Several major European carmakers, including Renault, Volkswagen, and BMW, are venturing into the realm of retail banking by actively seeking customer deposits. This strategic shift is driven by the significant rise in interest rates, which has made corporate bond issuance, their previous primary means of funding, less attractive. By attracting deposits, carmakers' finance companies can secure backing for car loans and ensure a steady flow of sales. In contrast to the previous era of ultra-low rates, when carmakers could easily raise funds through bond sales, deposits offer a cheaper financing option in the current positive rate environment.
Renault initiated its deposit-taking business in 2012 as part of its funding diversification strategy and ramped up its efforts in the banking sector last year. The French automaker funded almost half of its car loan program through deposits last year, compared to 35% in 2018, according to Jean-Marc Saugier, VP Finance and Group Treasury of Renault's Mobilize Financial Services. Similarly, Volkswagen has been operating a banking business for over three decades, but the sharp rise in financing costs has made customer deposits more crucial than ever. In an attempt to attract more savers, Volkswagen has twice increased interest rates on customer deposits this year, reaching the current rate of 3.1%. As a result, the company has seen around 160,000 new accounts opened in 2022, adding approximately €8 billion ($8.7 billion) in deposits.
BMW, another German automaker, also offers deposit accounts through its financial services unit, with rates of up to 3.2%. Like Volkswagen, BMW has recently raised interest rates for fixed-term deposits and savings accounts. The company has observed a significant increase in total deposit volume, and deposits play a strategic role in the refinancing mix of BMW's banking unit, according to a spokesperson. These efforts by car manufacturers to attract deposits come as they face soaring borrowing costs on new debt. In the past two years, the yield on a Bloomberg index of European automobile bonds has skyrocketed from 0.29% to 4.23%.
While deposits contribute significantly to their funding, carmakers will still need to issue bonds. In May, European auto companies issued €8.45 billion in bonds, the highest monthly figure in six years, taking advantage of favorable market conditions. However, the rising cost of debt may lead to higher car loan rates for customers, potentially impacting the demand for new cars.
Despite potential consequences, savers like Pere Domec from Spain are enticed by higher interest rates offered by carmakers. Domec, who started investing with Renault's bank about a year and a half ago, has witnessed the rate on Spanish instant access accounts jump from 1.2% to over 2.6%. Comparatively, ING Groep NV, which operates in Spain through its online bank, offers a rate of 1.25% on its savings account. Domec believes there is no incentive to stick with traditional banks in Spain that offer significantly lower rates, leading him to choose the more lucrative option provided by the automotive banking sector.