Little known since its inception in 2008, The Car Finance Company surprised many in the industry when it walked away with the F&Is Lender of the Year award (see Must-attend F&I event). Now, however, it is ready to make some noise, with big plans, new funding, and a distribution model that needs to be seen to be believed. Fred Crawley and Richard Brown talk to the founders.
Subprime lender The Car Finance Company (TCFC) began four years ago, in the Southsea bedroom of managing director and founder Mark Smith.
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This summer it quietly walked away from the industrys F&I awards with the Lender of the Year accolade. Next year it plans to inject £66m into the UK market.
The company may be accelerating, and its recent life has been unconventional to say the least, but in its early days the company looked like many other motor finance start-ups.
With senior experience at First Response and Advantage Finance, including time as a broker-introducer and broker-consultant, Smith had started his own brokerage using lines of credit with various lenders.
Even when the market experienced a number of exits in 2008, Smith and his firm, now called The Car Finance Company (after Smith made the stunning discovery that no one had actually used the name before), were still standing and moved towards doing more lending rather than introducing.
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By GlobalDataIt was then that Smith took a chance that would eventually shape his companys entire model he opened a physical branch in a small corner shop in Portsmouth.
The move was inspired by the idea that car finance should be a directly approachable proposition, right there on the parade between the Indian restaurant and the charity store, and it remains a rarity in the industry.
The company took its next move forward when Smith met Andrew Walton-Green, a chartered accountant who had worked with Ernst & Young and then DeLoitte before being recruited as CEO for Gresham Computing plc. Walton-Green was looking for a UK-based position after a long time spent regularly travelling overseas.
Walton-Green joined TCFC shortly after meeting Smith, citing his appreciation for the companys focus on customer consideration, which he felt differed from the mainstream perception of subprime finance.
"We try to fix peoples credit. We want to help people who genuinely want to repair their credit," Walton-Green says.
Once installed as CEO, Walton-Green "put a plan together, and tidied up the business", while using his industry contacts to secure multiple sources of funding from block discounters.
Fares fair
The companys directors are proud of their customer service model. According to Smith, his company stretches beyond mandatory compliance in terms of treating customers fairly and lending responsibly, to a point where it provides a social good for local
people.
"Treating the customer fairly gets great repeat business," says Smith, who has kept some customers for 11 years, following him from one company to another. "We treat them like fare-paying customers."
"We look for people who are taking responsibility," explains Walton-Green. "We are trying to rehabilitate people in the non-prime situation who have the potential
to move back into the mainstream credit market."
Adds Smith: "We would be delighted if they then move to a prime lender. We will even introduce them. We certainly do a lot of recommendations, and we have a cabinet full of thank you letters."
Such an ethical method, both men are certain, benefits their company as well as consumers. With many lenders already tied up by constant bothering from claims management companies, Smith predicts the next round of "ambulance chasers" will be filing suits over quality of explanation.
"We make sure the customer is 100% informed about the product they are signing up to, and about their obligation to repay," he says. "The message is, If you are not sure, dont sign. Everything is in bold face, there is no small print."
This straightforward approach stems from the model of having a bricks and mortar shop that anybody can walk into and begin the process of financing a car purchase.
"We are very much of the high street," says Smith.
"We want people to approach us. Even though the majority of our business is introduced through dealerships, we still manage those sales all the way through and the customer is taken out of the car sales environment."
Although "90% of our staff are in-branch, in private, away from the cars", says Walton-Green, if needs be, the company will have a representative meet customers at the garage to help with financing.
"Even if customers cant come to a branch, it will always be a member of our staff people deal with," he adds.
Giving it 110%
The companys other variation on the standard subprime model is its willingness to fund more than the value of a vehicle, while other lenders in the sector tend to lend below the value of assets.
"We will pay the right price for a car," says Walton-Green.
"If it is the right car with the right dealer, we will pay 110%. It has got to be the right car and the right person, but we want dealers to be successful."
Both men are confident that they are on top of the risks presented by this strategy.
"Whats best for the customer is best for us," says Smith, "its not lip service."
TCFCs confidence in its risk management is founded on its underwriting process, which takes place in-branch, and with a maximum level of human contact with customers.
Smith explains: "We are meeting every customer. We are getting to know them and they must understand every term and condition in the contract or we wont lend money to them."
While the company could cut costs and man hours by not having the same level of involvement with customers, the company model is validated by a write-off rate of less than 0.5%, with a dilution rate of 0.15%.
Furthermore, in three years of lending, the company has taken just one customer to court, and only made three repossessions.
"We will suffer the cost because spending time with the customer is essential to us. We are looking at a long-term model," says Walton-Green.
TCFC also keeps interest rates paid by customers impressively low for a subprime business. According to Smith and Walton-Green, the aim is simply to make loans affordable enough that the customer can pay back as soon as possible. This is borne out by a maximum lending term of three years and an average term of 30 months.
The push north
Strategy aside, TCFCs immediate plans include £66m invested in the market in the next 24 months, as part of a planned expansion of the branch network.
The company, aiming for 20 offices within two-years, cut the ribbon on its fourth location in Chatham early in November. Further branches opening or hiring staff this month are located in Reading, Crawley, Bristol, Cambridge, Truro and Cardiff, with a projected swelling of employee numbers from 27 to 90.
With this sort of progress the company, which is 94% shareholder-owned, could well be bigger than Smiths former employer Advantage by the end of 2012.
Though the game plan may sound ambitious, both men hint that it is a conservative estimate of their growth.
"As long as we can maintain quality we can go faster," says Walton-Green.
After the next round of branch openings, the strategy is to "push north". Smith and Walton-Green have begun interviewing in Nottingham, Manchester and Merseyside. Both men have also begun talks with some "great" dealership groups in the past few months, with a view to gaining a foothold in the north.
A necessity finance company
While dealers account for 90% of the business the company writes, Smith and Walton-Green say they will continue to pay attention to the 10% of business that walks through their door to emphasise their compliance and customer care.
For Walton-Green that emphasis is, in equal parts, a badge of pride, a unique selling point and a business consideration.
"We dont want customers to have a problem; if they do, theyre less likely to pay," Walton-Green says.
"One of the reason customers come back is that they prefer us to the bank. Not on price consideration we even tell them that the banks rate might be lower but because the customer doesnt like rejection or the fear of it."
The level of service provided by TCFC is safeguarded by a proviso that members of staff responsible for a genuine complaint will lose their monthly bonus, although Smith says "99%" of complaints are about vehicles financed, not the service level.
"We have never had a single complaint go to a regulator," says Walton-Green.
"And in the case of a vehicle failure, we wont leave the customer holding the baby either," says Smith. "We have courtesy cars, otherwise our customers have no back-up and they cant get to work. We are a necessity finance company."
Smith may sound idealistic but he insists his company has "grown for years on the back of sensible credit policies". For Smith, making more credit available, since the major withdrawal of 2008, has been a necessary stimulant that his company provides and could help "get the economy moving" if emulated by government.
"We need to do something that supports banks to make more credit available to customers and SMEs, who stimulate more economic activity than anybody else," Smith says.
"Government must do more for companies like ours to get money into the marketplace. Banks wont lend to anybody but prime customers."
In essence, Smith and Walton-Green have built a finance operation that has headed nationwide inside five years, and during a period of economic turmoil. They have done so by operating in the markets that big lenders cant reach, while spending more time, money and effort on customers than their rivals would consider.
Whether TCFC will eventually open a branch in the Shetland Isles remains to be seen, and there is certainly a long road ahead for this ambitious business before it can consider itself a household name.
Regardless, with such an individual approach to car finance, and a take on ethical lending that speaks firmly to the post-crisis zeitgeist, it will certainly be turning heads in 2012.
