1. No category

Hyundai Capital Canada
Evolution of a Captive Finance/Leasing Business
April 20, 2015
Discussion agenda
1
What is Hyundai Capital?
2
Why a captive finance leasing business?
3
Launching the business…fast!
4
Managing the business
5
Planning for the future
Hyundai Capital Canada
1
3
Hyundai Capital Global Presence
4
Global and local corporate culture
Combining Strong Cultures
Future Culture
Insert pic
HCCA
Alignment
• N.A. Expertise
• Strong presence
• Proven Performance
Best Practices & Diversity
Business assembled quickly…
January ‘15 Launch
• Global Branding
• Core Values
• Reach & Diversity
Clear local Canadian identity, Active Leadership,
Strong N.A./Global Foundation
5
Foundation for successful business launch
HMC
KMC
Stock
holders
HCA
Hyundai
Auto Canada
HCCA
HCS
Kia Canada
Expansion
• Support
• Management
• Oversight / Experience
(Treasury, Finance, Risk)
Principles/Foundation
•
•
•
•
Governance/Compliance
Country Knowledge
People/ Capabilities
Customer Experience
Results
• Sales growth
• Customer Loyalty
• Co-Branding
6
Branding in Canada
Legal entity
Hyundai Capital Canada (HCCA)
Brand Name & Brand Identity
For all customer & dealer facing touch points
English
French [ROC]
Kia Motors Finance
Kia Motors Finance
Hyundai Motor Finance
Hyundai Motor Finance
French [QC]
Service des Finances de Kia Motors
Service des Finances de Hyundai Motor
Why launch a captive finance business?
2
8
Canada market study…start with comparing U.S.
• Canada has ~10% of the U.S. population and 12% of vehicle sales
• 86% of auto sales are concentrated in five metropolitan areas
Canada Size: 33 Million Population (10% of U.S.)
(As of Dec 2012)
Population
Vehicle
Sales
H/K
Dealers
33 M
1.68 M
377
(10%/US)
(12%/US)
(24%/US)
1 British Colum.
2 Alberta
4.4 M
169 K
37
3.6 M
237 K
25
3 Ontario
13 M
627 K
124
4 Quebec
8M
420 K
121
4 Provinces
29 M
1.45 M
307
% of Total CAN
88%
86%
81%
Total Canada
% of Total U.S.
1
4
2
3
Vancouver
(2.5 M)
Calgary (1M)
Montreal (3.4 M)
Ottawa (1.5 M)
72%
Toronto (6 M)
“Market concentration in five metropolitan cities
Source : Statistics Canada, J.D. Pin explorer, Automotive News, Scotia bank Economics
Auto market trends in Canada
• Canadian Auto market size in 2012 was 1.7 million units (12% of U.S.) with a 2.7% growth rate since 2010
• Market shares by major players have similar trends as U.S. and Hyundai/Kia combined is taking 13% of the market
Light Vehicle Sales Trends
(Unit: Million Vehicles)
OEM Market Share
(Base: Total light vehicle sales)
12% of U.S.
1.1%2)
2.7%1)
1.6
1.6
0.3
0.3
1.7
0.3
1.6
0.3
1.6
1.7
1.6
0.3
1.5
0.3
1.7
1.8
1.8
0.2
0.3 Fleet
16% Ford
14%
•
1.3
'05
'06
1.4
1.2
'07
'08
'09
9% Honda
10%
1.3
1.3
'10
'11
1.4
1.5
1.6
6%
1.5 Retail
5% VW
2%
'12
Auto market growth drivers
–
–
–
–
–
Note
Source
1.3
11% Toyota
11%
0.3
0.3
1.3
13% Hyundai/Kia
0.2
0% interest policy since 2010
Increasing credit availability
Labor and housing market strength
Rising consumer confidence
Vehicle replacement demand
: 1) CAGR (Compound annual growth rate) from ’10 to ’12
: Automotive News, Global Insights
'05
'13E '14E '15E
Trend





•
'06
'07
'08
'09
'10
'11
'12
OEM – Captive history
– Toyota : Since 1990, well-established captive, $9.2 B in assets (’12)
– Honda : Since 1987, well-established captive, $7.8 B in assets (’11)
– Ford
: Since 1962, survived fin crisis, No 1. player, $11.6 B in assets (’12)
– VW
: Since 1989, faster grower, $4.2 B in assets (’11)
2) CAGR from ’10 to ’20 (forecasted by Global Insights)
10
Auto financing market trends
• Auto financing market and per person balances are a growing trend since Q3/’11
• Serious delinquency rate (R4+) is historical low at 0.10%
Total Auto Financing Balance
($ MM USD)
Auto Financing Balance Per Person
($ ‘000 USD)
Delinquency Rate
(R4+, Serious Delinquency)
CAGR
CAGR
10.1%1)
47 47 47
49
51
53
56 57 57
Average 0.10%
-4.7%1)
CAGR
18.9
9.1%1)
19.2 19.3
0.11%
0.11%
0.10%
0.10%
0.09%
0.08%
18.2
17.8
17.3
16.7
• Canadian auto financing market is growing
‒ Canadian debt levels continued to show
upward trend to Q4 2012
Source
: TransUnion Canada
• Canadian auto financing customers are
becoming more leveraged
‒ 9.1% increase from Q4 2010 to Q4 2012
in average personal auto loan balance
Q4 '12
Q3 '12
Q2 '12
Q1 '12
Q4 '11
Q3 '11
Q2 '11
Q1 '11
Q4 '10
Q4 '12
Q3 '12
Q2 '12
Q1 '12
Q4 '11
Q3 '11
Q2 '11
Q1 '11
Q4 '10
(E)
Q4 '12
Q3 '12
Q2 '12
Q1 '12
Q4 '11
Q3 '11
Q2 '11
Q1 '11
Q4 '10
16.2 16.2
• Loss rate is historically low (Serious
delinquency (R4+) rate at 0.10%)
‒ In Q3 2012, R4+ even drift to lowest
level since recession, at 0.08%
11
Longer term loans leading Canadian captives to re-focus on lease offerings
Auto Finance Mix
Loan/Lease Term Mix
(2013, Light vehicle sales)
48%
36%
23%
Loan
60%
Lease
21%
Cash
19%
5%
7%
36
48
60
17%
72
84
96
Captive
54%
22%
18%
0.1% 0.5%
5%
24
Source : PIN Explorer
12%
36
48
60
72
• 84+ mo loan is lower payment
alternative to Lease
̶ Offered by non-captive
OEMs’ partner banks
̶ Trade in after 4~5 years
resulting in negative equity
rolled into new loan
̶ Increased risk (High LTV)
• Major captives re-focus on
pushing lease offer to mitigate
the risk and reduce sales cycle
̶ Introduced attractive
payment options
• Weekly payment; biweekly; semi-monthly
84
12
Leasing and the negative equity challenge
Example:
• Customer financed (only) the MSRP for 96 months
• Approximately $4,000 “under water” at 48 months….the point when customers are typically
interested in looking for a new car
13
Launch the business
3
14
Top priority - staff the organization right
 Led by a seasoned team with world class finance experience
HCCA
Ross Williams,
President & CEO
• HCA, GE Capital, Deutsche Bank
• 25+ years of experience
• Seasoned executive with broad
experience in strategic and operational
management across the lending space
21
Average Executive Team Experience with
comprehensive automotive and consumer finance
years experience across the globe: U.S.A to Korea to Canada
Select prior employers:
Finance
James Matthews,
CFO
•
•
•
Autocapital, TD
20+ years of experience
Former CFO at Autocapital Canada
and TD Auto Finance (Canada)
Risk
Corey McMillian,
Head of Risk
• HCA, Wells Fargo, Bank of America
• 15+ years of experience
• Experienced Risk professional with broad
auto finance experience in credit policy
management and risk operations
9
Hyundai Capital America/Korea exec./managerial
transplants infusing HCCA with strong working-level
knowledge and immediate capabilities
Sales & Marketing
George Steinsky,
Vice President
• RBC
• 25+ years of experience
• Former VP of Retail Sales at RBC Auto
Finance with experience growing and
managing financing product lines
71
Dedicated HCCA team-members on-site with
continuing investment in talent to expand HCCA’s
solid business foundation
15
Kia Motors Finance
Introduction to Leasing
© 2014 Kia Motors Finance
16
What is a ‘Captive’ Finance Company?
A finance company
in partnership
with the
Manufacturer.
© 2014 Hyundai Motor Finance
17
What is Leasing?
A cost-effective way
to have use of a vehicle
for a fixed period of time.
© 2014 Kia Motors Finance
18
Why Leasing?
Why Now?
© 2014 Hyundai Motor Finance
19
Leasing and Loyalty
© 2014 Kia Motors Finance
Hyundai Motor Finance
Lease Features
© 2014 Hyundai Motor Finance
21
Overview of the Leasing Process
Lease
Initiation
Credit Application completed, submitted and
approved.
Lease
Agreement
Signed
Customer signs Lease Agreement, arranges for
Insurance.
Customer takes possession of new vehicle.
Lease-end:
Customer
Contact
Lease-end notification sent to customer by HMF.
Dealership contacts customer at regular intervals: prior to lease-end.
Customer presented with lease-end options: purchase, return the
vehicle, lease or finance a new vehicle.
Lease-end:
Vehicle
Inspection
Customer contacted prior to lease-end date to arrange a vehicle
inspection.
Vehicle Inspection performed and report provided to customer and HMF.
Lease-end:
Customer
Decision
Customer decides on lease-end options:
1. Purchase the vehicle 2. Return the vehicle
3. Lease or finance a new vehicle
Participant Guide Page 10
© 2014 Hyundai Motor Finance
22
Point of sale materials – Kia
POS Kits Provided to Dealerships
23
Customer Communications – Direct Mail
Welcome Letter – Phase I
Customer Welcome Kit – Phase II (TBD)
24
Branded consumer presence building…
25
Manage the business
4
26
Balanced insource/outsource model
HCCA
HCCA
owns
Oversight
- Funding/Credit
- Dealer Contact
- Speed/Consistency
System
(outsource)
Originations
Dealer Critical
Outsource
ownership
Dealer Critical
Servicing
Collection
Lease - end
- Expertise
- Responsive
- HCCA Sets rules
- Expertise/Scale
- Local Market
Knowledge
- Core Competency
- Connectivity built
- HCCA sets rules
High Direct Debit
Area
Data
Dealer
Customer
HCCA Control
27
Residual value setting – becoming a value-added partner
ILLUSTRATIVE
Working Group
Internal Committee
Valued Sharing
Fleet%
Sales
Risk
Blackbook
ALG
•
Key
Indices
Sales
Sales
Risk
OEM
Fleet%
Lifecycle
Discuss Sales/OEM plans, Key
models, & Risk forecasts
Mutual Understanding
Objective
HCCA
Committee
•
Risk provides scenario based residual
forecasts & recommendation
Establish Residuals
•
Risk & Sales share approved
residual values
Transparency
Understand Competitive
Positioning Strategy and how
it relates to relevant market
indices
Provide the best residual risk
tolerance and allowable
pricing
Sharing of Committee
feedback and significance of
RV setting
Blackbook, RVI Group, ALG,
Moody’s, Sales & Penetration
Forecasts, Fleet %, Model
Launches, Inventory Levels
Indices from Working Group,
+ Return Assumptions, Loss
Forecast & Sensitivity
Indices from Internal
Committee Meeting
28
Planning for the future
5
29
Long-term roadmap….the beginning of a long journey
Customer Value Proposition
high
Layered & Long-term
Profit
Service
HCCA Today
Loyalty
Sales Growth
low
2014
2015
Plan
2016
Expand
Launch
2017
2018
Differentiate
OEM
Dealer
Focus
Consumer
2019
Mature
Optimize
Customer intent / strategy
31
Lease-end communications concept
Lease-End marketing material to promote better quality returns and increased opportunity for
customer/dealer interaction
210 Day
Email and
PURL
Create Brand
Excitement
150 Day
Direct Mail
Introduce New
Models
Drive Customers
to OEM Website
& Brand
120 Day
Direct Mail,
Email PURL &
Outbound Calls
Features
Customer Self
Assessment
Set
Expectations for
Lease-End
90 Day
Email and
PURL &
Outbound
Calls
Drive
Customer to
Dealership
Benefits of
Leasing
Capture
Customer
Intent (Shared
on dealer
portal)
First Mailing
Future Maturities
75 Day
60 Day
Direct Mail
Email and
PURL
Direct Mail,
Email & PURL
Capture
Customer
Intent
Info on
Returning
Vehicle
Drive
Customers to
Dealer for
Repair and
Inspection
Support
Turn-In Date
Emphasis on
inspection
Repairs and
Dealer Visit
Encourage Test
Drive and
Vehicle
Shopping
Options
Loyalty Fee
Waivers
30 Day
Web and Mobile
Interactive Tools
Odometer
Statement
Thank you
Message
Introduce
New Vehicles Turn-In Process
Future
Instruction to
Contact Dealer
Build capabilities
32
Hyundai customer lease-end kit – self assessment concept
Inside spread
33
Remarketing process flow - concept
~2 days
~3-7 days
~30-40 days
Inventory
Grounding Dealer
Purchase
Online Auction
Physical Auction
Off Lease
Vehicles
Gross Payoff @
Residual
MBP Process
Consigned to
Auction
Posted on
Website
Transported to
Auction
No
MBP Process
Yes
No
MBP Purchase
No
Sold
Reconditioning
Yes
Sold
Auction
Scheduled
MBP Process
Repossessions
MBP : Market Based Pricing
Sold
On behalf of Hyundai Capital Canada…
Thank You!