The European automobile sector is experiencing its worst crisis in decades as a result of a perfect storm:
This alignment has led the six main European manufacturers to project a drop in sales by 2025. But there is a parallel business that is growing: banking.
Why is it important. Volkswagen, BMW and Mercedes have turned their financial divisions into the engine that is making their profits grow. It is no longer just about selling cars, but about financing their purchase. From there its benefits come to an increasing extent.
The figures. As detailed The Economist Based on the financial results of different manufacturers, at Volkswagen financial services have contributed 3,096 million euros of Ebitda in the first nine months of 2024. It is 44% of the total, more than the sale of vehicles to passengers and companies combined. A business that grows 7.9% while the rest contracts.
BMW places its financial division at 20% of the total business, with 38,562 million euros invoiced. In the third quarter that weight grew to 29.7%. Mercedes reaches 13.4% of its income through this means. Renault 12.5%, with a growth of 19.8% in the last quarter according to the analysis of results collected by the financial media.
Between the lines. Automobile companies have built banks within their structures. The logic is simple: deposits provide cheaper financing than issuing debt in the markets. They offer loans, leasing and vehicle subscriptions with margins that the traditional business no longer provides.
Yes, but. This model brings systemic risks. During the 2008 crisis, GMAC (the financial division of General Motors) collapsed due to its exposure to mortgages subprime and needed a bailout of $17.2 billion. Mixing banking and sales multiplies the risk when a recession hits.
Furthermore, this is not an exclusively Spanish or European phenomenon. How to collect Washington Postthe US FDIC has received applications from GM, Stellantis and Ford to create industrial banks. Trump promised to relax business restrictions, and approving them would set a precedent for technology companies like Apple, Google or Amazon, which have been rumored to make similar moves for decades.
The paradox. Automobile companies are mutating towards a model where the car is the pretext and credit is the business. They sell cars to be able to lend money and thus reverse the logic of an industry that defined the 20th century.
The question is whether this shift is going to save them or whether it will end up exposing them to a new financial crisis.
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Featured image | Lenny Kuhne
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