Porsche Leasing Ukraine CEO Josef Graf: "We believe in the future and in Ukraine!"

Mr. Graf, your company has become a member of the A. immediately after setting up a business in Ukraine. Nobody had to persuade you to do it, which is not typical for Ukraine. Is that so due to your former experience in other countries which proves the necessity for the lessors to unite in order to stand for their rights and share experience?

It’s a principle of the Porsche Company. We’re trying to stay as close to the market and to the competitors as possible. Whenever we are entering a new market and we see an association which represents our interests or parts of our interests we join it. We want to take part, to share our experience, which is highly valued, especially in the European countries, where our positions are strong and our competitors appreciate it when we share our experience with them.

Your company’s position in the union is very active and we appreciate that a lot. Which activities do you think are the most crucial for today?

This is a very good question. For today I see one major issue I want to be solved and this is the auto statistic side of our business.

Every quarter we have the possibility to purchase auto consulting and we definitely make use of it, but it is just a look around. I think it will be great if all the companies would give out the auto statistics so we could have an analysis.

I think the best information is the one we have inside the companies. I’m ready to give all the figures up to the last detail and I expect my colleagues to do the same. The best solution will be to report it all to the union and to get back the monthly or quarterly statistics. I hope that members of Association will support my proposal.

I would also mention the lobbying direction where we need to make steps ahead in the legal framework for the acceptance of leasing in the financial market.

Now let us move on directly to your company. You hadn’t been here for a long time when the world financial crisis started, which didn’t stop you. In fact it looks like you even got more excited in the tough situation. Currently we’re receiving all the optimistic information and new products only from your company. How do you manage this? You’re moving forward as all the other companies are simply trying to maintain positions.

Luckily we joined the market in a very good moment. We started preparing our business in the early 2008, but we became operational autumn 2008, and this means we didn’t have a big portfolio, a big number of existing contracts like all the competitors did and it is still a major problem for them to manage this existing portfolio with the contract one, two, three, four years old, they have all this impact from the crisis, especially the currency exchange rates.

We didn’t have these problems so we could start from the beginning. This was a big advantage as well as the problem with credit financing. All the banks stopped giving out money or increased the rates. All these circumstances weren’t very helpful to our competitors, which led us to as very strong starting position for the time after crisis. Some day the crisis will be over, and then we’ll have a real market where we would really be able compete. What we have nowadays is no market in the end, so it’s easy to become the strongest car leasing company with no competition.

You are constantly bringing in new clients, so the question is how you manage to diversify the risks for the new deals, since today a lot of people sometimes are not able to pay the money. Is there a large amount of debts on the deals?

Well, we don’t have a serious problem with debts. Right now we have around 500-600 clients and we have out of them around 5-10 problematic clients, which is nothing. As for the risks, we take care about that already in the applications. We have a very developed evaluation system, the main aspect in which is that we accept only the proof able, official sources of income. This is very important. I think lots of bank acted in a different way in the past, and now they have the problems. In Ukraine there is a very big floating amount of cash, which results of black business. It’s not declared and nobody can prove that these sources will be available tomorrow. The legal money which comes from the business contracts or figures is the basis for our decision, nothing else.

You have recently announced the operational leasing. Why did you do it? What are the other products that we should be expecting soon?

Our main line, our main product is the financial leasing, which is very attractive from the economic point of view. Here we’ve got private customers as well as corporate customers and this makes approximately 99% of our contracts.

The operational leasing is in a very weak position due to a bad legal framework, especially the taxation situation, which is not useful for the private customers at all. Therefore, we use it only for corporate customers and sometimes for the international clients who are interested in this variant. They also say that this is a very expensive story.

What we intend to do next, to be very honest, is credit financing. We have this established leasing line, which works well and has a potential in the future, but it needs some more stable legal framework, which your union is working on. The much more accepted right now is the credit financing, a well learned tool which is simply not available in a wide scope now. That is why we founded another company (it’s not possible to combine leasing and credit financing in one company), it’s called Porsche Mobility and the content of this operation is the loan financing for car business. It’s also strictly focused on cars, on our cars – Volkswagen and Audi. We expect the relation between leasing and credit will be 20% leasing/80% credit.

So, as far as I understand, the operational leasing in our opinion will have a chance to develop only if the legal framework is changed?

Exactly. Right now it is very disadvantageous, but if you take a look at the international level, operational leasing is commonly used; it’s a very positive tool for lots of customers, corporate customers. In Ukraine – not yet.

Well, we’ve also heard that you started cooperating with new partners in the insurance area. Are you planning to introduce any new additional services such as new insurance partners to make the leasing services more convenient for the customers? Do you think such development is needed?

Yes, I’m convinced about that. This is a very important target for the future; our policy in the first phase of our work is to develop very strong and good partnerships and to focus on a small number of partners, which for the insurance business means three corporations-partners. They are Generale Garant, Credo-classic belonging to Uniqa Group and Ukraine Insurance Group belonging to Vienna Insurance group.

So, we concentrate our business on a low number of partners and the intention behind this is to add some impact to the quality development in the insurance business. What we find here, in the insurance business, to be fair, is not very good quality. It’s something but it’s slightly away from the European standards. We want to see them growing, and we want to grow together with them. In a long run it’s also thinkable to establish our own insurance company; we are used to doing this in our big markets, like in Romania, like in Austria, like in Hungary, where we already have our own insurance companies. It’s all good business.

Another part, another aspect of these additional services is fleet-management. We provide such services ourselves in other countries where we are present and this is also target for the future in Ukraine. Right now we decided to concentrate only on financing and do it as strong as possible because here we have to compete with the banks. We feel our competitors not in the scope of leasing companies but banks, banking business. Therefore we want to position our products directly against bank offers and banks are not offering fleet-management or insurance or anything, they offer the naked financing. The customer is comparing the monthly rates, so this is what we want to show – we want to prove to the market that are rates are good enough or probably even better than most of the banks’.

The mass media told us about the events you were organizing for the partners. This means that you’re trying to do a lot of networking in order to establish better relations with the partners and friends. This is an issue of business environment. Please tell us which networking tools and skills are you using today and how is business environment different in Ukraine and, for instance, Austria, in these terms?

This is a very global issue, you know. So, first of all, I’m very convinced in this social networking, as you say. I believe this professional networking is one of the basics of our success, especially if you speak about the relations with partners, by which I mean the dealer partners. The dealers are selling our products, we have no sales force, we don’t have any branches anywhere.

You see these points over here? (Mr. Graf points at the map hanging on the wall of his office. The map is all covered with red and blue points). There are about 50 of them, each point represents a dealer. We need to be closely related with them, we need their trust, especially because leasing is not accepted as a financial tool at the market, not well accepted.

If you take a look at the statistics, the share of lease financing in the auto market is approximately 1.7%. This is nothing. In all the other countries where we are present the share of lease financing is between 50 and 70% of the total market. Here everything is covered by credit. So, we are depending on the trust and loyalty of our dealer partners to establish leasing as a financial tool in order to sell our products. We are working intensively on this level of relations, but not only with the dealers, also with the suppliers.

Talking about the difference between the countries, it will take hours to describe. I can tell you some experience, because I worked in Austria and also for five years in Serbia. Now I’ve been working nearly for 2 years in Ukraine. I should say that this country is much more open for establishing such new relations, then in Austria for example. You know, Austria has a well developed business history of 50 years after the war, everything is on its top level of quality, everything is very professional, everything is well developed, well established: the institutions, infrastructure, legal framework, justice – everything is fine. This makes a difference in Ukraine – here many things just start to grow, and this results in lots of restrictions. Take the problem with the legal framework. On the other hand, however, here you have much more space for progress then in old developed countries. So, the dealers or the partners we try to get in good relations with, they are ready to cooperate, though they are more oriented for this personal communication than for professional cooperation. We need both – the professional and the personal side.

If possible could you tell us about your financial result this year so far?

To be very honest, we have produced major losses this year so far. As you can imagine, although we have these 500-600 contracts, we have some great costs. We will be able to reach our break-even point if we make between 3 and 4 thousand deals. This means we’re far away from getting profitable. We expected to become profitable next year, but today nobody knows what will happen tomorrow, so it will take some more time to reach the break-even. But it is a part of our strategy, a part of our plan – we invest into the market.

We believe that you’ll recover, you’ll become profitable.

Based on such a small number of contracts – it’s impossible. And you can also see that we run our products on a very competitive level. Our interest rates are very attractive, starting from 12,5%, which can be compared to banks having 22-25%. So, you can see there is a big difference in profit, in margin. I think large interest rates ruin the economy for a long time. But we trust in the future, we trust in the market, this is why we’re staying here with a low level of interest rates. Yet of course it will take more time to become profitable than we thought.

So, right now you’re investing and waiting?

No, we’re investing and acting! (Mr. Graf laughing).

The recent merge between Porsche and Volkswagen has been the making of the headlines. Did that affect your company and if so then how?

It’s difficult to answer. You see, the deal is quite young, the merge is primarily agreed between Volkswagen HE and Porsche HE, the car manufacturers in Germany. Porsche Holding, to which we belong, with its headquarters in Salzburg, Austria, is so far absolutely independent. It’s an absolutely independent legal unit, a very big one, the biggest car dealer in Europe, selling around 500.000 cars each year. What these companies (Porsche HE and Porsche Holding) have in common is the shareholders structure – the members of the Porsche family maintain the shares in both companies.

In this recent merge it has been agreed to sell Porsche Holding to Volkswagen as well, which is now influencing our positions in an extremely strong way. But to be honest, nothing is clear so far as we don’t know any details of the deal. I believe, it will influence us in the future. But everything will be clear in the couple of months.

I perceive it as a big chance: together we are going to form the biggest automotive group in the world! This will open lots of new chances, for the group in general, and also particularly for our further development in Ukraine.

Mr.Graf, how do you see the future of the leasing market? Do you think all companies are going to survive? When will the crisis end for this particular market? What do you think shall a company have in order to survive the current tough times? Your prediction about the market’s future?

Generally, I think it is now the best time for the development of leasing. And this is what we’re playing on. But, as a matter of fact, most of our competitors need to stop their business because they run out of funds. We don’t have these limitations. Certainly, we do have some limitations of how much we can spend; it is decided by our shareholders. I think we could achieve much more if we had unlimited resources, but we don’t.

I also suppose that most of the participants will survive this situation, at least all of those who will be able to reduce their costs. I was really surprised when I talked to my colleagues who run huge structures with too many employees. This is not compared to our experience in other countries. If you run a portfolio of 3-4 thousand contracts, you don’t need more than 30, maybe 40 people. It’s much less than what I can find in Ukrainian companies. So, I reckon all the companies must work very efficient in order to cut costs.

Second thing which has a great influence, from my point of view, is where you get your funds from. Here I think the companies with foreign capital are advantageous. They will recover earlier then the local ones. Because I expect that crisis is ending or at least the positive aspects are becoming more certain in the Western Europe then here. All in all, I think all the top 10-15 companies are going to survive the situation. Talking about development at all, now it’s time to prove leasing is strong. In our brands we have a share of leasing of around 15% (which is 10 times more than average on the market). It’s even 3 times more than we have credit financing on the market; this means that the tool is accepted, we’re on our right way and this is what we’re working strongly on – promoting leasing as a serious alternative to credit financing. I’m convinced now it’s time for leasing and we’ll never lose what we win now. As soon as we have a change in our legal framework, we’ll face a big push in developing leasing in Ukraine.

So, Mr. Graf, we’ve talked much about the market, about your company in it, now we’ll be delighted to hear more about you. Tell us your success story.

I don’t know if it is a success story, I guess it’s just a story of personal preferences. The crucial aspect behind this is that I always love what I’m doing. If I can’t say I’ve fallen in love with my profession, I change my profession. Under specific circumstances, including the fact that I’m Austrian and I live in Ukraine, I reckon it’s very important that I have a strong family behind me. My family lives in Austria, so I go to visit them every second weekend and this has been like this for the last 5-6 years. This means something, this proves they are strong. My family is 100% managed by my wife and I take the professional side.

We would also want to hear about your steps up to here. How did you go all the way up to this position?

So, I started my professional career in Porsche. I’m working in this company for 27 years now. My first position was a programmer, I was creating computer soft for car dealers. I’ve been occupying 20 different positions throughout these years: I was responsible for financing issues, for trading issues, for dealership issues and so on. Then there was a big step outside Austria when I went on to work in Belgrade, Serbia, where I took over the responsibility to import the Porsche cars. I worked there for 4-5 years, where we made a breakthrough in terms of our market share, and I was responsible for all the group’s brands except Skoda. So, it was my story and a really good experience for me.

As a next step Porsche decided to enter the Ukrainian market, and I was asked to run this company. I should say this was a great challenge for me – new country, new products. But the very first time I landed in Ukraine – I felt home immediately. Ukraine is a lovely country, Kiev is a great city, people are wonderful, and they are very forward-oriented, it’s a pleasure to work here.

Well, I think it’s a success story.

Большое спасибо. (It was very surprising to hear Mr. Graf say that in Russian).

I’ve got one final question to ask you. What would be your advice to: the government, to your fellow lessors, to your clients?

Honestly, I don’t feel able to give my advice to the government. I can just give them a wish. I think it will be great to reduce administration. We have to fulfill a lot of administrational issues and tasks, which is unnecessary from my point of view. It’s just influencing the situation with the corruption. It is my biggest wish to reduce administration.

What do you think needs to be done? Do you think all the papers should be changed into electronic?

That would be a good solution. And I would also try to cancel a lot of regulations, which are not necessary. For instance, if you drive a car, you need to fill this daily driving order. There are lots more examples.

For competitors I would wish that they would promote leasing as a product. We would all benefit from it. This means not only promoting ourselves as companies, our own products, which is also very important. But we need to prepare the market for the new step in lease financing. For example, we’re preparing series of press-releases, in which we describe the advantages of leasing, compare it with the European market.

I would recommend to the potential clients to go and visit their car dealer. I think the prices are lowest right now. As an impact of the crisis many dealer had a large stock and for a long time they couldn’t sell it. So they went on to reducing the prices and now we have and unbelievably low level of prices. We even have some requests from abroad: from Germany, from Spain – people call us and ask if it is possible to purchase a car, an expensive car, a Touareg here and transfer it to other country, because they cannot get it anywhere in the world for such a low price. And if someone wants to lease a car – that will be a good idea to come to Porsche Leasing.

I’ve heard that every fourth car in Ukraine is leased in Porsche Leasing. Is that true?

Every fourth leased car! I wish it were every fourth car in Ukraine…

Thank you, Mr. Graf!