Diversifying the balance sheet is my biggest strategic priority: Steinsky

George Steinsky has some clear goals for 2017.

As the new president and CEO of Hyundai Capital Canada (HCCA) – the third man to hold that title in the last two years – the finance industry veteran is now at the helm of the youngest captive in Canada.

With that infancy comes plenty of optimism though, as growing volume from both Hyundai and Kia in 2016 coupled with the launch of Genesis has management putting a lot of effort behind developing a diversified balance sheet and growing the team on the ground.

Steinsky, who previously headed up sales and marketing at HCCA, has been with the captive since its inception. Many would also likely know him from his days at RBC where he held senior roles in commercial banking, product, strategy and sales for more than a decade.

Shortly after assuming his new position at HCCA, he sat down with Canadian AutoWorld for a discussion about the auto finance industry, long-term loans and opportunities he sees in the marketplace this year and beyond.

Canadian AutoWorld: You have been with HCCA since the beginning, but what is the biggest difference you have found between working for a bank and working for a captive?
George Steinsky: The biggest difference is the overall objective.

We have financial targets here and we have to grow the book and make money while we’re doing it, but the over-arching reason we are here is to help Hyundai, Kia and Genesis to sell cars. That is not necessarily the overall desire or function of a bank.

When I was at RBC, I had relationships with several automakers and the goal was to profitably grow the overall balance sheet. It really didn’t matter with what brand or whether it was simply through our standard business.   Here, the focus is much more on the brands and trying to create a branded experience throughout the ownership cycle. That focus on loyalty and retention, as opposed to only growth, is very exciting.

We know about the leasing products, but where else is HCCA growing?
We have floorplan in a pilot program right now with two dealers from each brand.  The pilot started last year and should be a great first step for us to expand into that commercial space.

One of my biggest strategic priorities in 2017 is to start diversifying the balance sheet. There is a lot of risk to being a lease-only organization, so we need to get some subvented retail going with one or both of the brands, in addition to growing that commercial book.

What timeline are we looking at for the commercial book?
We have an aggressive plan to win over a third of the dealers by 2020. Between Hyundai and Kia, there are approximately 403 stores in Canada; we’d be pretty happy if we had between 80 and 100 by 2020.

And you have a perfect opportunity to expand into real estate loans as the dealer networks for both Hyundai and Kia are working through image programs right now. Is that an area you are investigating?
Yes. Real estate is perhaps a place we can carve out a little bit of differentiation from the bank. Banks are traditionally a little more conservative on the real estate side in terms of loan-to-value.

We’re looking at potentially using real estate loans as an opportunity to open up some doors on the floorplan side. That being said, we wouldn’t do those advances on a stand-alone basis. If we were going to do the real estate, we would want to get the floorplan.

One of the things I’d like to explore, though we haven’t talked a lot about it with either brand, is support or programs that the OEM might want to undertake to influence dealers to make those facility changes using the finance product. Maybe there is some form of subvention or backstop that would allow us to be more competitive on the rate/advance and help dealers complete the re-imaging more affordably?

Where do you sit in terms of lease penetration?
We don’t release specific numbers, but I can say we still want to grow it. I don’t think there’s an appetite for the brands, or from us as a finance company, to get into Japanese-level lease penetrations in the 35 to 40-per cent range.
If we could get to and maintain a steady state of 25 to 30 per cent, I think both the brands and HCCA would be happy.

And you have added Genesis recently to your balance sheet. I imagine those are predominantly lease deals?
Yes, but that volume will be small, at least to start.

Are there any industry-wide trends that concern you?
I wouldn’t say I am as concerned as the Bank of Canada, but I do worry about consumer debt levels from a credit quality perspective.

And, of course, long-term loans I think are still on everyone’s radar as an issue. I know there are different views on the extended term loans with some saying that cars now last that long, so why not finance them for longer periods.

I think if you take an academic view that cars are going to last 10 years, it is fine to pay them off over 84/ 96 months. But the reality is that consumers get sick of their cars after three or four years, and as with consumer electronics, the technology just keeps changing and improving. While it’s absolutely true that the asset quality is much better, I just don’t think most consumers want to keep cars that long.

I think as an industry, we should be asking buyers if they plan to drive the vehicle into the ground. If yes, then take a 84/96-month loan. If you want new, better or different, you should choose a shorter amortization or a lease.

And we are seeing some brands that have relied on those longer amortizations starting to lose volume with customers not coming back to showrooms within that usual cycle.

The longer amortizations are easier to sell than a lease because you still get a low monthly payment without all the terms and conditions of a lease agreement.

We have to ask if the consumer is being well served if they come back after 39 months to find out they are still thousands of dollars underwater.

I think there is brand risk and dealer risk. That’s why you need a good breadth of product and why you need to put the consumer in the product that is best for them.

If a customer wants to drive the newest and best, you shouldn’t be putting them in an 84/96-month term.

You’ve mentioned asset diversification and growing lease share, what else is on your to-do list for 2017?
We will be building capabilities and infrastructure. We stood up the company very quickly. Now we need to improve some of our customer service and consumer-facing capabilities. You’ll see some self-service functionality for customers online as a part of our digital investments.

We also have to make sure that when our business development managers walk into dealerships, they are walking in as Hyundai and Kia team members providing dealers with the knowledge and tools necessary to move the metal.

As a result, there will be some growth on the sales team as we put a new business development manager on the ground in Ottawa and add another one based in Winnipeg later in March.

That will take us to 10 across the country, and an average of about 40 rooftops per business development manager. I think I need to get that number down by another 10 or so rooftops per head, over time.

Overall, we are really focusing on dealer experience. We need to differentiate ourselves and carve out a spot; that all comes down to relationships and adding value.