BMW sets up auto financial arm in India

German luxury carmaker BMW has opened its vehicle-financing subdivision, BMW Financial Services, in India with an initial investment of $50 million (Rs 221 crore).

Based in Gurgaon, BMW Financial Services will serve to offer loans to its customers, and has obtained a licence from the Reserve Bank of Inda to operate as a Non-Banking Finance Company (NBFC) in the country.

BMW Financial Services, a wholly-owned subsidiary of the BMW Group, is functioning in 31 countries and has a global customer base of 3 million. In India, BMW Financial Services will have three different business divisions namely retail, finance and commercial finance for the BMW dealerships, along with car insurance solutions which will be offered in association with Bajaj Allianz.

George Bauer, CEO of BMW Group Financial Services, said with India having positioned itself as one of the fastest-growing economies, BMW is the first foreign and premium automobile firm to open a financing arm in the country thereby gaining the first-mover advantage. He added the company is planning to bring in more funds next year apart from the $50 million invested this year.

Sanjiv Shah, the recently appointed MD and CEO of BMW Financial Services, told reporters the firm will provide customized financial services through BMW dealers apart from serving other brands such as Maruti and Honda, where the BMW dealers have commercial interest. He added the commercial finance solutions offered to BMW India dealerships will further strengthen operations in the country and will reinforce the BMW brand. Besides, the financing arm will also provide solutions to customers buying cars from other manufacturers (new as well as pre-owned cars) at 8.75% interest rate, though the interest rates could be lower for some models.

BMW India has been facing stiff competition from archrival Mercedes-Benz in the luxury segment. Both the carmakers have recorded high sales growth in the past couple of years. BMW overtook Benz last year in sales volume, though Mercedes has regained the top spot this year. While Mercedes, too, has plans to start its financing arm Daimler Financial Services by 2011, the company has not yet applied for regulatory approvals to start its NBFC.

Car financial services aren’t anything new in the country. Tata Motors has its own Tata Financial Services, which offers financial solutions to its customers. Most cars in India (all segments included) are purchased through finance schemes only. Hence, vehicle finance is an important business strategy to encourage customers to purchase a particular brand’s vehicles.