Anyone looking for the largest financial arm of an automaker inevitably comes across Volkswagen Financial Services (VW FS). With 313 billion euros in assets under management, VW FS is well ahead of Toyota Financial Services (269 billion euros) and BMW Financial Services (165 billion euros), according to zeb.research.

The development comes at a time of major change: many captives – the industry term for auto banks – are currently undergoing strategic repositioning. They are moving away from being just a sales financier toward becoming a comprehensive mobility and service provider. Volkswagen too is aligning its financial arm with these new demands. The aim is to more closely integrate financial services with the group’s overall strategy, while addressing both regulatory and market requirements.

In 2024, the Volkswagen Group generated revenues of around 325 billion euros, ranking it number one among global automakers. At the same time, VW FS manages more assets than any other captive finance company. These figures highlight the central role VW FS plays within the group – strategically, financially, and operationally.

The restructuring of the financial division, initiated in 2023, is more than an internal reorganisation. Its centrepiece is the creation of an ECB-supervised financial holding company for the European business, which will consolidate most European subsidiaries and investments. At the same time, the current VW FS will be transformed into a holding company for non-European activities. The goal is to leverage the strong refinancing capabilities of Volkswagen Bank – which holds nearly 56 billion euros in customer deposits – more effectively to drive leasing growth in Europe.

For Klaus Strenge, a partner at zeb.research, the shift is obvious: the role of auto banks is fundamentally changing. „Manufacturers are no longer using their captives solely for sales financing – the business is evolving into that of a mobility service provider“, explains Strenge. These units are becoming strategic hubs within the group, responsible not only for leasing and credit but also fleet management, maintenance, subscription models, and charging infrastructure.

This development, notes Strenge, is not just a response to market trends but a deliberate transformation: the financial subsidiary is becoming a key enabler of new business models, such as subscription services and robotaxis. VW FS itself emphasises this ambition: „Volkswagen Financial Services play an important role in the Volkswagen Group’s strategy with their financial service products and are driving the transformation into a mobility provider“, says the company. As a leading auto bank, Volkswagen Bank is also among the top three direct banks in Germany in terms of deposits.

A look at the balance sheet shows how the model is structured. At the end of 2024, asset-backed securities (ABS) accounted for about 28.4 billion euros (19%) of VW FS’s funding mix, unsecured bonds for 46.5 billion euros (31%), and customer deposits for nearly 56 billion euros (37%). „Volkswagen Financial Services’ refinancing strategy is based on diversification, with careful consideration of costs and risks“, explains the company. Deposits at Volkswagen Bank alone grew by 18 billion euros last year – an increase of nearly 49%. According to Strenge, this structure is a competitive advantage: „For VW, refinancing through deposits is cheaper than, for example, issuing bonds.“

Still, the apparent profitability of captives should be viewed with nuance. Strenge warns against interpreting the margins in isolation. „Many of the seemingly impressive profits are based on cross-subsidisation by the manufacturer“, he explains. Subsidised interest rates for leasing contracts – a common tool to make vehicles more attractive – are recorded within the group but appear externally as captive profits. „For the manufacturer, this is often cheaper than offering direct price discounts“, says Strenge. This internal pricing mechanism gives captives another edge over external providers: many subsidies are only available through authorised dealers, keeping the system closed to outside competition. In this sense, Strenge says, the model is „a closed ecosystem with built-in barriers to entry.“

A core strategic strength lies in platform capability. According to zeb.research, multi-brand captives like VW or Stellantis find it easier to implement centralised solutions than specialised providers do. This translates into operational advantages: access to scalable IT structures, centralised management, and cross-brand data models lead to efficiency gains and greater strategic flexibility. The complexity of such a diversified group only makes the role of financial services as an integrator all the more important.

But risks are looming on the horizon. If autonomous driving reaches scale, the private owner segment could gradually disappear, as consumers shift to using ride services instead. In its place, new customer segments such as mobility platforms or fleet operators would emerge – with different financing needs and potentially direct access to capital markets.

In this scenario, the traditional captive sales financing model could come under pressure. „If autonomous vehicles displace private customers, captives will lose part of their traditional customer base“, Strenge says. But that does not necessarily spell the end – rather, a transformation: the future will belong to those that reinvent themselves and rethink their role in mobility.

For now, market leader VW FS remains robust – operationally, structurally, and strategically. The transition to a European financial holding company, combined with global market access and a diversified business model, provides the resilience the company needs to compete in a rapidly changing market. One thing is increasingly clear: yesterday’s auto bank is now a company within the company – with growing influence over an automaker’s strategic direction.