicles) has been funded by the Chinese government with more than $100bn, according to the Center for Strategic and International Studies. But the Chinese government didn’t stop at funding for the cars themselves; as early as 2012, they provided $214m in electric vehicle research funding primarily for battery technologies.

Battery raw materials

The EV revolution is ushering in a golden age for battery raw materials, reflected by a dramatic increase in price and demand for two key battery commodities, lithium and cobalt, over the past 24 months. China currently has the advantage, both in terms of sourcing lithium and cobalt, and the processing of the ‘blue’ metal. The global demand for cobalt is expected to surge to over 200,000 mt per year by 2025, according to Eurasian Resources Group (ERG), a leading producer for battery-use cobalt that is headquartered in Luxembourg.

According to a 2019 working paper – Interconnected supply chains: a comprehensive look at due diligence challenges and opportunities sourcing cobalt and copper from the Democratic Republic of the Congo – by the Organisation for Economic Co-operation and Development (OECD), eight of the 14 largest cobalt mines in the Democratic Republic of the Congo (DRC) are Chinese-owned and account for almost half of the country’s output. And, most importantly, China represents 80% of the world’s production of cobalt chemicals and the vast majority of refining capacity.

According to the OECD paper, “the dominant market position in the refining stage acquired by Chinese companies shows a good capacity to harness the expected rise in battery demand and the increased competitiveness of battery and component manufacturers in China and Korea, in the context of a growing importance of Chinese energy security and the opportunity to leapfrog internal combustion engine vehicles.”

However, more importantly for global car manufacturers, Chinese companies have a controlling share of the market for the processed cobalt that is the critical battery ingredient that powers the majority of electric vehicle fleets

“China has built a wide-ranging lithium battery strategy over the past decade and executed that strategy to powerful effect.”

Chinese companies — often backed by the government — have secured lithium buying stakes in mining operations in Australia and South America where most of the world’s lithium reserves are found.

China’s Tianqi Lithium owns 51% of the world’s largest lithium reserve, Australia’s Greenbushes lithium mine, and, in 2018, they paid approximately $4bn to become the second-largest shareholder in Sociedad Química y Minera (SQM), the largest lithium producer in Chile.

Another Chinese company, Ganfeng Lithium, now has a long-term agreement to underwrite all lithium raw materials produced by Australia’s Mount Marion mine, the world’s second-biggest, high-grade lithium reserve.

In short, China has built a wide-ranging lithium battery strategy over the past decade and executed that strategy to powerful effect.

Chinese dominance in the supply chain is even clearer at the refining stage: BloombergNEF’s (BNEF) global lithium-ion battery supply chain ranking, released in November 2022, shows that China continues to dominate for the third ranking in a row, for both 2022 and its projection for 2027, thanks to continued support for the electric vehicle demand and raw materials investments.

China’s dominance in the rankings shows that refining capacity is just as important, if not more, as access to raw materials and mining capacity.

OEMs moving to China…or not?

So, has China’s leading position in the EV market as well as their dominance in the battery supply chain led to UK and European car manufacturers moving production to China?

The growth in China’s automotive industry was fuelled by European and US carmakers that farmed out the production of an increasing number of their components to China to save costs and establish links with the world’s largest car market.

For example, in 2019, BMW Group announced that it would build future MINI E vehicles in China with Great Wall Motor by building a joint plant in China under the new joint venture, Spotlight Automotive Limited. Recently The Times reported that BMW is set to move production of its electric minis from the UK to China by the end of 2023. However, BMW has denied the report.

Tesla’s factory in Shanghai now produces more cars than its plant in California, with some of the batteries that drive them being Chinese-made with the minerals that power the batteries being largely refined and mined by Chinese companies.

However, China’s dominance over the world automotive market may be about to change. A recent Financial Times article noted that carmakers are beginning to cut ties with China, launching a “quiet yet concerted effort to cut their reliance on China’s sprawling network of components makers.”

The article highlights two key developments that have prompted this move by international car manufacturing groups – (i) China’s zero Covid-19 policy which is causing uncertainty in the industry due to the extended closure of manufacturing plants at short notice; and (ii) a threat to trade caused by a “political decoupling” should there be a breakdown in the relationship between China and the international community.

While foreign car manufacturers will not totally abandon China’s supply chain, they will slowly ease the flow of components from China to other international plants over time. However, the article suggests that foreign manufacturers will retain their connections with the Chinese supply chain purely for the manufacturer of cars that are exclusively for the Chinese market.

Car manufacturers will increasingly be looking elsewhere for car parts and components, while ensuring a robustness and resilience in the supply chain and costs. This particularly applies to sourcing EV batteries, where it will become necessary to strengthen and diversify the battery supply chain away from China, especially where raw materials are concerned.

“Car manufacturers will increasingly be looking elsewhere for car parts and components, while ensuring a robustness and resilience in the supply chain and costs.”

Rising raw material costs

In its Europe Autos 2023 Outlook report, Bloomberg Intelligence believes that rising battery costs and battery demand could be the industry’s next major complication, with escalating battery prices impacting the retail cost of an EV.

The IEA forecasts that the automotive sector will require 50 new lithium projects, 60 nickel mines and 17 cobalt developments by 2030 to meet soaring global EV demand.

In an effort to secure the supply of vital EV battery raw materials, away from China’s control, car manufacturers are beginning to invest upstream in the mining sector, with many OEMs making direct equity investments in mining companies or mining projects, or providing funding to make sure they can accelerate the development of new mines and get security of supply.

While Tesla has led the way in securing raw materials for batteries, several car manufacturers who are increasingly frustrated by supply chain disruption, have stepped up their efforts to secure resources by going directly to producers.

For example, General Motors has agreed to pre-pay $200m to secure supplies from Livent, a lithium mining group in the USA, while Ford is funding Australian Liontown Resources to develop a lithium mine, and Stellantis has taken a €50m equity stake in Vulcan Energy Resources, which aims to produce lithium in Germany.

The automotive industry estimates that the battery accounts for between 40-60% of the price of a BEV, while 60% of the battery cost is estimated to be down to the minerals.

Using technological innovation, car manufacturers are looking for a solution by trying to develop batteries which are less reliant on expensive raw materials such as cobalt, focusing instead on lithium, something Tesla has achieved in its batteries for the new Tesla 3 series.

Selecting alternative cheaper raw materials and battery technologies must be adopted by all OEMs for two reasons, (i) to reduce the cost of EVs, putting them in line with internal combustion engine (ICE) vehicles; and (ii) to move away from raw materials predominantly owned by China and China’s dominance in the supply chain.

“Selecting alternative cheaper raw materials and battery technologies must be adopted by all OEMs to reduce the cost of EVs and limit China’s dominance in the supply chain.”

European automotive

Connected car: Customer convenience or commercial reality?


The current business model of OEMs is under threat and they are increasingly turning to connected services as a way of increasing their margin.

Large long-term projects such as the development of fully autonomous cars are no longer the focus. As we have seen in their decision to close down ARGO AI, Ford and VW see semi-autonomy as a bigger opportunity for more immediate revenue.

Cars are increasingly being packed with technology making them expensive to buy, to service and repair, thus resulting in customers choosing the vehicle with the best in-car technology or add-on services and products, rather than a specific car brand.

OEMs are seeking to find ways of using this technology and its associated revenue-enhancing data to increase their income. And while some OEMs are doing this successfully, such as Tesla, traditional car manufacturers are finding the transition from a product provider to a service provider more difficult.

Connected car users

The battle to control connectivity of car users has already been won by technology providers delivering services through smart phones. Consumers increasingly rely on the services delivered via smart phone connections that they consume both inside and away from their cars.

Auto Trader’s Ian Plummer believes that the direction of travel is changing and we need convergence between car tech and phone tech in the car, with partnerships between OEMs and software tech companies. The use of smartphones and applications within the car is a necessity for most drivers who want to be in the car whilst accessing out-of-car experiences via their phone.

Creating two different environments – one inside the car and one outside the car – makes little sense for consumers, and therefore OEMs need to focus on this and provide an “overarching experience” linking the smartphone experience with the car.

“As users we want convenience, we want things to be easy to do from one environment to another.”

Ian Plummer, Commercial Director, Auto Trader

OEMs should therefore focus on partnering with non-car connection providers rather than seeking to develop their own separate ecosystem. Plummer believes that there is a need for OEMs to partner with software companies such as Google or Apple pointing out that, “there is a lot of benefit in manufacturers being realistic about who they should be partnering with.”

At best, if OEMs successfully create separate systems this will create a fractured experience for consumers using one system in their cars and another elsewhere. Plummer feels that there is an increasing danger for OEMs who are trying to do everything themselves as a manufacturer and forcing the consumer in to a situation that isn’t particularly consumer friendly. The more likely outcome is that customers will continue to use their phones to access connected services and connected car alternatives will be ignored.

Car companies should instead focus on the more achievable driver-specific services like parking and insurance, where it makes sense to connect the service to the car and not to the car user.

Plummer believes that people are becoming less concerned about the car brand and spec and are choosing the vehicle with the best in-car technology and add-on services and products. The USP of cars is gradually moving towards the tech within it and the added value this can bring to the consumer.

With this transition in the auto industry, John Ellis sees an opportunity for the OEMs to play a new role as “a trusted broker or a trusted transactable agent, where we think about the car having an account”.

Culture change from product provider to service provider

Traditional car companies are still focused on using additional technology features as a trigger to replace the vehicle and have not yet thought through the implications of a connected service model which allows them to turn new functionality on or off without replacing the car.

OEMS need to understand the difference between this old model of triggering car replacements and the new service-focused model and to think about what this new ecosystem looks like.

“OEMs need to enable the sort of functionalities that will create value for consumers which will make them want to have a long-term relationship with the OEM.”

Ian Plummer

The new consumer-value driven model will put the customer needs at the centre, rather than the need to increase revenue. This model becomes less about triggering a transaction, and more about building a relationship through supplying services over time.

This reorientation from simply selling a vehicle as a product provider to entering into a long-term brand relationship with the consumer as a service provider is something that will not come naturally to the OEM according to Ellis.

John Ellis believes that trust and reorientation are a different proposition for the OEM: “It comes down to the trust and reorientation of just trying to push the new car versus trying to help the consumer move from point A to point B consistently and safely, and with consideration to the environment; that’s a different prospect and a different brand proposition.”

Tesla have achieved this most successfully with propositions that make sense to customers and build trust and loyalty.

Many OEMs have tried to replicate Tesla’s model with subscription offerings, but in a number of cases (heated seats subscription by BMW and key fob debacle by Toyota) this has led to consumer frustration and potential legal action (in the US). Some OEMs need to change direction, with car brands responding if the customer base is loud enough and cohesive enough in what they are saying, according to Ellis.

The auto industry is transitioning to a consumer-driven industry according to Ellis, who believes that profit for OEMs will follow from exceptional value given to consumers from data. Ellis sees the OEMs’ role changing to a service provider, but only if they gain the trust of the consumer.

As Auto Trader’s Plummer highlights, “OEMs need to enable the sort of functionalities that will create value for consumers which will make them want to have a long-term relationship with the OEM.”

OEMs and dealers need to maintain a relationship with the consumer throughout the lifecycle of the car, making the relationship longer and more durable according to Plummer. This relationship will make the consumer want to stay with the brand as it is creating value without charging the customer for it.

Use cases for connected car data

While connected car data has always been used to enhance the safety and the development of the car, recent examples of OEMs trying to monetise data through heated seats subscriptions and to enhance the performance of the car, for example, has not been implemented as a value-add product in a cost-effective way for the consumer.

Car brands have a huge opportunity to sell more cars through value-add products and look at the data from a more positive angle rather than focusing on subscriptions. For example, connected car data can be used to reward safe driving through cheaper insurance.

Connected car data provides an invaluable digital audit trail of a car. This is valuable data for used car valuations and can result in careful car drivers being rewarded and sharing the benefit of higher used car values. As Plummer remarks, “the more data you put into that mix, the stronger the model becomes, the more robust the analysis will be, and the more useful it will be.”

An OEM will struggle to transition to become a data company but there is an opportunity potentially to partner with a data specialist who can provide that data and work out how to share it with the right people, to generate use cases that add value to each of the stakeholders involved. And this will, in turn, add value to the relationship between the OEM and the customer.

As Plummer confirms, “the real opportunity is enabling a broader partnership-based ecosystem, which allows the manufacturers to tap into these use cases in a way that does add value to the consumer. And by doing that, that they will add value back into their own business.”

“The more data you put into that mix, the stronger the model becomes, the more robust the analysis will be, and the more useful it will be.”

Ian Plummer

Concluding remarks

Traditional car manufacturers are prioritising the rapid increase of their margin, and they see connected services as one route to achieving this. However, rather than trying to build new car technology themselves, OEMs should focus on partnership rather than competition with tech companies who are already delivering connected services through mobile devices, which are an invaluable necessity for consumers both inside and outside the car.

The connected car service proposition requires a shift in mindset, however, moving the role of the OEM from a less transactional offering to a role that is more focused on building strong long-lasting customer relationships, with the OEM transitioning from a product provider to a service provider.

The positive use of connected car data – from driving the car safely and in an environmentally friendly manner to reduce the carbon footprint to offering consumers convenience and value-add products such as insurance and higher used car valuations for careful driving – will result in an enduring relationship between the consumer and the car manufacturer.

Find out whether connected cars are a customer convenience or commercial reality by reading the analysis of the Asset Finance Connect Webcast sponsored by Auto Trader

Analysis from David Betteley AFC Auto content leader

As the 19th century turned into the 20th century, car manufacturing companies were moving into mass production and they concentrated on this model up to and beyond the war, making cars, piling them high and selling them to a growing car owning population. This model persists, in a slightly changed format, even nowadays. However, a transition from being simply a manufacturer of mechanical products to being a manufacturer and, at the same time, a tech company is underway.

Technology advances, particularly of late, have enabled the “connected car” to become a reality. Undoubtedly, “tech” and what it enables has the potential to disrupt the current automotive market, more fundamentally and more rapidly over the next few years than we have seen from the last couple of decades.

The start point for connectivity was preventative maintenance, but tech advances and regulation that demands connectivity being constantly fitted to new vehicles, will ensure that by the end of this decade virtually every car produced will be fully connected.

The focus for the OEMs has moved on from simply preventative maintenance to using “connected” to provide customer services, for both safety and convenience. However, this has meant that additional hardware had to be built into the car, increasing the purchase price. The big irony that has transpired is that customers are forced to pay for the hardware installed in their car but they don’t end up owning the data that it produces, or indeed in some cases have to pay extra for the already installed hardware to be switched on!

“Who owns the data” is therefore the new battleground as the industry eventually starts to work out what data is relevant for safety, features, convenience and importantly for on-demand services, and crucially, what data they can monetise.

Customer behaviour and demands are changing, driven by the dominance of the GAFA (Google, Amazon, Facebook/now meta and Apple) Customers are asking how they can use their smartphone to help drive their car. Customers are looking for a frictionless ownership experience, but mis-steps by many manufacturers in the connected journey (e.g. BMW charging for heated seats to be turned on when the hardware had already been purchased by the customer) have resulted in anything but a frictionless ownership experience!

This creates a dilemma for the auto manufacturers. Do they develop their own in-house tech (there have already been some major mis-steps, e.g. VW and the launch of the ID range) or do they partner with the GAFA companies and risk losing their close relationship with the customer?

There is no doubt that monetising connected car data is the new battleground and Asset Finance Connect will continue to feel the pulse on this important topic by continuing to interview industry leaders such as Ian and John in order to keep our auto community “connected”!

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European automotive

Driving Drivalia’s planet mobility


In the transition from Leasys/FCA Bank, Drivalia was created with the ambition of becoming one of the leading European operators in the mobility sector of tomorrow.

This ambition is summed up in the “Planet Mobility” concept. At the core of Drivalia’s vision is the development of a full range of mobility solutions and customisable plans, from electric car sharing to innovative car subscriptions and rental for all durations. The new company deals with mobility in all its facets, providing innovative mobility plans that combine flexibility, digital use, on-demand approach and sustainability.

Omni channel approach

Drivalia is moving along the path of transition, developing innovative solutions dedicated to green mobility and focusing on electric brands, with an omni channel approach encompassing both a digital and physical presence.

Drivalia has an extensive international presence, with operations in seven European countries (Italy, France, United Kingdom, Spain, Portugal, Greece and Denmark), expanding in 2023 to Germany, the Netherlands, Belgium, Switzerland and Poland. The company’s presence in Europe unfolds through more than 650 Drivalia Mobility Stores, a network of physical outlets (expanding to 1,300 by 2025) where the company displays all its mobility solutions.

Drivalia are also investing heavily in the digital side of the business, despite recent reports that the digital element of mobility solutions has seen a decline with more people walking into physical car branches. Merli understands that post-Covid, trends changed and people wanted to go out and interact with people. However, she feels that their solutions offer the customer a mix of both physical and an easy-to-use digital tool for convenience and speed.

Mobility solutions

Drivalia have integrated their whole spectrum of mobility solutions under one umbrella, which can all be accessed via the Drivalia app.

The most innovative product gaining the most traction, according to Merli, is subscription. This view was echoed by the webcast poll result with 81.4% of participants believing that subscription will emerge as the most important mobility product for the fleet and/or retail sectors by 2025.

Drivalia have integrated subscription with their other mobility products, while some companies are working on a stand-alone subscription model which Merli believes cannot be profitable. Integrating products gives added value and fleets can be used for the changing needs of the customer.

While Volkswagen is reported to be selling its car sharing service WeShare to Miles Mobility, Merli sees car sharing as a “must-have” product that can be integrated with other products. Car sharing fits into Drivalia’s overall concept of mobility solutions. Merli feels that, whilst not as profitable currently, car sharing will be increasingly important from an environmental point of view, especially in cities where it will be harder to own a car.

According to Merli, the benefits for Drivalia in offering the full mobility product range allows their customers to grow with the company, moving between products as their circumstances evolve and their preferences change. Integrating all Drivalia’s mobility products allows the fleet to become more manageable and profitable.

Connected car

Merli sees the connected car as extremely important for providing customer data although sharing data rights must be considered between the OEM and mobility company. Merli sees the benefits as:

  • Using customer data to enhance customer convenience, choice and safety
  • Can offer the best products for the customer’s needs
  • Providing pay-by-use products
  • Can offer additional services

For car sharing, connected car is very important as a full digital experience can be offered to the customer and the car is therefore simpler and more convenient to use. As Merli remarks, “the connected car allows you to serve the customer better.”

“Connected car allows you to serve the customer better.”

Recent bad press surrounding the use of connected car data highlights that there has been a move away from the customer experience and convenience and more focus on how to make money. In New Jersey, USA, a class action lawsuit has even been taken against BMW for charging a subscription fee to receive the core functionality of an option (heated seats) that was installed/ordered from the factory. BMW poured cold water on the criticisms saying that BMW Functions on Demand are [generally] designed to offer premium features through software upload that use data and sensors from factory option hardware already built into BMW vehicles.

Merli believes that you have to find the right balance with connected car data and, when accessing data, this must be enabled in a positive way for the customer and services. Analysis of data is the crucial key which then allows you to adapt products accordingly. Merli feels that the key to being successful is to satisfy the customer, which in turn leads to greater profit. The old saying is ‘sort the wheat from the chaff’ and in this case with the massive amount of data available, deciding what data is relevant is the key.

ESG and the circular economy

FCA Bank want to be a mobility bank for a better planet, linking to environmental support and electrification and other technologies in the market. Drivalia was designed to democratise green mobility, making it accessible to the greatest possible number of people by offering flexible and different solutions. Their financing and mobility solutions maximise the usage of the car, with fleets being reused after their first lifecycle by being re-sold, re-rented, or used for subscription and car sharing, leading to increased efficiency and flexibility.

Drivalia currently see BEVs as core to their sustainability package and product range, striving for all vehicles at Drivalia to be 100% electric by 2030. However, Credit Agricole, their soon-to-be parent company, is investing heavily in hydrogen leading to a possible conflict of ideals. The goal for Drivalia is to sustain any low-impact technology, which Merli feels in the present reality is electric vehicles, with hydrogen possibly becoming reality in the future.

Vision for the future

During this period of rapid change, Drivalia have been listening, first and foremost, to the customer, with continuous customer feedback leading to development and adjustment of their products.

While many auto financial service companies are merging their retail and fleet products, Merli feels that there are different demands and regulation from the two markets. Drivalia offers 20 different subscription packages – to both business and private markets – depending on customer needs. In the subscription market, 20% of business is from B2B while 80% is from the retail market, with more tailored packages for the B2B market and more standardised products for the retail sector.


Drivalia is open to new opportunities and partnerships in their ecosystem.

FCA Bank have been experimenting with Amazon for the past six to seven years. The Amazon partnership has a focus on the retail online channel, with Amazon being widely regarded as customer-focused and oriented and, importantly, trusted.

The CarCloud subscription service has been offered using the trusted Amazon platform, where the customer can purchase a voucher through the Amazon entry point and then go to Drivalia’s online platform to process through their app.

“The business model of dealers will change.”

Merli sees dealers as part of Drivalia’s business model as they move down the transition path. However, do the Drivalia Mobility Stores conflict with the dealer model?

Merli believes that the business model of dealers will change, with a Drivalia partnership for mobility purposes as an opportunity for dealers. In addition to their standard roles, dealers can engage with customers about mobility and become a mobility provider, providing new income opportunities that can help offset those lost as dealers become agents.

As a partner, dealers can share in the profit of re-selling used cars or leveraging in re-renting the car. As part of Drivalia’s business model, dealers can be used to sell different mobility solutions in a physical location, with many customers still looking for a physical connection (meet people, pick up car), with all time-consuming paperwork completed efficiently and effectively online.

Staffing impacts of transition

During a period of transition and change, staffing issues are some of the most difficult to resolve. Is it easier to keep and retrain existing staff or simply recruit new young talent?

“People are the real asset of the company.”

Merli sees “people as the real asset of the company” in a period of change, and strongly believes that you must retain and motivate experienced staff while also attracting new talent from outside the sector with ‘out of the box’ thinking who can bring an innovative valuation of the products.

Merli observes that you need to share the strategy of the company in the short, medium and long term when recruiting new talent, as young people want to be challenged, motivated and successful, all while having fun!

During such a transition, some existing staff will not want to go on the journey towards mobility or will need to be retrained, and while the cost for retraining, especially in economically challenging times, can be expensive, Merli believes that first and foremost “we must invest in people and invest in technology”.

“We must invest in people and invest in technology.”

Merli is convinced that motivational training can come from experienced staff to young people, with motivation shared across the team encouraging greater collaboration amongst staff.

While Merli finds that a good mix across gender is needed to bring your strategy to fruition, there are still extremely low figures of women in the auto industry. Merli feels that this needs to change and a good balance is needed, with women bringing added value to the mobility and financial service areas of the auto industry.

Following the Covid pandemic, working and office dynamics changed, leading to hybrid working conditions for many. FCA Bank are trying to find the right balance for employees to make strategies successful. Merli points to the need for compromise when working in a more flexible way.

Merli believes that happy employees and happy customers leads to success and, while looking at employees’ specific needs, a good mix between home and office working is the best.

“Happy customers and happy employees lead to success.”

So, what motivates Marcella Merli, a successful business woman in a male dominated industry? She goes to work to have fun and pass on her passion for the auto industry to her team, reinforcing her motto of: “Be happy and have fun in what you are doing!”

Find out how Drivalia was created with the ambition of becoming one of the leading European operators in the mobility sector by reading the analysis of the Asset Finance Connect Webcast sponsored by Bynx

Analysis from David Betteley AFC Auto content leader

It was a real pleasure to interview Marcella at such an interesting time in the FCA Bank story. FCA Bank is undergoing a major transformation early next year when Credit Agricole will become the sole shareholder and the launch of Drivalia at the Paris Motor show last month was one major step in that journey.

Drivalia aims to be one of the major European players in the “Mobility” market, whilst at the same time doing this in a more accessible way and also ensuring that everything is achieved sustainably. So, a challenging year or two ahead for Marcella and her team!

Drivalia, as part of FCA Bank certainly have all the products that will be necessary to achieve the objectives of the combined group. FCA Bank with its new found independence can offer a wide range of ownership products direct and via intermediaries whilst Drivalia will offer a full range of mobility solutions, including electric car, car subscriptions and rental for all durations. The new company deals with mobility in all its facets, providing innovative mobility plans that combine flexibility, digital use, an on-demand approach and sustainability.

A further piece of the FCA Bank transformation as outlined by Marcella are Partnerships. FCA Bank has already entered into partnerships with such innovative brands as Tesla and Mazda for 4 wheeled vehicles and Harley-Davidson on two, and on heavy commercial vehicles, joining forces with Ford Trucks. Additionally, and a great example of their innovation, they are partnered with a great trusted brand; Amazon, where customers can become a member of the Drivalia family simply by purchasing a voucher.

However, some partnerships have been lost as the company changes its relationship with Stellantis, but the new found independence will enable FCA Bank to innovate more quickly and develop new relationships with other similarly innovative brands.

Often these corporate changes in direction throw up forseen (and unforeseen) conflicts of interest and we did talk about potential challenges between Stellantis’ plans to set up a multi-marque leasing business in a 50/50 partnership with Credit Agricole and Drivalia. Marcella acknowledged this but with her usual confidence and ambition suggested that there was enough business for everyone!

Turning to their go to market strategy, in addition to the many partnerships they have (and as mentioned above, they are on the hunt for more!) Marcella explained that despite the growth of Drivalia mobility stores, dealers will remain very important to the group as it develops all its new products and delivers them via an omni-channel platform.

Overall, I was left with the impression that FCA Bank and Drivalia are a new combined enterprise in a hurry to ride the wave of new mobility whilst not forgetting their roots and continuing to support also their traditional dealer partners. In closing the interview, Marcella left us with a great quote, that summed up her approach to life in general and business in particular: “Happy customers and happy employees are the key to success”.

I believe that all this is a recipe for success and, with the charismatic Giacomo Carelli at the helm supported by gifted lieutenants like Marcella Merli, FCA Bank and Drivalia deserve to achieve their challenging goals.

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European automotive

Resetting the boundaries: agency, connectivity and subscriptions


Players from all divisions of the auto finance industry came together at the Asset Finance Connect Auto Finance Unconference, sponsored by Sopra Banking Software, to discuss three emerging trends in the shifting auto finance ecosystem – Agency, the connected car, and subscription and new finance products.

As the sessions progressed, it became increasingly apparent that all three trends are interconnected, with common threads running between them:

  • All ways for the OEM to connect with the customers
  • All circle around data and meeting the customer’s needs
  • Changing customer behaviour and expectations is central
  • OEMs are reimagining their role in the value chain but are uncertain of the future. But they are not experts in any of these areas – connected car data, customer relations, Agency, finance products
  • The tech titans are a real threat to the status quo
  • Are we at the crossroads between ownership, usership, membership and Caas?


Many OEMs and prestige car brands have declared that they have started the journey to the Agency model, while value car brands are still watching from the sidelines. A number of pilot Agency schemes have been trialled around the world, including Mercedes in Sweden, BMW in South Africa, and Toyota in Australia and New Zealand.

Agency, “one of the hottest topics in town” according to Elevenci’s Gary Elliot, will result in a fundamental change to the DNA of the auto finance distribution chain, causing a shift in the relationship between customers, dealers and manufacturers.

OEMs are historically good manufacturers but they are not customer service companies. However, they want to be a more valuable part of the chain in the future, and believe that by going direct they will gain increasing interaction with consumers and access to the customer experience and data.

OEMs see many positive aspects to a move to Agency including:

  • Today there are more customers than cars so maximising profit from each sale is critical
  • Distribution costs (including dealer margin) are high and Agency is seen as a way of significantly reducing them
  • The digitalisation of the consumer journey has enabled this development
  • OEM controls the customer journey and re-purchase
  • Further development will see the OEM attempt to control the used car element as well
  • Do OEMs see this as a first step on the new mobility/subscription journey?

Agency was always going to be one of the possibilities for OEMs in the auto industry over time. As one participant commented: “Don’t panic about the Agency model – it’s a natural evolution of the industry.”

There is no “standard” Agency model. Every OEM will do it differently which causes some concern in the industry:

  • Genuine Agency, where the OEM controls the new car sale price, dealer fees, used vehicle trade in value, Financial Services income and any VAP income
  • Hybrid Agency, where the OEM controls the new car sales price, dealer fees, Financial Services income (usually 0% or similar)
  • Limited Agency, where the OEM controls the new car sales price, dealer fees
  • In the Hybrid and Limited Agency models, the dealer can control the used car valuation, finance and insurance, and other add-on revenues

“Don’t panic about the agency model – it’s a natural evolution of the industry.”

Role of the dealer

The ‘bricks and mortar’ presence of the dealer is still an essential part of the sales process for some customers who do not want to buy direct online, and as one participant highlighted, the consumer voice must be front and centre in whatever model is adopted. The retailer currently removes any friction for the customer.

The role of the dealer is still an integral part of the car eco-cycle but in a changing capacity:

  • There is a fixed margin (compare to low/negative margin on some new car sales today)
  • OEM/Captive manages slow moving stock and over-supply problems
  • No requirement for a wholesale credit line, so frees up balance-sheet capacity
  • This balance-sheet capacity can be used to leverage new opportunities presented by the new mobility market, including subscription

One participant observed that automation and new innovations within the auto industry are taking longer than predicted, and “Agency is just another part of that journey”.

The connected car

The connected car was originally designed to bring more services and features to the customer, according to AFC content leader David Betteley, but now it is a ‘cash cow’ which is causing upset amongst customers who are now paying for features which used to be standard.

By 2030, 95% of all cars produced globally will be ‘connected’, but what does that mean for the car industry:

  • The starting point was all about preventative maintenance
  • Now it is about how to monetise the idea
  • What data is relevant and what can be monetised?
  • Can the data be used to deliver features and/or services?
  • Can the data be used to generate one-off revenues or recurring subscription income?
  • Can the data be used as a sales tool (with a digital audit trail)?
  • Who owns the data?
  • Will connectivity be a reason to switch brands or will it become a hygiene factor?
  • BEVs are more connected (7X semiconductors) and may prove to be the catalyst.

Substantial revenue growth is expected from the provision of connected car services which could well be funded by merchant acquirer fees derived by the OEM using in-car payments. The 2021 McKinsey report, Unlocking the full life-cycle value from connected-car data, highlights that connected car services will on average deliver $310 revenue per car by 2030.

There are three stages of (payment) development for the OEM:

  • Car as an enabler. This needs hardware to be fitted to the car and the irony is that the customer pays for the hardware, but it seems like the OEM is presently attempting to monetise the data.
  • OEM as an issuer. Using the car as a payment method. My understanding is that these (so-called interchange or “cut of the transaction” c 1.75%) fees are relatively small (OEM may need to issue a new payment card (possibly OEM branded) in order to make this work).
  • OEM develops a (new) payment method. That is the OEM becoming an “acquirer”. Fees could be in the region of 5-20% of the contract value.

However, there are many obstacles facing the OEMs in their quest for connectivity:

  • Generating a digital audit trail to support RV setting and end of contract repurchase
  • The effect of connectivity on the trade cycle (ability to upgrade)
  • Staying ahead of tech development if this becomes a “brand value” factor
  • Phone vs car (GAFA vs OEM)
  • OEMs developing mutually profitable partnerships with tech companies
  • Dealer networks developing their own “omni-channel” marketing and sale strategies

Phone vs car

A big debate, with strong feelings on all sides, regarding the relationship between the phone and the car, and software companies v engineering companies surrounds the connected car.

At present, the tech giants such as Google and Amazon have a massive lead when it comes to the software needed for the connected car, and the OEMs can’t catch up quick enough as they are a traditional engineering company not a software company.

So, can the OEMs win the battle? The OEMs haven’t invested enough in the software related to the connected car as they can’t see the potential revenue from the data, but they do have the car – so they have the customer. There appears to be a lack of collaboration in the industry in moving forward with the connected car and the endless data possibilities. Should OEMs form strong partnerships with tech companies as that is the way it seems to be moving in other industries? Does the future of the car industry lie with partnerships or a battle between OEMs and tech companies? Whoever ‘wins’ the battle will hold the key to vast amounts of customer data which will be worth billions of pounds.

Monetising data

A vast amount of data is available from connected cars, but who owns the data? The owner could claim the revenue – but until we decide who owns the data, we can’t advance this.

Monetising data and sharing that data can deliver value to all parties in the auto finance industry, for example, through cheaper finance for the customer. Using data, the manufacturer can give the customer what they need and what they want. As Tony Whitehorn commented, “The more data you get, the more flexible you can be.”

“The more data you get, the more flexible you can be.”

Data can be used to understand customer behaviour which is worth endless amounts of revenue. Avenues will open to manufacturers and other sector players to use the data in a very intelligent way, and not just for designing and building cars.

As well as making money from data, the connected car provides another stream of revenue for OEMs through features and financial services on demand. The industry is transitioning to a place where basic spec cars are manufactured with an option to buy add-on features on demand via connectivity and as one participant noted “this is how the industry is planning on making a living.”

However, the key problem for OEMs is that they need their connected services to be customer focused otherwise they appear to be effecting the Ryan-Air-isation of auto. There is a clear problem with charging customers for add-ons which used to be available as standard, without adding some advantage for the customer, such as a cheaper purchase price.

Residual values

The connected car will have a significant effect on residual values in terms of limited car models and telematics data. The data available on the car will mean that a far more accurate record of how the car has performed and been serviced and maintained will be available. It will therefore be easier to set residual values if you have limited car models and can adjust the RV according to the car data.

The telematics data generated from the connected car is also an enabler for new mobility products. For example, if excess mileage is detected through the data, the customer can swiftly be moved to a subscription or pay-per-use finance product which will suit their changing needs.

Subscription and new finance models

New financing models are all about flexibility, but there is a strong correlation between flexibility and price. The more flexible the product, the higher the cost.

And a big barrier to the uptake of subscription is that price is still central to the customer – and they naturally compare subscriptions to other less flexible and, therefore, cheaper ways of paying for the right to use a car. Similarly, sales people are used to selling on price and not on flexibility – and they need to learn how to sell the value of flexibility.

“There is a place for subscription in the auto finance industry, but it needs to focus on consumer demographics and locations, targeting communities who value the change.”

New mobility financing products are therefore only suitable for a very limited and small group of consumers who want the flexibility and convenience which would justify paying the premium monthly payment. This customer demographic is looking for:

  • Shorter term contracts to limit their on-going liabilities
  • All-in payments
  • Pay by use
  • Ability to change the car frequently
  • Always new (ish) cars
  • Easy to hand the car back and walk away
  • Convenient logistics

But all the above are very costly to deliver, with logistic issues being extremely difficult to navigate, only working in certain geographic and demographic locations.

Many unconference participants believe that there is a place for subscription in the auto finance industry, but it needs to focus on consumer demographics and locations, targeting communities who value the change.

It was also highlighted that the subscription model is not suitable for new cars, with a focus on used cars which can then extend the economic lifecycle of the car.

How well has the industry responded to these new products to date?

  • Lot of talk about subscription but very little revenue generation to date
  • Dedicated fleets suffer from low levels of utilisation
  • OEMs and Captives don’t (currently) have the people and processes to deliver
  • Early subscription models offered too much flexibility
  • Current subscription models offer seriously limited flexibility (with some exceptions)
  • It is a premium product currently, e.g. “JLR Pivotal” (£550 joining fee and from £850 (Disco Sport) to £2000 per month (Range Rover) with used cars under 12 months old
  • Logistics still a difficult (and costly) problem
  • Concerns about brand loyalty and customer retention

The increased adoption of subscription and new finance products will result in a number of changes within the industry:

  • Financier to Service aggregator
  • Leasing to Rental
  • Fixed terms to Flexible terms
  • Retailer/dealer to Service provider
  • Intermediary to Direct

Dealers are particularly uneasy about online subscription and how it will affect their ability to sell cars. As mentioned above, with new mobility products comes a shift for dealers to a service provider role for these new finance products and logistics. And this could be part of the solution. In terms of the logistical problems of subscription, dealer groups are well placed in their communities to tackle that challenge.

As with the other two emerging auto trends, would a partnership between OEMs, Captives and dealers solve the problems linked to subscriptions and new finance products? OEMs are once again underestimating the relationship that dealer groups have with their customers.

Resetting the boundaries

The auto finance market was always going to change for many reasons, all of which are so intertwined that it is currently impossible to predict the shape of any new paradigm in the sector.

Agency, connectivity and subscription are all emerging trends in the auto finance ecosystem with fluid boundaries that are inter-twinning and linked through the changing focus of OEMs to reconnect with the customer – an expertise which is not natural to them in the value chain.

Connected car data and reinforcing the customer experience are key to all these new innovations in a changing auto ecosystem of new mobility finance products, transition from ownership to usership to car-as-a-service, Agency and connectivity. But how long before the tech giants stride in with their software expertise and claim the industry as their own or will we see collaboration in the auto industry that resets the traditional boundaries? We will wait and see!

Find out more about the three emerging trends in the shifting auto finance ecosystem by reading the analysis of the Auto Finance Unconference sponsored by Sopra Banking Software

Analysis from David Betteley AFC Auto content leader

There are two threads that link all three subject areas: First, data (telematics output from the car) will provide the OEM with competitive advantage if they can find a way of compliantly using it and, second, the fact that simply making and selling cars isn’t profitable for OEMs.

Manufacturing as a single stand-alone operation hasn’t been profitable for a long time and it has needed to be propped up by aftersales activities and, importantly since the 1970s, the additional revenue generated by selling finance and insurance (F&I).

The new threat is that aftersales income which has helped balance the books, will be severely diluted by the growth of BEVs that require much less service work and consume far fewer spare parts, with the exception of tyres which are today mainly supplied by independent operators such as Kwik Fit.

In response, the major OEMs have diversified to an extent, and have already (pre-BEV) developed large captive operations that in many cases have a balance-sheet size that is more than 50% of the whole group. This has led to many commentators saying that, for example, BMW and VW are banks that happen to make cars.

Perhaps this has led the OEMs to believe that they are now capable of running a service industry as well as a car company?

However, the role of the intermediary (dealer) has perhaps been overlooked in the race to develop Agency as a way of removing cost from the value chain and, at the same time, taking advantage of the new tech tools and customer acceptance of on-line shopping.

Because of these changes, many OEMs feel that the time is right to move to Agency, managing much of the customer journey on-line and removing dealer margin from the equation. Many dealers don’t see a massive change, however, as even today much of their margin when selling a new car is controlled by the OEM in ‘standards’ payments. The issue is, can dealers maintain the same standards and exclusivity of selling one brand if the ‘standards’ money disappears?

Moreover, dealers have developed the skill over many years of selling cars that are difficult to move and those times will return at some point in the future. That’s when the Agency model will be tested, possibly to destruction, when there are more cars than customers and fewer dealers around to sell them!

Continuing the diversification theme, all OEMs have invested millions if not billions in technology both in their factories and the cars they produce. Many of the problems around reliability and production delays have been caused by manufacturers developing their own ‘connected’ solutions; JLR in the former case and VW in the latter.

The big question is, is this a battle that the OEMs can win against the likes of Google (Android), Amazon, Apple and the multitude of tech companies that are competing for a slice of the pie? Or is the solution to partner with one of the foregoing, but then risk losing the intellectual property in the ‘tech’ that is fitted in the car and crucially not controlling the revenue generated by the vehicle.

We are seeing the first roll of the dice with mixed results, for example, the rather cack-handed approach tried by some manufacturers to turn on features (e.g. heated seats) that the customer has already paid for!

OEMs have to decide where the revenue will come from — is it from features such as in the above example or is it services and, if the latter, what services? Is it simply payment services or is it services that will make the customer journey faster, safer and more enjoyable? The big, still unanswered, question is “who owns the data?”

Which brings me on to new mobility products. BEVs have been the catalyst for development. However, the current crop of subscription products suffer from being either flexibility rich and too expensive or flexibility poor and being essentially no different to existing ownership products such as PCP.

The industry has tried to “square the circle” by concentrating on offering used rather than new cars on subscription so they won’t have to price in high initial depreciation costs. This in turn has led OEMs to keep cars on their balance sheets for longer, employing a multi-cycle rather than a single-cycle sales model.

This approach has moved used cars out of the traditional trade cycle and the funding obligation away from dealers to OEMs. It will be interesting to see if this additional balance-sheet exposure for the OEMs will be a burden or a new profit stream for manufacturers.

A closing comment on BEVs: we can all agree that they are the future, but they are still more expensive, putting them out of reach of people on below-average income. It is exactly that section of the population who are most likely to live somewhere that doesn’t have a driveway, meaning that they have to charge at public charging points that cost at least twice the price of domestic electricity.

This, linked with the undeniable fact that government revenue from fuel duty and VAT will have to be replaced (probably) by some form of road pricing, leads me to the conclusion that BEVs may solve one problem while creating a new socio-economic problem for developed western societies.


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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.

For more insights from this June's conference, see the Asset Finance International website

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.

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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”.

Find out more about the challenging times facing the auto finance industry by listening to the Asset Finance Connect webcast sponsored by Solifi

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.

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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.”

Find out more about fleet market trends by listening to the Asset Finance Connect webcast sponsored by Bynx

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.

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