Liga.net April 2021
New car sales hardly changed in 2020 despite the detrimental impact of coronavirus on many industries.
Now, roughly 85,000 new cars are registered in Ukraine each year, which is far from being a record, but perhaps it is the quarantine that can maintain the demand for personal transport. During the pandemic, a personal car is not only about comfort, but also about safety. On the other hand, the market maintains slowdown in rates in the economy. This makes loans more affordable for potential car buyers.
Which of these factors is more important and how does the car lending market – the industry that 12 years ago used to generate about 400,000 new cars per year, feel now?
LIGA.net asked these questions to the representative of one of the car lending market leaders – Roman Bunich, Head of the Long & Alternative Channels Development Department of Credit Agricole Bank.
“We have been long known on the car lending market”
– In 2020, 85,500 new cars were sold in Ukraine – it is 3% fewer than in 2019. Can it be considered a success given that it was a crisis year?
– In my opinion, 2020 was a successful year. Although Ukraine and the whole world were in crisis, we witnessed a minor decrease in car sales in our country, while the European market suffered much more. Generally, the situation is positive for us.
– The car lending market did not suffer much either, did it?
– There is no accurate official statistics on car loans available on the market, even though previously it could be received from car registration certificates only. The data we have now is a kind of a “summary table” with information from different market players such as banks and insurance companies.
Based on these data, the share of car loans in sales has increased from 15% to 35% over the past five years. Average rate of annual growth is 5–10%. Figures may vary depending on the brand – some brands have 45% and others – 15%.
Credit Agricole gives gifts to customers on reaching the mark of UAH 1 billion car loans since the beginning of the year
– What is the reason of the car lending market rising?
– Set of factors. Firstly, dealers promote car lending with enthusiasm; they develop the credit products. Secondly, more banks issue car loans nowadays. Thirdly, customers became more informed and financially literate.
General trend is that sellers and buyers began to use a loan as an instrument. The Ukrainian market is deeply value-oriented, but the situation where it is the loan and not the brand that “sells” a car has become more and more frequent in the recent years.
– What results did Credit Agricole end the year 2020 with?
There was a slight decrease in demand for new cars in March and April of the last year, which was due to introduction of the quarantine. However, as early as in May, the market has considerably rebounded and in 2020, the bank issued approximately 6,000 car loans, which is very close to the result of 2019. According to 2020 results, our market share was over 30%.
– What about borrowers’ repayment discipline in your segment?
– There were certain cases of repayment discipline worsening. The Bank has been restructuring the debt when necessary and in some cases, we have agreed on repayment holiday, but in general, delinquency has not increased.
– You have been holding on to the position of the car lending market leader for more than 10 years now. What do you owe it to?
– Firstly, we have been engaged in this product for a long time and have all necessary instruments for proper work. Secondly, it takes good expertise, developed decision-making center and a team to issue 7,000 loans a year or 30–50 a day. Moreover, we are the only bank on the Ukrainian market that has ISO 9001 certificate for car lending (International Quality Management Standard – Ed. note). And that’s the guarantee of customer service. We are constantly working on the speed of procedures and improving them. Our approach to car enthusiasts is complex and it includes not only car lending, but also related products and services, which will be useful to the customer. For example, a credit card “DriveCard” allows the customer to get additional financial cushion immediately after buying a car. Over 66,000 car enthusiasts have chosen us as the reliable partner.
– Does it matter to the customers that you are the foreign-owned bank?
– I think, to some extent, yes. However, it’s rather the brand that matters: we have been long known on the car lending market, we are the only bank in Ukraine with 66,000 issued loans and 100,000 customers in the system. And to Credit Agricole, that means a complex of factors such as price, work with a dealer, servicing in outlets, and service.
For the 9th year in a row, the bank confirms the validity of the ISO 9001 certificate in the direction of "car loans". Carlos de Cordoue, Chairman of the Board, and Galyna Zhukova, Deputy Chairman of the Board
– What brands are the Ukrainians most willing to buy with a loan?
– There is a combination of several factors here as well. The first one is overall popularity of a brand in the country. The second one is the importer’s approach. For instance, there are importers, which sell a part of cars for “cash”, because these are good cars at a quite good price, the import of which is limited by country quota, and corporate buyers take another part of cars. Other importers, on the contrary, may promote credit programs, which is why brands they are working with are more frequently sold with loan money.
Credit Agricole does not have a goal to sell specific car brand, we go by customers’ wishes and requirements, and offer them an extremely wide choice – we have exclusive lending terms with more than 15 leading car manufacturers such as Renault, Citroen, Peugeot, Toyota, Nissan, Opel, Mazda, Suzuki, BMW and others.
- How strong was the impact of general economic trend for rates reduction set by the NBU base rate on cost of car loans?
– It is very impure trend: everything depends greatly on bank’s business model and calculation methodology it uses. Some banks have more high-yield consumer loans, while others have corporate borrowers, which affects the final “price” for the borrower. Broadly speaking, the rates have obviously reduced. I think, they have been reduced at least by 2.5%–3% over 2019–2020.
– Has slowdown in rates affected the demand?
– Yes, the price really strongly influences the client's decision to buy a car on credit.
“Our focus is on the customer, car – is a secondary factor”
– Which link in the “importer–dealer–bank” chain plays the major role in terms of promotion of credit products?
– I believe, the role of dealers and importers is great here. It does not mean that banks are standing on the sidelines, but the suppliers’ role in the process of creation of credit programs is huge. The importer communicates with its dealers, receives the customers’ feedback and understands what they need.
Speaking of sales alone, almost everything depends on dealers. We actively cooperate with them, provide loan sales trainings for their employees, as well as other activities.
Credit Agricole is the exclusive financial partner of the “Car of the Year in Ukraine” campaign
– How are the parameters of credit programs reconciled? Who does initiate the parameters – importer/dealer or a bank, after all?
– It is a two-way process. Let me give you a couple of examples. Let’s assume that we have a 6-year program, we have reviewed the statistics and decided that we can totally afford to make it a 7-year program. We call the importer, make the offer and negotiate it with regard to whether customers need it. The second scenario – we receive a call from, let’s say, the dealer, our partner, who says that customers are complaining that it is hard to pay UAH 6,000 a month, and suggests that we make it UAH 5,000. After that, we consider it and decide if we can deliver this idea.
– What alternative sales channels can be on this market?
–I think, none, so far. If you want to buy any product, you go to a shop where it is put up for sale. The similar applies to cars. Usually, 96 out of 100 customers who need a car go straight to the dealership. And that makes sense: a bank loan is an instrument, and the bank’s task is to finance the purchase and make it the way that the customer would be satisfied.
– And those four remaining customers – who are they?
– Usually, they are very experienced or premium customers who have been with the bank for a long time and are well aware of its products.
– Has the demand for used cars grown due to the quarantine? What is the place of car lending in this segment?
– The Ukrainian market of used cars is three or four times larger than the new cars segment. It includes reselling of cars “brought” from America. The reason of such overbalance is simple: price. As a rule, used cars segment means much cheaper cars. There is no insurance market in this segment – we have been trying to create such product for almost six years, but unfortunately, there is no particular demand for it so far.
– Is it because used cars are often sold for cash?
– It’s not quite so. I would say it has two reasons. The first one is that customers do not have knowledge of the fact that a loan can be used as an instrument. For example, when an individual comes to a dealership with new cars understanding that he has sufficient money to buy Renault Logan, salesperson may suggest that he takes a loan in the outstanding amount and buys, let’s say, Renault Megan. The second reason is the used cars market does not have that: if the buyer knows that he has only $7.5 to buy a used car, he will think in these terms, he won’t be offered an alternative solution. On the one hand, he does not have such knowledge and on the other hand – he does not have a platform, which would give him additional instruments.
– Do you see the prospects of car lending development in the segment of used cars in the coming years?
– In my opinion, it is bad that there is no credit products on this market. Banks should reshape the opinion currently existing on the market that the used car buyer bears higher risks. We should start primarily from financial capability and repayment discipline of such customers.
That is why it is important to bring buyers and credit product together in one place. In that sense, a lot depends on official dealers – there will be no big sales of loans until there is a massive appearance of used cars in official dealerships.
“I like organic growth that we are having right now”
– Do you assume that new banks aspiring to become a leader of the car lending market will appear?
– The competition on the market will unfold among less than ten active players currently acting on the market. I hope it will be rather about quality than numbers. The more so because practice has shown that in many instances where rapid growth ended with the player rapidly leaving the business. This segment requires to be developed for years and investments. It involves IT, a team, and a lot of work with dealers.
– Do non-banking institutions have a chance to be your competitors?
– It’s important to bear in mind that a lot depends on work with importers and dealers. Every importer has its dealership network. We cooperate with more than 400 dealers. That means that the Bank has to have a seamless system in place – a network of bank outlets, which will provide customer services of the same level throughout Ukraine. This involves big investments. We do not see that non-banking institutions have such financial model so far.
– What are your general expectations for 2021?
– We depend on the car market: if new car sales grow, will grow as well. We estimate that the market will have around 10% growth and car loans share may increase up to 40%.
– Are there any prerequisites for more rapid growth?
– We do not expect explosive growth. I like what we are having now: organic growth, when everything happens naturally depending on economic situation and income of the customers. That way we can create actually civilized market with a high-quality product, which not every European country has.
– How far behind are current indicators from market situation, which was up until 2014?
– When Ukraine was selling 650,000 cars a year in 2008, the share of loans was roughly 60%.
– The Ukrainian all-time record is 650,000 sold cars per year, two thirds of which were sold with loan money. Should we miss such results?
– I think that it was an abnormality. At that time, loans were issued to everybody and it was bad for both the system and customers. Right now, we have a completely different situation. We should not be afraid of “60% with loan money” result, because it is cool. However, it is the substance that matters. If these 60% represent high-quality products with proper terms and right customers, the market will nothing but win.
