We look at the unique challenges and opportunities arising in the prestige car finance sector over an eventful year.
The motor finance sector has faced a plethora of challenges over the last year, from the impact of the Covid-19 pandemic to new regulatory requirements. However, the nature of the prestige car market means these challenges have landed in a very different way for this sector.
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“Many prestige or luxury car manufacturers will typically complete a personal handover of the vehicle at a location of the customer’s choice, which helped to reduce the impact of showrooms closing,” points out Adam Harley, head of key accounts at ALPHERA Financial Services.
Harley adds that the demand for luxury cars has continued to grow across markets worldwide, particularly those where the Covid peak has passed.
“High Net Worth and Ultra High Net Worth customers of luxury automotive are typically impacted less by economic downturns than other car finance markets, meaning that the desire to fund or purchase a prestige vehicle, even during challenging times, is still strong,” Harley explains.
That doesn’t mean the market hasn’t been impacted at all, but the market is resilient enough to take it, explains Tim Marlow, head of prestige car finance at DSG Finance.
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By GlobalData“We have seen a small drop in volume, but this has tended to be in the higher value £150k+ arena. The cars from £40k – £100k have remained very buoyant as people look to change cars,” Marlow tells us.
“This is a combination of people having more disposable income as they are not going on holidays or eating out, and many business owners have received up to £50k in CBILS/grant funding which has come as a surprise. So they’re putting it towards a new motor!”
The key factor seems to be that while the prestige car finance sector needs to work under the same regulations and restraints as everyone else, it is serving a customer base with a very different set of needs and demands.
“The advice from the regulator has been to provide clients with as much support as they need during this challenging time so the mandate and framework have essentially been the same for all companies, no matter the market segment in which they operate,” says JBR Capital’s executive chairman, Darren Selig.
“There has been a tightening of credit appetite across the board and a delay in underwriting decisions.
“However, the prestige sector is a niche part of the wider picture and the profile of clients it attracts mean there is often more of an opportunity to work with them closely to restructure agreements if necessary. The concierge nature of JBR’s business has never felt more appropriate.”
Harley also argues this concierge approach has been a boon during the Covid crisis.
“ALPHERA’s exclusive, concierge-style service for prestige automotive consumers enables them to deal with all enquiries through to resolution, making the entire process seamless for the luxury customer,” Harley says.
“Premium buyers increasingly expect a customer-centric approach from their finance providers that delivers significant value, which is why ALPHERA is able to support as an extension of our Partner in order to help make the finance process as smooth and effortless as possible.”
This means not just providing a bespoke service, but forging incredibly strong relationships with customers and business partners alike.
“In response to the Covid-19 emergency we further increased our support to dealers who were navigating their way through the closures of physical showrooms, changes in customer footfall and buying behaviour, as well as challenges with ensuring continuity of service delivery in the midst of a global pandemic,” Harley tells us.
“The value and long-term sustainability of our relationships really shines through during such moments.”
A big part of building those relationships is supporting customers when things get difficult, and for many businesses this was the main focus of 2020.
“The emphasis hasn’t been on writing new business but instead helping existing clients with forbearance requests,” Selig recalls. “At the end of March, we received a significant number of messages from clients asking for payment holidays so we quickly put a system in place to assist.
“That meant the focus of the business pivoted as we collectively worked hard to implement new procedures, policies and working practices.
“That dramatic switch in focus was absolutely the right thing to do and as the year progressed the close analysis of forbearance statistics and liaising with clients to restructure their agreements meant our underwriting team were extremely busy.
“Other lenders took similar steps to offer forbearance where it was required and I really do think the sector will be stronger for the experience moving forward.”
The digital concierge experience
In 2019 people in every sector of the car finance market were talking about the rising importance of being able to digitalise their work, but none of them could have foreseen just how quickly that would be a matter of urgency.
“ALPHERA has seen significant growth in the number of customers using our digital and online platforms to both e-sign and manage their motor finance agreements. Between January and September this year, there was a 75% year-on-year growth in user numbers for the MyALPHERA Finance platform that gives customers the ability to ‘self-serve’ and manage their finance agreement online,” Harley says.
“ALPHERA’s e-Retail platform, available to all ALPHERA partner businesses free of charge, also enables customers to build their desired finance package and make a decision about a finance agreement in their own time.
“The platform has helped ALPHERA’s dealer partners increase the volume of completed motor finance applications made online and increase finance penetration by making the process easier to navigate for customers.”
Marlow agrees, pointing out, “With the lockdown it has been clear that the sector, like most, has tried to embrace more digital solutions with e-sign/electronic verification to enable the process to be done as remotely as feasible.”
Across the board the availability of e-retail platforms has proven to be essential for car finance companies and their partners during the Covid-19 pandemic, enabling remote finance applications during lockdown.
“With social distancing, some customers may be anxious about visiting showrooms; ALPHERA’s e-Retail platform means buyers needn’t visit the dealership to negotiate a finance agreement and can complete the process remotely,” Harley explains.
“Of course, at this time compliance has been more important than ever with ‘distance selling’ and many Partners have seen the value of digitised approaches to help them document and audit their compliant sales processes.”
More than a quarter of ALPHERA’s UK customers are now managing their finance agreements online via self-service. ALPHERA has also integrated into OEM’s concierge solutions to help make the finance process seamless and effortless for prestige vehicle customers.
However, it can be this very quality of concierge-level service that has slowed down the development of digitalisation in the prestige sector.
“The bespoke nature and larger loans that are prevalent in this sector mean that digitalisation is simply not as advanced as the mainstream consumer automotive lending,” Selig says.
“And yet decision times are just as important – perhaps more so – to clients in this space so the challenge is combining holistic underwriting with fast results.
“At JBR we are constantly developing internal systems that allow us to provide clients with quick answers, but still within the framework of human decision making. We are close to launching auto decision software for agreements up to a certain value using all of the data we’ve gleaned over the past six years of trading.
“We rolled out e-docs at the end of 2019, which streamlined the client experience and our introducers are provided with a portal with which they can upload their proposals.”
New challenges
Digitalisation and Covid-19 are the topics that have dominated the sector, but prestige car finance is changing in other ways as well. There has been a large increase in the amount of independent brokers offering premium car finance, while the pool of lenders with which these brokers work hasn’t necessarily increased.
This means that while consumers see more choice at their point of entry, the reality is that a consistent group of lenders are servicing the business. The Financial Conduct Authority’s changes to the rules on broker commission, which are set to be implemented in 2021, may have a huge impact on this changing market.
“As a specialist, we see this as an opportunity and one that everyone will have to adapt to,” Marlow says. “We have always been extremely competitive in our market space so don’t see any reason for this to change and adding our experience of getting deals done will be even more valuable.”
At the same time, the customers themselves are growing savvier and more knowledgeable about the sector than ever before.
“Clients are more aware than ever about the type of finance product available to them and we celebrate this increase in consumer knowledge,” Selig says. “It means by the time clients engage with us they have a firm idea of desirable APRs, length of term and residual values. Therefore, having an interactive, user-friendly and competitive finance calculator on our website is a central part of our digital strategy.”
Of course, the other big challenge the prestige car finance sector will have to address in 2021 is the one that many of us have taken our eye off in the presence of the Covid crisis.
“The ongoing and much-discussed uncertainties due to Brexit could also create practical challenges into 2021,” Harley says. “Manufacturers will often have clients commissioning cars from around the world, as well as vehicle parts being sourced from all over the globe. Importing parts in or exporting new cars out is likely to require new paperwork or adhere to different guidelines, which will naturally take time to adjust to.”
Another looming issue facing car finance is the shift over to electrification, and it’s an issue that the prestige market does not escape.
“Many OEMs are now venturing into plug-in hybrid and electric vehicles as part of the ‘build back better’ recovery plan, which will bring new, more environmentally conscious buyers to the premium market,” Harley tells us.
“ALPHERA recently launched our first unique sustainable finance product to help consumers transition into a plug-in hybrid electric vehicle. The product allows consumers to purchase a used plug-in hybrid (PHEV) and offset all of its carbon emissions throughout their term of ownership – at no cost to them. If the pilot is successful, we hope to extend the programme further as we continue to pursue more sustainable ways of mobility.”
“The rapid emergence of electric vehicle technology provides both a challenge and an opportunity for the sector,” Selig points out. “A challenge because the opportunities to use petrol/diesel vehicles might be restricted which could make residual value calculations hard to predict. An opportunity because more people are looking to purchase premium electric vehicles and we are committed to helping clients access these in a financially competitive way.
“There is also a movement gathering momentum to convert classics to electric powertrain vehicles. That is a compelling concept which could combine the romantic lure of classic cars with modern, clean engine technology.”
While there is a great deal of excitement and opportunity around these issues, the shadow of the Covid pandemic will be felt for some time to come.
“Covid-19 has changed the landscape significantly and previous credit appetite and policies are likely to remain tightened across the board moving forward,” Selig says. “The robust stress-test each loan book will have experienced during this period provides a huge learning opportunity for the future.
“Some lenders might feel that the risk has become too much and begin to retract from the market, others might be buoyed by the performance of their book in such a challenging time.”
Ultimately, whatever the challenges the sector faces, quality of service will remain the priority.
“Providing first-rate, consistent customer service is always an opportunity,” agrees Selig.
“Whether that is to our existing or future clients, those who purchase the kind of vehicles we finance absolutely demand the best and the opportunity is to consistently meet that challenge.”
