When people talk about their new BMW, they are most likely bragging about a sleek, pricey car. But nowadays they could just as well be talking about a bank account.
In a move that would be unexceptional in Europe but was somewhat curious here, the high-end German automaker opened a bank in the United States in March. BMW Bank of North America is based in Salt Lake City and offers a range of deposit accounts, card products, insurance, and not surprisingly vehicle financing.
The branchless bank conducts business by Internet, mail, and telephone and has amassed $179 million of assets since it was chartered last year as a Utah industrial loan corporation.
The target customers are BMW owners, who are told in a welcome message on one of the banks Web pages, We want to be your main financial institution.
This is not a new concept with us, said David W. Paul, president of BMW Bank of North America. He pointed to Bavarian Motor Works auto financing programs in the United States and Europe, as well as its European online bank. We have successfully provided financial services for years.
Even so, the idea of a bank specifically for people who own beemers is a little odd. No regular commercial bank would even consider going into the auto manufacturing business, yet somehow the reverse situation seems less jarring.
Indeed, BMW is not the only car company that has become one of what American Banker is calling the New Bankers. Volkswagen has established a bank in Germany, and another German automaker, DaimlerChrysler AG, announced this month that it would open DaimlerChrysler Bank in Germany, which will offer a comprehensive package of banking services and new financial products that go beyond traditional vehicle leasing and financing, including deposits, loans, and investment funds.
In the United States, General Motors Acceptance Corp., the financial services subsidiary of General Motors Corp., chartered a bank in April. GMAC, which has $20 billion of annual revenue, and Ford Motor Co. have offered auto financing for years.
BMWs experience in financial services dates back to 1980, when it opened a European lending operation that offered financing to its car customers. The American equivalent, BMW Financial Services NA was founded in 1993, and BMW Bank is a subsidiary. BMW Financial Services has $11 billion of assets and 320,000 automotive lending customers in North and South America.
BMW also has a German online bank, which can be found at www.bmwbank.com. English-speaking customers can go to www.bmwusa.com.
What is different about BMW Bank is the narrow segment of customers it hopes to serve. The bank is exclusively seeking people who have bought or plan to buy the companys vehicles, which cost between $30,000 and $100,000.
Conceivably, people who cannot afford BMW cars could sign up for BWMs banking services because of the cachet, but the company does not expect such a groundswell.
We are not looking to be a mass player in the broader banking arena, Mr. Paul said. We are following the lead of our automotive parent in providing a performance-driven and niche-specialized product, and we are trying to complement that with our financial services.
BMW Bank considers its Visa-branded credit cards to be a flagship product, and offers several fancy types. The BMW Ultimate card lets people collect points that they can redeem for things like airline tickets, BMW merchandise, a reduced interest rate on a BMW loan, or extended miles on a BMW lease. The BMW Visa Signature card offers airport valet service or guaranteed airport parking, among other things.
The bank may branch out into home equity loans and possibly mortgages, but Mr. Paul said it will always stay focused on BMWs small, high-end customer base.
It is a very small niche, but one with a strong affinity for the BMW brand, he said. It is a higher-net-worth owner.
Experts said that chartering a bank and offering financial services to customers is another way to draw BMW drivers closer to the company, potentially developing a lifelong selling relationship with them.
The more links into a customer that you can get through your products and services, the more loyal they will be over time, said Richard G. Barlow, chairman and chief executive officer of Frequency Marketing Inc., which is based in Cincinnati.
On the other hand, Mr. Barlow said, BMW would have a hard time making inroads through its credit card, which the bank hopes to do. The credit card market is saturated with strong, skilled, and established competitors, he said, and it is especially saturated with competitors with strong loyalty propositions in place.
BMWs universe of potential customers is quite small. Mr. Paul said there are 1.5 million BMWs on roads around the world today, and BMW sales represent less than 1% of the U.S. car market, according. Unlike GM and Ford, he added, BMW Bank will market its financial products only to BMW owners.
Last year BMW sold 155,000 cars worldwide, and the bank said its automotive parent will sell nearly 180,000 this year. Half of the companys new car buyers enter some form of financing relationship with BMW, the bank said.
According to experts, these customers are the natural targets for cross-selling the banks other financial products.
Laura Starita, a senior analyst for GartnerGroup in Raleigh-Durham, N.C., said the bank is an extension of the financing relationship the automaker has already formed with customers. BMW is saying, How about taking a credit card, or letting us manage some of your assets, or give us some deposit cash? We already have your auto loan.
BMW Bank seems to be relying on the pride and loyalty of the car owners, since the bank is not particularly convenient to do business with and does not particularly try to compete on rates.
The bank does let customers get cash through a national network of more than 350,000 automated teller machines, and will rebate up to four ATM surcharges a month. Customers receive a BMW Bank debit card, and the bank advertises on its Web site that a customer need only maintain a $100 minimum balance to earn high interest rates. The bank also offers an affinity credit card, interest bearing checking accounts, savings accounts, and certificates of deposit.
Customers can apply for auto financing online, but they must close the loan at a physical dealership. Dealers, in turn, are supposed to act as an additional marketing arm for the banks products.
Generally speaking, auto financing is tremendously important to the car industry, and for BMW the new bank serves as an additional channel for car loans and leases. You cant separate the selling and financing process, Mr. Paul said. Customers are extremely payment-driven, especially in our luxury segment, where leasing plays a big part.
Ms. Starita of GartnerGroup said that automakers rely on their lending programs for profits. The financing gives car companies an annuitized revenue stream in spite of fluctuating car sales, she said.
If car sales are slow in a given year, the company can still rely on the revenues provided by interest on loans from past years, Ms. Starita said. In BMWs case, the cost of financing auto loans becomes less expensive, because the bank can fund the loans from customer deposits instead of cash reserves, she said.
While BMW is just one of many nonbank companies that has leapt into financial services, the question lingers: Why would people want to do their banking with a car maker?
Paul Pustorino, the head of financial services for depository institutions at the Grant Thornton consulting firm in Boston, said it is convenient for BMW owners to consolidate their finances with the company that holds their auto loan. Ease of use will be very important going into the future, he said.
Other industry experts argue that BMW Bank will have to offer top-notch financial services or risk diluting its brand appeal.
Paul Jamieson, an analyst for Gomez Advisors Inc., a Lincoln, Mass., research firm that specializes in e-commerce, said it remains to be seen if a company like BMW that sells high-performance automobiles can extend the brand with same positioning into personal online banking.
The bank could be a risk to BMW if its financial services do not meet the high expectation levels consistent with the performance of their automobiles, Mr. Jamieson said.
Anne Marie Sylvester, a spokeswoman for GMAC, BMW Banks largest competitor, said the customer base BMW is going after may be too small. There is a huge difference between us and BMW, she said.
Just the primary customer base for GMAC Bank GM employees and retirees and their family members numbers in the multiple millions, she said, and the banks products and services are open to anyone who wants them. BMW does not have that potential stretch, Ms. Sylvester said.
Mr. Quittner, a former American Banker reporter, is a freelance writer in New York.
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