Ian Smith of BMW Group FS wants changing rules and retail to provide an opportunity for car finance, and estimates fresh ventures have made the multi-brand finance provider the second-largest capital finance company in the UK. Richard Brown reports.
After 20 years out of the UK market, including roles with BMW Group in Canada, Brazil and the USA, Ian Smith returned in 2011 to find "the market had not moved on at a pace which one would expect".
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Although internet usage by brands and lenders has increased, Smith, now chief executive of BMW Group Financial Services (FS), perceives a lack of progression in leveraging the emergence of media channels and technology with the customer or dealer to deliver an "empowered conversation with the customer".
The market is aware of the need to "make the most of online channels", but Smith says this "must be more than a start-and-end process" which would then require intervention from a third party to finish the puzzle.
He points to market research demonstrating the degree to which consumers have already decided on the vehicle(s) they are interested in and their desire for finance and insurance information which is on a par with vehicle information.
"There is a lot of change coming," he says. "The market perhaps doesn’t realise how much change will happen, particularly with automation in the market space. Some people may be wondering what happened."
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Part of the change, Smith believes, begins with the new regulator, the Financial Conduct Authority (FCA) and the concomitant "opportunity for us to reflect back on our role, the important partnership with the dealer organisation and to the increasingly changing customer landscape".
Smith says if each of these elements is broken down, company and industry alike can more readily comprehend "the scope of what is in front of us".
Adding that Treating Customers Fairly is not a new concept, Smith expects the FCA to take it further and much of what the Authority intends will come down to good customer outcomes.
"The operational changes to processes and systems are being evaluated and we are using this time to further develop our capabilities and our market approach to ensure our success in the future".
BMW Group FS also believes issues such as commission disclosure will play a large part of the FCA remit and, by taking what has been learned and implied from PPI, "it is not difficult to extrapolate the FCA’s intent in establishing regulations which create the right products, stimulate competition and ensure that markets function properly for both the customer and business".
Critical relationship
Acknowledging most of that business is generated through the intermediated dealer channel, providing customer-facing expertise regarding finance and insurance, the dealer network "therefore is an absolutely critical business relationship for us", explains Smith.
"If we look further afield, more customer activity will be transacted online and much earlier in the sales process."
However, for dealer and lender "the fundamentals remain, enabling the sale process, creating economic value and re-engaging customers to drive loyalty".
Smith wants customers introduced to one of the four finance businesses within the Group – BMW FS, Alphera FS, Mini FS and Rolls-Royce Motor Cars FS (launched this month) – earlier in the process, requiring more information being made available to customers more quickly.
"We now operate in a transaction price driven market so capitalising on these opportunities earlier will be critical.
"The nature of customer interaction has been shifting for quite some time and I can certainly perceive changes from other markets in which I have worked. The biggest impact is the customer’s expectation. We operate in the premium end of the market and customers reflect on their buying experiences in other areas of their life and this, in part, is where expectations are set.
"The access to new technology and networks has expanded the customer reach. Customers have created their own means of gaining information or data to the extent that customer power has increased and will continue to do so. They steer more and more of the sales process."
Trigger mindset
To accommodate the customer, the industry must overcome the previous "trigger mindset" regarding the car trade and symptoms such as the "up-selling system" and lack of transparency to customers. Smith admits the past negative stereotypes of dealer finance are "not without cause" but believes today’s motor retailing world has addressed this and "significant investments are being made to create customer experiences which will encourage higher levels of engagement and loyalty".
Hence, his insistence "transparency is the key for the future", complete with the "more consultative selling" evolving in the market.
However, the "technology in the industry is not there yet" to do such things immediately, and Smith cites the increasing need for online tools such as reverse calculators, customer self-services, product ranges demonstrated through the quotation process, more web-based chats than call-centre conversations and finance being prepared, like vehicle information, before the sale to replace the "sales and marketing culture of today".
Online market
Smith is impressed by the large share of the subprime market already conducted online and believes the prime market is likely to follow this trend, for which dealers must prepare.
"The industry has been its own worst enemy," he believes and its previously limited transparency will be addressed by the FCA and its power to withdraw unsuitable products. The Authority, he says, will demand all relevant options are communicated to consumers and provide a competitive marketplace shaped by informed decisions, a marketplace in which BMW Group FS hopes to provide "moral leadership" and "challenge traditional methods".
Of the Group’s four providers, Mini FS has applied lower-rate finance universally across its dealerships and introduced customer-facing online calculators, an example of the future "retailing experience", which Smith defines as one of buying, rather than being sold.
The changing consumerism evident in other sectors – Apple, Amazon, and general social media – whereby the customer leads the transaction and/or discourse, Smith believes, should be transferred to cars.
Taking in other examples such as iVenture, the $100m BMW Group fund in the US to purchase start-ups like mobile technology operator MyCityWay or parking subletting arranger ParkatmyHouse, Smith concludes "the world has become more socially integrated" which demands an integrated work mentality for individual businesses.
This mentality, Smith surmises, can be seen in the Group’s approach to finance: "It’s a combination of opportunity and technology."
BMW Group FS and Smith are grasping both opportunity and technology with the i3, the brand’s first electric vehicle (EV), launching in November, with the i8 sports car soon to follow in 2014, and accompanied by what Smith feels is an "innovative" finance offering.
Both the i3 and i8 will be tied into the BMW FS mobility solutions package. A personal lease on the i3 starts at £369 (plus VAT) a month with an initial payment of £2,995. Although the figure appears above most monthly rentals, Smith is confident the price position can be offset by the i3’s potential exemption from the repetitive daily expenses of commuting such as parking or the London congestion charge in, for example.
Variety of packages
The i3 will be available via a variety of packages – called Pulse, Charge, Spark, and Energy – with combinations of maintenance and public charging. All packages except Spark offer the BMW Access scheme which provides i3 drivers the option to use other BMW models (supplied by BMW-owned lessor Alphabet) on a short-term basis to make, for instance, another BMW vehicle with a conventional diesel or petrol engine available as needs be.
The packages will be "launching gently" to ascertain consumer preference, Smith notes. Although the initial volumes are expected to be "limited", the "innovative" finance deals available signal "a way to move into the market space with a totally new offering".
The car-maker has committed to the production of its EV range through a joint venture with SGL Carbon in the USA which will construct the carbon fibres for the BMW i model range. And Smith speaks of the excitement among the BMW Group regarding the layer design of the vehicles and their dynamics which will make the entire design of the vehicle funnel air through the car, acting as an aerofoil – a vehicle built with "different layered surfaces, creating an incredibly dynamic driving experience".
Equally, Smith and BMW Group FS are set for further differentiation of revenue and opportunities with the launch of Rolls-Royce Motor Cars FS under the management of Andy Gruber.
Gruber will oversee the finance operation for the brand in the UK alongside his role as director of Alphera Financial Services, the independent car finance provider under BMW ownership which already operates as the captive finance partner to Aston Martin, and he will run the two portfolios separately.
Smith explains balances of up to £450,000 are available to purchase models from the "super-premium" brand, a subsidiary of BMW Group since 1998, and he expects prospective buyers to include those with their own commercial lines of credit, namely entrepreneurs and "highly successful" business leaders.
"The balances are significant," he says, adding the move is "exciting, especially from the Rolls-Royce perspective".
Smith adds the move to provide funding for the brand demonstrates the intention of BMW Group FS to "innovate in a very established market" of car finance in the UK. However, it may be the balances and the intentions at the company’s Hook headquarters which prove truly significant: With the addition of the Rolls-Royce operation, Smith estimates BMW Group FS now to be the second-largest capital finance company in the UK with combined brand portfolios totalling more than £6bn.
richard.brown@timetric.com
