Volkswagen sets up finance arm in India

German carmaker Volkswagen is starting its financial arm in India “Volkswagen Finance” through its wholly-owned subsidiary Volkswagen Financial Services AG.

Volkswagen which entered in the Indian market in 2007 is looking to capture a market share of 10% in the country and is hoping the new finance arm will boost its sales by providing financial services to its dealers and customers.

Oliver Schmid, managing director, Volkswagen Finance, said, “It was necessary to establish a financial arm in India to support the VW Group and its brands in the best possible way and generate synergies between manufacturer and captive. This is happening in most of the places globally where the VW Group has production facilities.

It has turned out to be a successful move.”The venture is not a non-banking finance company (NBFC) but Volkswagen might consider launching an NBFC at a later stage, Schmid said. An analyst, said, “Since 2001, the trend of auto financing has picked up pace in India. It is growing in the NBFC space as interest rates are falling. Due to the rise in non-performing assets (NPAs), the cost of auto financing went up, but now business will pick up as the Reserve Bank of India has softened its lending norms.”

Volkswagen Finance is in negotiations with a couple of major players in the finance market and the formal agreements will be finalised by the first quarter of this fiscal. “Regarding insurance business, we intend to tie up with one big player. Contracts should be ready for signing in February itself,” Schmid said.

The arm will provide finance for Volkswagen brands such as Audi, Skoda as well as its commercial vehicles. Volkswagen Finance will also support these brands further through development and expansion of the dealer network across the country.

Schmid said it is easier and less time-consuming to establish a finance arm in India. “We are convinced that it’s the right decision to come to India with our own finance arm now as the VW plant in Pune/Chakan will shortly start producing cars,” he said. Volkswagen India made an investment of Rs. 35 billion (US$ 700 million) in its Chakan plant, from where its new cars will be rolled out.

Volkswagen sells the Volkswagen Passat and Jetta model in India. Besides the Audi A4, A6, A8, TT, Q7 models and Skoda Octavia, Laura and Fabia.

Source: DNA India