Captive lenders are
responsible for rising levels of financing among dealers, despite a
continued reduced appetite from banks. Fred Crawley
reports.
Go deeper with GlobalData
Car dealerships across the board are seeing a rise in finance
penetration rates, Motor Finance learned last month.
This is being aided by rising numbers of personal
contract purchase (PCP) initiatives, while stronger residual value
offerings, growing demand for captive finance, and a greater
support for prestige brands have all seen franchised dealer sales
aided by manufacturers.
Steve Archer, director of innovation and strategy
at UK-based multinational dealer group Inchcape, told Motor
Finance that the outlook for growing penetration levels is
relatively positive, given the low level of competition arising
from lower direct sales activity by many funders.
Archer thinks that the best way to maintain
point-of-sale finance levels in the face of an increasingly
competitive market will be to work on showing customers the
benefits of arranging finance through a dealership.
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By GlobalDataThis means a continued effort to maintain finance
sales training for dealership sales staff, quicker and smoother
processes, and closer links with providers – in short, the idea of
“seamlessness” that Volkswagen Financial Services MD Graham Wheeler
put behind VWFS’ dealer-driven sales success in March (see April
issue of Motor Finance).
Captives boost finance
penetration
Archer also said that support from captives
had become increasingly important to the group over the last
year.
“We have good working relationships with most
captive providers, and those connections grew a lot closer, and a
lot stronger, during 2009,” he added.
For Yorkshire-based group of franchised dealerships
JCT600, support from captive finance companies, particularly with
regard to PCP products, has been central to both finance
penetration and overall profitability in recent months.
According to F&I director Simon Barras, it
currently enjoys 50% finance penetration across total sales, and
continues to experience a growth in finance uptake for prestige
brands especially.
Whereas finance penetration had formerly been at
59% before the recession, it is on the rise again after dipping in
2008. Barras says that at present the plan is to maintain the 50%
figure, a goal that he does not think will be hindered by
availability of finance.
“We are having no issues with credit availability,”
he said, before adding that he had seen no significant tightening
of funders’ underwriting standards so far this year.
Barras said that the continued promotion of PCP
products by the captive finance sector had been extremely welcome
at JCT, commenting that the product had not only improved customer
retention, but provided a good supply of used vehicles for
resale.
This last factor has been significant for the
dealership group – 2009 saw used car sales up 13% year-on-year
across JCT’s 48 dealerships, which its directors indicated as a
major factor in the year’s £465m turnover and £8.2m profit
figure.
According to Barras, the majority of captive
finance houses have begun offering per-vehicle finance sales
bonuses beyond a certain PCP penetration, with Porsche’s FS arm
being the latest to set up a scheme.
All in all, PCP sales initiatives have helped raise
the product’s penetration within JCT’s finance sales from around
10% two years ago to nearly 40% today.
The rise of PCP has also helped develop prestige
brand sales immensely – according to Barras, of JCT, the payment
structure of the PCP product has been the factor that has tipped
many aspiring drivers into making a prestige purchase through
finance.
Captive support has come in other forms, too, such
as an upward tweaking of RVs on products in the last month, most
recently from Bentley.
Restricted finance
options
Despite the strong demand for finance among
dealerships, access to it is not always guaranteed.
At car supermarket Motorpoint of Derby, finance
provision has also been on the increase, but it has been a more
difficult struggle without the captive support which JCT benefits
from.
Motorpoint is a large supplier of business to Black
Horse, as well as having major lines with Carlyle Finance and
Santander, but says that finance availability amongst its providers
has not yet eased up this year.
“Frankly, we are seeing more applications
rejected,” said operations director Paul Winfield.
“How much of that is due to tighter underwriting,
and how much is down to poorer credit quality among applicants,
however, is hard to tell,” Winfield added.
Certainly, he went on to say, Motorpoint has seen
many instances this year where customers have been unable to secure
finance from one of the funders listed above, even days after
completion of an identical agreement.
“Repeat business is
anything but a cast-iron certainty,” said
Winfield.
But it seems that the most significant problem for
the high-volume retailer is a lack of finance availability in the
‘near-prime’ section of the market. Motorpoint generally avoids
passing customers on to funders with rates beyond 10%, and so often
struggles to find an appropriate provider for customers turned down
by its main providers.
While the near-prime market continues to be
occupied by relatively small and highly selective funders, this
will remain a common problem to all volume retailers.
Nevertheless, Motorpoint has seen significant
year-on-year increases in sales volumes, both finance and overall,
for each month of 2010 to date. Finance penetration of sales
remains at around 35%, around 5% up on last year, with 45%-50% of
this total being PCP sales.
Whatever the actual availability of dealer finance
at present, forecourts will continue to suffer from the public
perception of credit scarcity, and the idea that point of sale
finance is uncompetitive with direct offerings from providers.
For companies that originate a lot of sales online,
this is a particularly thorny challenge. Many customers will go to
a direct provider after choosing a vehicle online, despite the fact
that many advertised rates are practically unobtainable, and that
processing times are often weeks in excess of point-of-sale
procedures.
Yet barring a major hammering to consumer
confidence as the year’s unsettled politics draw on, it seems that
penetration levels are only headed in one direction.
A survey in March by publication Motor
Trader supports the view that some funding lines have been
reduced.
It found that just 29% of respondents considered
lack of finance availability to be the biggest cause of lost sales,
compared to 34% in October last year, suggesting that credit access
is becoming a less prominent limiting factor in dealership finance
sales.
Despite this, Archer said that, while Inchcape had
seen no major sea change in underwriting appetites from the UK’s
largest point of sale providers, there were encouraging signs from
smaller market players.
“Slowly but surely, smaller bank-owned lenders are
starting to approach us to ask whether it would be feasible and
possible to give them more business,” Archer said.
There are also still many obstacles in the way of
greater penetration for retailers at large.
Public perception of dealer finance as
uncompetitive, a largely empty near-prime market, and tight
underwriting from non-captive players – among other factors – will
all contribute to 2010’s uphill struggle.
