With the auto sector pivoting from a buy to a lease model, Hyundai Capital is keeping a close eye on the world’s biggest auto lease market, the United States, but also seeing significant upside in China, while examining new sales and distribution channels from Frankfurt to Rio de Janeiro.
“It is the move from ownership to usage,” said Paul Skiadas, who heads the Global Business Division at the auto-financing arm of the giant Hyundai Motor Group, when asked about the key trend in the sector. “There are many different models of usage, from leases to subscriptions.”
While Canadians and Spanish keep their cars the longest – 8-9 years – Americans and Koreans change up after just 2-3 years, with “other markets in between,” said Skiadas, who added he would like to see people switch cars “every 3-4 years.”
Leasing has risen to some 35% of new car sales in the last 4-5 years, the Australian, who joined the Korean firm in 2015 after serving as managing director of International Consumer Finance at GE Capital, noted. Even so, the fact that “all markets are moving toward leasing,” however, does not obviate the need for auto financing.
“Still there‘s a need for someone to provide the capital,” Skiadas told Asia Times in an interview in his office in Seoul’s finance district – the high-rise island of Yeouido in the city’s Han River. “It is a big investment either to use or own a car.”
Hyundai Capital currently does approximately 30% of its business in Korea, 70% overseas. It operates via a range of different entities in different markets – from ownership of dedicated banks in Brazil and Germany to franchises and partnerships. As of 2018, the firm had 43 trillion won ($36 billion) in assets overseas but has successfully globalized: Only 1% of overseas staff are Korean.
“When the manufacturer starts a campaign, you need a campaign to support it,” Skiadas said. “We develop these campaigns with our local partners.” Hyundai Motor – seen in the 1980s as a clunky maker that provided plentiful jokes for late-night comedians – “has come a long way” as a brand, said Skiadas, who considers Hyundai Capital part of the manufacturer’s ecosystem.
“We back them up, we provide the journey to the vehicle,” he said. “We make clear that dealers can finance the cars.”
West is West…
In auto finance – as in so many other sectors – the United States leads global market trends. “The US is the largest lease market,” said Skiadas. “Both the size of the market, and the customer management market.”
Leases offer consumers greater financial flexibility, in terms of payment options and terms, than loans, for ownership. The system is now increasing in complexity for the providers, but delivering greater simplicity and value for the consumer. One option is currently being pioneered in a number of US states by Hyundai Capital.
“In the US now, we have three-year subscriptions, to cover the cost of the car, servicing and insurance – providing insurance is complicated,” Skiadas said. “You only need to add the fuel – that’s it!”
The excellence of this system is not just simplicity, but predictability. “The joy is, it is a flat rate,” Skiadas said. “Once the lease is over, you take the car back to the dealer.”
The company is also looking at emerging US distribution channels, and has signed a deal with Flexdrive, which supplies vehicles for ride-sharing firm Lyft.
“They purchase the vehicles from the manufacturer, we fund the vehicles while they sit in a warehouse while they are fitted with the [Lyft] technology,” said Skiadas. “Then, we fund the inventory, and once the driver takes the car, we also fund them.”
…and East is East
While China is a major market for Hyundai Motor, leasing is just getting underway amid changing demographics and consumer sensibilities. Last year, Hyundai Capital announced plans to create a leasing-specific company in China. “Young people don’t care about owning a car, but young consumers want to use a car,” Skiadas said. “There is less capital outlay, and you don’t need to own, and there are tax benefits for businesses.”
The company will be building the new venture in concert with its current JV partner in auto finance. “We will share as much infrastructure as we can,” Skiadas said. “The call center, the sales channels, and so on.”
The growing trend for leasing has particular significance for China, given that the market has traditionally demanded large down-payments of 40-60% for car buyers. “Chinese don’t like to borrow!” Skiadas commented.
One of the idiosyncrasies of today’s China is the highly networked power of state control and the prevalence of surveillance. While such moves are slammed in the West, they ironically lower the risks for auto providers.
“China is very interesting: You turn up at a dealer and add your information into a mobile app,” Skiadas said. “If your Chinese ID card is good, you can buy right there.” For those who cannot afford a significant down payment, a tracking device is fitted to the vehicle. “Customers who have lower down payments have to opt for a GPS,” he said. “You can’t do that in other markets.”
Networks and digitization
Across all markets, networked information provides critical advantages.
“Our business focuses on retention: When a new model comes in, we can call customers early,” Skiadas said, noting how customers can upgrade their car while benefiting from continuity in payment. “We are part of a group, so we know when new models are coming out: We are there to service the dealers and the manufacturer. We keep the customers’ data and communicate – we have the advantage of a full customer database.”
Digitization is easing processes.
When buying a car, “there is a lot of paperwork – you walk out with 50 pages,” Skiadas said. Hyundai Capital is counteracting this with e-contracting. “We are trying to simplify the experience for the dealers,” he said. “Dealers have stacks of paperwork – it’s amazing!” Furthermore, mobile apps remind customers when payments are due, while digitized auto responses reduce the need for human operators.
These simplifications of processes also empower re-sales. “We like them to go back to the dealer, as there is a good chance the dealer will sell them a new car,” he said. “If you don’t have this digitized, you have to go through the whole contact process again.”
Online sales are a further advance. In a major experiment underway in Canada, the Genesis – Hyundai’s top-end model – is sold exclusively via web. “You configure the car, you get a test drive, then either finance it or lease it,” Skiadas said. “The manufacturer creates the website; we have the plug-in for the finance.”
In the UK, the “Click to Buy,” website also offers online sales, but Skiadas does not expect online to become the primary channel: “It is not going to replace dealers.”
Diversifying geographies, diversifying channels
How does Hyundai Capital enter new markets? “For new markets, we look at service market complexity,” Skiadas said. “We look at the manufacturer’s position, we look at funding: Is the bond market secure? Can you do cross-border finance?”
A further factor is financial geography. India is a major market for Hyundai Motor – the manufacturer is the number two player – but it is highly complex. “India is huge, and infrastructure is different in the cities and outside the cities,” Skiadas said, noting that the firm uses different partners in different states of the country.
Skiadas is currently keeping a close eye on Southeast Asia: In January, Hyundai Capital established a representative office in Singapore as Hyundai Motor prepares to amp up operations in the region.
In April a bigger investment was made in Brazil, where Hyundai Capital opened a bank, in cooperation with Santander.
The Brazilian move followed an initiative in Europe – a market where Skiandas is anticipating significant expansion. In 2017, Hyundai Capital Bank Europe was established in Frankfurt – where Hyundai Motor also has its European headquarters. With full passporting rights across the EU, the bank means Hyundai Capital can expand anywhere within the trade bloc.
“Europe is the next step,” Skiadas said. “We built the bank. We will expand in Europe, definitely; through branches of the bank, we will branch out.”