AUGUST 2014 A JOURNAL BY AND FOR DAIMLER FINANCIAL SERVICES BIG data 4 6 The power of data Whether it s the creditworthiness of a bank s customers or the networking of cars for insurance purposes, the tracks we leave behind us every day in the Web are also becoming increasingly valuable to providers of financial services. 12 13 The force of habit In many parts of China, people still pay cash for all of their purchases, and financial services are practically unknown. Certain prerequisites must be met before DFS can establish its financing products and hire the right employees for its business operations.
2 AUGUST 2014 Financial INSIGHTS LETTER FROM THE EDITOR Dear readers, Vacation at last! And where are you planning to go this year? You don t know yet? Well, you re in luck. The friendly employees at the travel agency already know the perfect travel destination for you, including the right schedule and your family s individual hobbies without resorting to tarot cards or a crystal ball. Are you skeptical? Predictive analytics in other words, the large-scale collection of online data make this possible, at least in theory. On pages 4 to 6, you can find out why your online information leaves deeper tracks than your feet could ever do in the sandy beach of your dreams. Pleasant reading! The editorial team
Financial INSIGHTS AUGUST 2014 3 CONTENTS By land and by water. >> Pages 8 10 Wallenius Wilhelmsen Logistics transports everything that rolls to destinations all over the world. That s why this company keeps its truck fleet ever young thanks to Daimler Financial Services and CharterWay. 02 Letter from the editor 03 Table of contents 04 Spotlight: Big Data Collecting data is becoming essential for financial services providers too. 06 Opinion: Pro & con Brave new data world. 07 Did you know? 60 seconds for asset-backed securities. 08 Customers: Wallenius Wilhelmsen Logistics. 11 Quarterly result: An excellent second quarter for DFS. 12 Cash customers: New business in China having the right employees is crucial. 14 Major project, Part 2: Nexus three in one. The right attitude convinces customers. >>Pages 12 13 Many Chinese customers believe that Cash is king. In order to persuade them that leasing and financing are also good options, we need not only the right marketing strategy but also the right employees. 16 DFS up close: Dae Oh, the dancing contract manager in Korea. 17 Birthday: Daimler Truck Financial turns 40. 18 Global village: A visit to Sweden. 19 News from around the world 20 New model: The C-Class Estate from Mercedes-Benz. 22 This and that: A plea for courageous individuality. 23 12 questions for... Dieter Buhl talks about women s handball. A gala birthday for Daimler Truck Financial. >> Page 17 A lot has changed in the past four decades, but one thing has remained the same: customer-friendliness and strong partnerships are still the foundation of business operations at Daimler Truck Financial.
4 AUGUST 2014 Financial INSIGHTS SPOTLIGHT I know what you did next Everything you always wanted to know about big data and why Predictive Analytics become increasingly important for Daimler Financial Services. Michael T. is completely amazed. He ordered a new pair of running shoes on the Internet only a few hours ago, but already the doorbell is ringing and outside there s a delivery man holding a package with the sneakers under his arm. What may sound like science fiction to many is already possible today. At the beginning of this year, for example, the online retailer Amazon patented a procedure known as anticipatory shipping that involves sending merchandise to customers before they actually order it. Digital traces This type of business model is made possible by big-data systems technologies that use mathematical calculations to derive probabilities from huge amounts of information. The ingredients for this recipe consist of all the information we as consumers leave behind every day on Facebook and Google, in supermarkets with our discount cards, and in the sensors and apps in our smartphones. When such data is bundled and analyzed, all of these supposedly unconnected bits of information can yield surprisingly accurate predictions about our future behavior. These predictive analytics are worth their weight in gold for businesses, since they can be used to precisely align products and services with the individual wishes of customers. For example, Amazon uses systems that register how long customers keep the cursor on a certain product, and also whether or Big data everywhere: Smartphone data can be used to predict our future location. The information we leave with our product search on the internet can be used to calculate the likelihood that we will order a specific product. not they read product reviews. This information can be used to calculate the likelihood that a customer will order a specific product. If the system determines that a customer can be expected to order a product, the merchandise will be packed and sent to a logistics center near the customer s home. Retailers and telecommunication companies are the pioneers of the new world of big data. The U.S. retailer Walmart, for example, examines its customers social network contacts. It then uses this information to offer customers gift recommendations for a friend s birthday. The music industry also relies on big data. Record companies that participate in the Spotify music streaming service collect data about the people who listen to their songs in order to identify the cities in which their musicians enjoy the greatest popularity. They then schedule concert locations accordingly. The online TV series House of Cards is also based on data analysis. The producers of this political thriller used data about the popularity of certain actors to make their casting decisions and also collected information about topics of interest to potential viewers. This approach was very successful and resulted in record ratings for the series. Manhunt 2.0 The significance of big data extends far beyond business and commercial interests. For example, police departments in some American cities use big data to determine in which neighborhoods crimes are likely to be committed at which times of day. Such predictive policing has led to an approximately 30 percent decrease in crime in Memphis, Tennessee. Smartphone data can actually be used to predict the future location of a phone s owner. Here the combination of GPS data and the information stored in a phone (call lists, phone books, etc.) can be fed into a program that will then calculate where a person might be in a week, or even a year. If data from that person s social network friends is also available, the resulting prediction can be narrowed down to three meters. In view of these developments, experts have begun talking about the end of coincidence and with good reason. For example, we ve already grown accustomed to the fact that when we use Google, the search engine will automatically complete our question even before we finish typing the first word.
SPOTLIGHT Financial INSIGHTS AUGUST 2014 5 summer! Big data is also changing the way Daimler Financial Services conducts its vehicle financing business operations. Today it s no longer possible to imagine the financial services sector or the automotive industry without predictive analytics. In the financial services sector, startup companies such as Kreditech (see box) are already adopting completely new approaches to assessing consumers creditworthiness. Automobiles are becoming more and more networked practically every day, and in the process they are being transformed into data collectors on wheels. By the time the EU regulation for the new ecall* feature goes into effect in October 2015, automobiles in Europe will have become data generators. According to the British consulting firm Machina Research, nine out of ten vehicles will probably be networked by the end of this decade. By contrast, only ten percent of all vehicles have such connectivity features today. A global survey conducted by the Gartner market research company found that far more than half of the insurance companies surveyed have already invested in the expansion of big-data technology. Big Data as success factor The proper use and administration of big data will therefore become a key factor of success at Daimler Financial Services as well. As a result, the company is actively addressing the issue. The idea Using DFS Smartly was submitted to the myidea. platform back in 2011. The goal behind the concept is to link data and then analyze it to develop attractive solutions for our customers. Using DFS Smartly has since then led to the creation of the Business Analytics project. Within the framework of this project, several million data sets that include demographic and financial information about European markets and market segments have already been bundled together in Europe. The intelligent use of this data leads to a better understanding of customers needs, and this information can in turn be used to create customized products and services. During recent months, a team has been commissioned by the Board of Management to examine the further opportunities and potential offered by big data. For example, big data concerning driving styles could lead to the creation of completely new car insurance models. Telematics systems can enable insurance companies to offer discounts to drivers who operate their vehicles safely, says Dr. Ingo Telschow, Managing Director of Daimler Insurance Services GmbH. As a result, rates could also be matched more accurately to the actual risk associated with each driver. The type of Group-wide data management system Daimler ultimately implements will play a decisive role in future developments. After all, customer data is generated not only at DFS but also at many other Group divisions. That s one of the reasons why DFS activities in this area are linked as closely as possible with those of the brand partner. For example, DFS has been involved in the Finance me and Move me systems at the Mercedes.me online portal from the very beginning. Data security and protection are also being actively addressed, since customer acceptance of big-data applications requires complete trust in the way the company manages its data. Example: Kreditech One company that is using big data very successfuly is the Hamburg-based Kreditech mini-credit platform. This platform offers an alternative to the established Schufa credit rating agency by calculating the creditworthiness of applicants on the basis of its own social scoring system. The concept is very simple. The more data that is available about a customer, the more accurate will be the prediction of that person s future payment history and the more precise will be the calculation of the appropriate credit line. The social scoring system utilizes data from evaluations (e.g. ebay), business portals and Facebook. Kreditech also collects and assesses information about the hardware used by applicants to submit their application (e.g. ipad, desktop computer), how much time it takes them to fill out the application form, and the number of times they hit the backspace button or make mistakes. The company processes up to 8,000 individual bits of information in this manner before making a credit decision. The potential of this startup is huge; the company has already taken in several million euros from interested investors in the initial rounds of venture capital financing. *ecall (emergency call) In the event of a serious accident, the vehicle(s) involved will automatically send location data to an emergency call center via satellite and also establish a telephone connection with a call center operator. An EU regulation stipulates the mandatory installation of an ecall system in all new passenger cars and light trucks beginning in October 2015.
6 AUGUST 2014 Financial INSIGHTS SPOTLIGHT Brave new data world George Orwell saw it coming more than 60 years ago, when he famously described it in his novel 1984. We are being watched without even knowing it, more often than not. The data collected about us opens up huge opportunities. Blessing or curse? Consider the following two opinions. Pro Data, data everyone s always talking about data and Big Brother. I ve been collecting shopping bonus points for years now. What s the big deal? What do you think they ve been doing with all that information about what I buy and when? Do you know what I think? They re not doing much with it. I haven t noticed anything, anyhow. What I have noticed, however, is that my bonus points have given me several rewards. And even if companies send me unsolicited customized offers generated on the basis of the traces I leave behind on the Web or anywhere else who cares? If such offers are tailored to my preferences, they not only save me time and money, they also save money for the companies that can now optimize their products faster in line with my needs. And I just don t buy the argument that my data could be hijacked by criminals. In my opinion, I ve got a better chance of having a soccer ball land on my head in a fully occupied stadium. I ve got nothing to hide, and people who are up to no good are being caught much more often these days. Let s admit it: In the end, data is just data. It certainly doesn t change my personality. Con You might remember that several years ago there were protests against video surveillance on public streets and that the demonstrations were unsuccessful. Our images are stored even if we re not pickpockets, and the number of cameras out there is growing under the pretext that they are needed to fight crime. Even more disturbing is the fact that every click we make on the Web is stored somewhere out there in the giant data world. When I use my ATM card, the process is not only recorded but also interpreted and when I use the card in a store, I give out all kinds of information about my consumption habits. It s crazy! I haven t done anything wrong and that makes my privacy even more important to me. It s also not too difficult for unauthorized third parties to access my data and use my identity to do whatever they want to on the Web. Where do you think all this collection of data is leading to? Exactly! We re already at the mercy of nearly automated processes, which means it s becoming possible to control and manipulate us. Science fiction is becoming a frightening reality.
ECONOMY & BUSINESS Financial INSIGHTS AUGUST 2014 7 60 seconds for Asset-backed Securities Because Daimler Financial Services supports the Group s model offensive, it will finance or lease even more cars and commercial vehicles in the future. DFS expects to greatly increase its contract volume in the years ahead. However, this also poses a challenge, because the money DFS lends to customers must first borrowed from someone else. To do this, Daimler takes out loans for DFS from banks and issues bonds. In Germany, Mercedes-Benz Bank helps to refinance DFS by offering investment opportunities for private customers. Recently DFS has also been increasingly focusing on another refinancing tool: asset-backed securities (ABS). But what are they exactly? Asset-backed securities are receivables (such as those from ongoing financing contracts) that are sold to a company that has been established expressly for this purpose. The company converts these assets into securities, which it then sells to major investors such as insurance companies and money-market funds. During the term of the securities, the investors are not only paid interest on the capital they provided but also get their investment back in monthly installments. The main advantage of ABS for DFS is that whereas income from existing leasing or financing contracts is normally earned over an extended period of time, asset-backed securities immediately provide the company with lots of cash, which it can use as a basis for financing new business and thus for additional growth. A further advantage of asset-backed securities is that their terms are generally more favorable for DFS than is the case with conventional bank loans. However, a lot of work is needed to create the infrastructure for the sale of the assets and for regular reporting to the investors. ABS are used in many different sectors for example, credit card companies sell their receivables, and soccer clubs sell their future stadium income. Daimler Financial Services is already using ABS in Germany, Canada and the U.S. For example, Mercedes- Benz Bank s Silver Arrow 4 ABS deal resulted in the quick availability of 1 billion, which was realized from the sale of loan contract receivables at the end of 2013. As part of its growth strategy, DFS might employ this instrument in additional countries in the future. ABS are particularly appealing in economically difficult times, when other means of obtaining money, such as bank loans and bonds, are associated with high costs.
8 AUGUST 2014 Financial INSIGHTS ECONOMY & BUSINESS Piggyback Whenever Siegfried Krause crosses the Rhine River at the Iffezheim barrage near Baden-Baden, he feels he is returning to his second homeland. I travel through France all the time. Sometimes I know more about the weather along the Côte d Azur than about the weather outside my own home, says Krause, a truck driver from Bretten in Baden-Württemberg, with a smile. As he talks, his Actros 1848 passes the first French street signs. Krause has three ex works tractors securely tied down on his semitrailer. Krause is one of the approximately 5,700 employees of Wallenius Wilhelmsen Logistics. The present company is the result of the fusion of two Scandinavian shipping lines in 1999. Its core business is the provision of global transport and logistics solutions for manufacturers of cars, commercial vehicles, buses, and construction and agricultural machines. Its customers include almost all vehicle manufacturers, as well as car rental companies and operators of large vehicle fleets. In 2013 the company transported approximately six million vehicles in all. Wallenius Wilhelmsen has a fleet of roll-on/roll-off ships for intercontinental transportation. We manage the transshipment via our own 11 terminals, says Konrad Kurz, the company s Vice President responsible for the operation of the terminals and for land transportation via trains and trucks in the Europe business region. We use approximately 310 trucks in Europe alone, says Michael Berblinger, Director Transport & Logistics. The interview with these two managers is held in Ötigheim, Baden-Württemberg, from where half of the company s trucks in Europe are dispatched. The trucks often transport goods from a plant to a dealer. For example, Siegfried Krause loaded the tractors at their manufacturer in Mannheim and is bringing them to agricultural machinery dealers in Alsace-Lorraine. Other truck routes take goods to or from ships for transshipment, says Berblinger. Trucks from Germany often come to our terminal in Zeebrugge, Belgium, he says. For their return trip, they load vehicles that have been brought to the terminal by ship. Wallenius Wilhelmsen also provides technical services for many manufacturers. That includes initial inspections of ex works vehicles or small alterations made before vehicles are exported to certain countries, for example, Kurz explains. This kind of work is done at processing centers, which are located either in the terminals or on the manufacturers premises. In some cases the processing centers are located on independent sites, and that requires additional transport. This wide variety of tasks means that the fleet has to be administered with maximum efficiency. One of the ways Wallenius Wilhelmsen achieves this degree of efficiency >> From cars to agricultural machinery: Wallenius Wilhelmsen transports vehicles of all kinds and sizes shown here are vehicles being carried from the Mannheim plant to dealers in Alsace. France is his second home: Siegfried Krause mainly delivers goods to customers in France, and he is often on the road for days on end. New Actros tractor: WalleniusWilhelmsen employs more than 300 trucks in Europe most of them bear the Mercedes star.
ECONOMY & BUSINESS Financial INSIGHTS AUGUST 2014 9 Wallenius Wilhelmsen Logistics transports everything that rolls on ships and trucks, and with a great deal of logistical effort. So it s very important for this services provider to keep the administration of its truck fleet lean thanks to Daimler Financial Services and CharterWay.
10 AUGUST 2014 Financial INSIGHTS ECONOMY & BUSINESS is thanks to its cooperation with Mercedes-Benz Bank. Trucks bearing the Mercedes star make up the major part of the company s fleet, and for years now all of them have been procured with the help of Daimler Financial Services (DFS). Flexibility is especially important for us, and we ve got it with DFS, says Kurz. He s referring to the various procurement models that are available to DFS customers and to the flexible structuring of contracts, especially their duration. Last year Wallenius Wilhelmsen used leasing contracts to integrate almost 40 new Actros tractor-trailers and car transporters all of them equipped with Euro VI engines into its fleets in Germany and Poland. For a fleet that is distributed across several countries, we have the advantage of operating internationally through our national subsidiaries, says Fritz- Martin Hüttemann, a leasing and financing advisor at Mercedes-Benz Bank who has been working together for years with the decision-makers at Wallenius Wilhelmsen. The company also relies on Mercedes-Benz for maintenance and repairs, and it uses CharterWay Service Complete for all of its trucks. We keep our fleet young. At the moment, the average age of our trucks is 1.7 years, and we resell our trucks after five years at the most, Berblinger explains. This policy reduces the number of days the trucks spend at the workshop, and the trucks high quality is maintained. If there is ever a problem, we can depend on the dense network of Mercedes-Benz workshops, he adds. The network stretches throughout Europe, and that is very reassuring for Siegfried Krause and his colleagues, whether they re working on the Côte d Azur or somewhere else on the continent. An experienced team: Michael Berblinger and Konrad Kurz from Wallenius Wilhelmsen Logistics with their advisor Fritz-Martin Hüttemann from Mercedes-Benz Bank (left to right). The Wallenius Wilhelmsen company s fleet comprises 60 ships of its own. It has access to a further 70 ships thanks to a holding in another company.
ECONOMY & BUSINESS Financial INSIGHTS AUGUST 2014 11 Further growth In the second quarter of 2014, new business at DFS grew by 12% compared to the same period of last year. In the second quarter, Daimler Financial Services concluded around 328,000 new leasing and financing contracts worth a total of 11.5 billion. As a result, the company s new business rose by 12% compared to the same period of last year. Contract volume reached 88.1 billion at the end of June, representing a 5% increase on the figure at the end of 2013. EBIT amounted to 336 million (Q2 2013: 319 million). In Europe, DFS concluded around 181,000 new leasing and financing contracts worth a total of 5.6 billion a 9% increase on the same quarter of last year. In Germany, new business rose to 2.7 billion (+4%) at Mercedes-Benz Bank, and the volume of deposits in the direct banking business amounted to 11.2 billion (-1%). Contract volume reached 38.6 billion in Europe at the end of June, representing an increase of 4% compared to the end of 2013. In the Americas, DFS boosted its new business by 10% to 4.2 billion. In the U.S., this figure rose by 16%. Contract volume in the region amounted to 36.6 billion, an increase of 6% over the level reached at the end of last year. New business rose by 28% to 1.7 billion in the Africa & Asia/Pacific region. In China, Business development Q2 2014 (30.06.) New business (in millions of ) + 12% 11,515 10,292 2013 2014 Contract volume (in millions of ) +8% 88,084 81,404 2013 2014 EBIT (in millions of ) +5% 319 336 2013 2014 the company more than doubled the value of its newly concluded financing and leasing contracts, increasing their volume by 140% compared to the second quarter of 2013. The AAP region s contract volume amounted to 12.7 billion at the end of June, and was thus 10% higher than at the end of 2013. In the insurance business, DFS brokered 1% more vehicle-linked policies in the second quarter than in the same period of last year. During this period, the company concluded around 340,000 insurance contracts worldwide. In the second quarter, the flexible mobility concept car2go was launched in Florence, Italy, and in South Bay, Los Angeles County. At the end of May car2go withdrew from its two British locations, London and Birmingham. As a result, car2go was represented in 26 cities at the end of June. car2go had 780,000 customers worldwide at the end of the second quarter an increase of more than 30% since the end of 2013. Digital wave of success mymbfs App reaches milestone of 100,000 downloads. Daimler Financial Services Africa & Asia Pacific has reached an important milestone with over 100,000 downloads of the popular mymbfs App to date. The mymbfs App allows users to locate the nearest Mercedes-Benz dealer, contact a customer service representative, determine a monthly payment amount on a Mercedes-Benz of their choice and see current promotions from DFS AAP. Another key achievement was the near 250,000 unique visitors to the industry-leading Financial Calculator in just over five months. The mobile device-friendly calculators allow users to easily browse vehicles of their choice and find out the monthly finance or leasing rate all at the tip of their fingers. Looking forward, DFS will continue to enhance its digital offerings. Plans to integrate the mymbfs App with online account management are currently being rolled out across the region. This will give existing customers the added ability to manage their automotive financing in a secure manner from any smartphone or tablet device.
12 AUGUST 2014 Financial INSIGHTS ECONOMY & BUSINESS The right people with the right mindset In the automotive industry, you cannot say growth without saying China. China is a market of 1.3 billion people that has seen luxury vehicle sales increase more than tenfold in the past 10 years. With future predictions only seeing this development continuing, managing this growth will be the key to being successful in China. Today, everyone at Daimler knows the importance of China. In the past ten years alone, Daimler s passenger car sales grew from just over 8,000 to more than 200,000 per year. If this growth continues China is set to become the largest vehicle sales market in the world for Daimler. The story is similar when it comes to Financial Services: Between 2006 and 2013, the portfolio in China increased from 81 million euros to 2.6 billion euros, making it the sixth largest market for DFS. This growth not only creates tremendous opportunities for our business. It also brings a unique set of challenges, says Alexandre Mallmann, President and CEO of Mercedes-Benz Auto Finance Limited. One of these challenges is trying to change customers buying preferences. Traditionally, China has been an ownership market where customers prefer to pay cash. As
ECONOMY & BUSINESS Financial INSIGHTS AUGUST 2014 13 the market grows, customers are becoming more open to financing with a preference toward retail financing solutions that focus on ownership. This is why leasing is a relatively new concept in China. In fact, two years ago it was MBAFC that became the first auto finance company in China to launch a dedicated leasing company (Mercedes-Benz Leasing Company). This year they became the first auto finance company to launch a nationwide leasing product called Agility that gives customers the option to either purchase, trade-in or return their vehicle at contract end. With credit acceptance increasing among the younger generation, it allows us to introduce new and innovative financing products like Agility, says Mallmann. But we know this way of financing is a new concept for our customers and dealers so we need to take extra time and effort to educate them so they understand the benefits of a product that does not always end with owning the vehicle. Trying to change an entire population s way of thinking about vehicle financing is no easy task. But by introducing a game changing way of financing vehicles, MBAFC hopes to capitalize on the younger customers and open up financing to an entire new market of customers. Obviously, it takes a great team to manage this growth while continuing to meet customer needs. As Alexandre Mallmann puts it: I am a strong believer in having the right person in the right position with the right mindset. But the auto finance industry in China is still young and it is growing quickly. Ten years ago, there were only a handful of auto finance companies in China today, there are more than double, plus increased competition from banks and other financial institutions. All that means that the competition for talent is increasing and finding the right people with the right education and work experience is not as easy as in a market where financial services have been around for many years. As a result, the workforce at MBAFC is very diverse: On the one hand, there are local Chinese employees who, like the market, are relatively new to the auto financing business, but who are eager and willing to lead the change with passion and local insights. On the other hand, there are foreigners from ten different MBAFC became the first auto finance company in China to launch a dedicated leasing company. Aim is to open up financing to an entire new market of customers with innovative leasing and financing products. countries who offer experience from other markets that support managing the challenges that come from developing an emerging market into a mature one. Accordingly, there is a strong emphasis on team development at MBAFC. Many initiatives have been introduced to ensure they are retaining and developing their top talents as they prepare to become one of the top markets in the world for DFS. It is important that we all work together to create a common mindset. We need to appreciate our differences and use them to come together as one team to achieve great results, says Mallmann