How the financing arm helped Mercedes Benz crack the Indian luxury market | Autocar Professional

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Owning a Mercedes-Benz has never been just about owning a high-end car, given that the brand is a symbol of luxury the world over.

However, luxury branding can be a double-edged sword. While it gives prestige and exclusivity to the brand, it can also keep potential buyers away as they may feel that they cannot really afford such a high-end product. This is the problem that Mercedes-Benz faced in India — a notoriously value conscious market.

But, over the last years, the luxury carmaker has started tasting considerable success in taking the tristar logo to more and more Indian homes, with a key role in this transformation being played by Mercedes-Benz Financial Services, the financial services arm of the German brand. Today, it finances nearly half of all the Mercedes-Benz vehicles sold in India.

“Translated, this means that of all the cars sold by Mercedes-Benz in India, we are financing four out of 10 or two out of five vehicles,” said Brendon Sissing, CEO and Managing Director of Mercedes-Benz Financial Services (MBFS).

The company offers a comprehensive range of services, including new, demo, and used car financing, ensuring a seamless experience for customers from purchase to ownership. Most notable is the Star Agility Programme, a guaranteed buyback scheme.

Innovating Finance

The programme offers a variety of options, from standard, fully amortised loans to balloon financing and flexible terms. The key aspect of the scheme is that the company takes the onus for the residual value of the car and the customer pays EMI only on the remaining amount.

“Under a normal high purchase, the customer has to pay Rs 1,50,000 per month EMI for a C-Class. Here, he can pay Rs 69,000, and at the end of three years, he can decide what to do. The customer is able to do this because of the strong residual value that the car has to offer. At the end of three years, the customer has the option of either refinancing it, or returning the car to Mercedes ‘no questions asked’, or he can upgrade to the new car,” Sissing said. The plan also comes with insurance as well as an extended warranty.

“A guaranteed buyback means that you are giving the customer the confidence that you are prepared to take the vehicle off you at a price at the end of a committed time,” he pointed out.

“In our financing, we advocate for flexibility. That’s the Number 1 thing on the finance part of our business — but also, peace of mind and convenience. Flexibility and convenience are the secret sauces of Mercedes-Benz Financial Services’ financing products,” Sissing said.

According to Sissing, MBFS’ Star Agility has made the brand more accessible, reflecting in higher sales. One out of two cars are now sold through the Agility Programme. Sissing compares the cost of owning an entry-level Mercedes Benz having a cup of Starbucks coffee every day.

“Suppose the customer comes with a budget of Rs 1,00,000. Maintenance, extended warranty and insurance are all additional. When we offer an installment of Rs 60,000, and add those things in, it moves to Rs 65,000. So, it is still affordable, including maintenance. So, if you have an EMI of Rs 60,000 for an entry-level [Mercedes Benz] car and if you include everything, you may end up paying Rs 65-66,000, which is nothing but Rs 300 per day. So, I usually give this example that at the cost of a Starbucks coffee, you can maintain your Merc,” he said.

The Overhaul

It was in late 2021 that MBFS undertook a significant restructuring to enhance shareholder value and streamline operations. The decision to separate financing of the truck and car businesses was driven by the need to cater to the distinct demands of each sector, noted Sissing explaining the thinking behind the move.

“In October-November 2021, the Group decided to separate the two businesses to create shareholder value but more importantly, to generate cash,” he said. “Given the huge demand for investment in both business models — trucks and buses and cars, this was done to not only focus on the brand but also digitise our processes. So that was the start of it.” By end-2021, the company had fully transitioned to focusing exclusively on Mercedes-Benz cars. This strategic shift marked the beginning of a new era, with the company ceasing to book new truck businesses and committing entirely to the car segment.

By 2024, MBFS has established itself as a market leader in the luxury car financing segment. Dispensing around Rs 300 crore monthly, the company boasts a robust portfolio exceeding Rs 7,000 crore. In a five-year trajectory, the average loan amount has gone up by 50%.

The company’s books have become healthier in the past two years. “Our non-performing assets are sub 0.5%. This is while the industry average is about 1% or 1.5%. The benchmark generally is that anything beyond 0.5 is not so good. Anything below 0.5 is desirable and so we are happy we are in that space,” Sissing said.

The introduction of the ‘Retail of the Future’ model revolutionised the wholesale side of the business. Shifting inventory ownership from dealers to the company alleviated the financial burden on franchise partners and enhanced the health of the overall network. This model instils trust and credibility, protecting margins and maintaining residual values by avoiding the pitfalls of aggressive discounting. It ensures that customers receive transparent and fair pricing, enhancing the overall brand reputation.

Pre-Owned Cars and New Demographics

Mercedes-Benz Financial Services has also made significant inroads into the pre-owned car market. With the Star Agility programme, one out of every two cars financed is through this innovative scheme, making luxury cars more accessible. This has led to a shift in the customer demographic, with younger professionals increasingly opting for luxury vehicles earlier in their careers. The average customer age has dropped from the late 40s to early 40s, reflecting a new wave of aspirational buyers.

This feature was first published in Autocar Professional’s June 1, 2024 issue.

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