Honda Finance Europe was once synonymous with just one man, Philip Ross. His time at the head of the business lasted 18 years and brought great respect to the brand and to Ross. In his time he went from heading a small team to managing more than 80 employees and being selected as the chairman of the Finance & Leasing Association (FLA).
In January, however, Ross started in his new position as a senior vice-president with Honda Motor Europe’s sales team, a suitable reward for his efforts.
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Testament, however, to what Ross did with the company is what he left behind. Honda Finance Europe is a well-run organisation with a professional, organised and highly motivated workforce who appear both to enjoy working for the organisation and with each other.
Most tellingly about Ross’s management style is perhaps, when he left there was no power vacuum at the top of the organisation. A replacement was found swiftly and internally.
Man in the hot seat
The man given the hot seat as general manager was Joe Crump.
Crump, originally from Australia, is relaxed and amiable throughout the interview with Motor Finance, a good sign for a man taking over the UK finance team of one of the world’s largest manufacturers of cars, motorbikes and power equipment.
In his new role Crump and his team is tasked with the objective of helping Honda increase its market share of the UK car and motorcycle market and to develop the brand across Europe.
This is no easy task as Honda has an image problem across Europe. In continental Europe average buyers remain steadfastly loyal to their national products. In the UK the brand is seen as a dependable, but rarely exciting manufacturer.
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By GlobalDataAs a result, according to data collected by the European Automobile Manufacturer’s Association, market share across the EU of the brand in the six months to the end of June was just 1%.
In the UK the story is a little better, as the brand has a 2.6% market share, but this is a figure on the decline year-on-year according to the Society of Motor Manufacturers and Traders.
While the car sales side of the business may be struggling Honda Finance Europe is doing well. Crump took over a company that in 2013 made an operating profit of £24.1m on revenues of £49.8m, which was an increase of 7.4% on the year before.
Honda Finance then is in a good place to be able to help offer more finance across the range of cars on sale and secured £200m in funding to help the effort.
This is where Crump’s background and expertise truly comes into its own.
A finance professional through-and-through, Crump started his career at Scottish & Newcastle, the brewers, where he qualified as an accountant. His time there was, however, cut short by the company’s decision to move his role from the southeast of England to Scotland.
Keeping things beverage-related, Crump then took himself off to Tetley Tea for 18 months and after a brief stint at a corporate mailing company Crump found himself at Honda Finance Europe.
Initially he started as a financial controller at the firm’s base in Slough, before being rapidly promoted to the head of finance role. Now having been promoted to general manager and at the firm for eight years, it seems Crump has found his home.
"Honda is a great company," he says "There are great products and I like the culture. It very much suits the way I work and I think Philip created a great working environment here because he built the company up from scratch. It’s much more of a family business rather than a large global corporate, and I really like that.
Financial challenges
Crump then comes into the role of general manager with a very good knowledge of the company and an excellent understanding of the financial challenges facing a captive finance company.
Where the role has been a substantial change is in the differences in Crump’s everyday tasks.
"It’s much more of a relationship-based role," he says. "I need to get out more, build relationships with dealers, try and network more."
This was not an easy task for the first few months in the job, as he was actually still holding down his other role as head of finance.
Now though, with Crump finding a replacement for the financial director role he has more time to concentrate on such things.
"Now I’m beginning to do that a bit more and to understand what the issues are in the dealer network and where we can help support them," says Crump.
And his initial findings when out visiting dealers have centred on the industry’s hot topic. "Certainly the change in regulator has made a difference to the way they view things and the way we support them as well," he says, before adding "we are running some workshops to help them get authorisation, or to make sure they understand what they need to do to get the correct authorisation for what they want to do in their business."
In addition Crump says it showed competition among car dealers is still fierce, and this means that the finance arm of Honda must find campaigns that are "attractive" and "bring customers into the showroom".
The problem that Crump faces in this area is the age of the buyers who most commonly buy the Honda product.
Older drivers
The average age of a Honda driver is close to retirement age according to website Carbuyer.co.uk, at 63 years old. While this presents image problems for the manufacturer it presents quite different problems for the finance business.
As Crump points out, the baby boom generation tend to have more disposable cash than younger generations. This means converting those potential buyers in their traditional consumer segment is more difficult than with other generations.
The difficulty translates into a penetration rate below the industry average. As Crump explains "Market penetration is around 74 or 75 % at the moment, and we’re around 55%,
So we are a little bit lower, but it’s difficult to get that up because of the types of customers we have."
But there is reason to hope thinks Crump that "it may change next year because there are some exciting new models coming out which may attract some younger customers".
These new models will include Honda Civic Type R, a hot hatch version of the popular hatchback, a small SUV to compete with the Nissan Juke, and the hybrid supercar NSX.
While the NSX model is unlikely to attract the type of customer looking at finance, the others may well be more productive for the finance arm of Honda.
When the new models arrive, the sort of offers that will attract these younger buyers, 0% finance, PCP etc, will not be greatly different from those offered by peers thinks Crump. PCP in particular, he says will be the key, "which is really what the whole market is moving towards. And we’ve seen exactly the same, because it’s a great retention tool as well."
Already the product is helping Crump set a much deeper level of penetration than the average for the company. "We’ve seen a large growth over the 12 months in our PCP offering. We hit 69% penetration in July. I’m really pleased with that," says Crump.
"It’s been lower. That’s the highest we’ve had it, but our focus is on PCP so clearly what we’re doing is moving us in the right direction. And I want 69% to be the average throughout the year, not 69% in just one month."
Change of style
To help the company get there Crump has also been keen to change the management style. One of the reasons behind this is the belief he has that the major strength of the existing organisation lies with its staff.
"We have people with a lot of experience and I’m very lucky to have inherited such a great team," he says.
"We’re all here to make the business a success. And if we can all be involved in that process then it’s a great thing. It’s all about communicating those successes and making the most of them to motivate people," he continues.
"What I want to do is try and build the management team so that we are all involved in the decisions, so we have all bought into it. And I’ve already done that and I’ve seen a change in my senior management team in a positive way."
The difference that Crump brings to the business only affects the UK side of things, for now. Honda Finance Europe, despite the name and a president shared with the German Honda Bank, is an almost exclusively UK-focused business. The 90-plus staff deal with the problems and successes of the Honda sales network throughout the UK and provide support to some of the Honda Finance entities in Central Europe.
This means that the resources of the team can be focused on the car finance industry’s biggest talking point of the moment, the Financial Conduct Authority’s (FCA) takeover of the regulation of car finance.
As with many manufacturers’ finance arms, Honda Finance and Crump in particular have been working hard to ensure dealers get the support they need to be able to be compliant with the new regime.
"I think there still is a bit of reluctance in the dealer network to take responsibility or ownership of the regulatory changes they need to make internally. So we’re supporting them as much as possible." Crump says.
"Obviously if they don’t get the authorisation within the landing slots they’ve got, then they can’t sell finance. So it’s absolutely critical that we monitor progress as much as we can and help them get through."
Ready for the FCA
As for Honda Finance’s own compliance, the team feel confident that they will be ready by 1 November when the FCA has given them a ‘landing slot’.
"We’re still going through the process of reviewing all of our processes and procedures but we’ve always tried to be the best at what we do and I’m confident that where we are today will ensure that we won’t have any issues with the FCA," says Crump.
In addition Honda also has a card up its sleeve to help it through the compliance journey.
"Luckily our compliance manager has a mortgage background. He knows pretty much what the FCA will be looking for. So we have been using his experience in our process of preparing for our submission," explains Crump.
On the whole the process towards being fully authorised hasn’t shown up any real worries for the organisation, "but there will be some changes that we will have to make," says Crump, most of which centre on the ongoing issue of how to remunerate dealers.
One of the other aspects of the business that’s come under the spotlight throughout the compliance reviews has been the technology infrastructure in place at Honda.
The light thrown on the technology used in Honda Finance’s business process has shown it to be a weak spot of Honda’s current organisation.
In terms of compliance, it’s fit for purpose, Crump believes, but in other areas it’s failing to live up to his high standards.
"What I would like us to do is look at our systems and how we can make any changes in terms of customer interfaces," he says.
"Not a whole system from new, but looking to develop our systems in terms of: can we look at settlements online? That sort of information, customer balances and so on. At the moment we can’t provide that sort of service."
Changing even the smallest thing to a system that’s integrated into the dealer network is no easy task, however. "Our overall contract management system is interfaced with another 22 to 27 systems," explains Crump, "so when making one change to the overall contract management system or the back office you have to make sure that everything is properly tested. Even a simple change to a document can take weeks, potentially months, to push through."
The task of changing the system in place could then be a difficult and expensive one for Honda Finance; therefore it’s lucky that in Crump’s opinion it’s a task that’s for the future.
"Touch wood, our system works well and the dealers like it and we don’t have any issues with it. I would just like it to be a bit more flexible in the way that things are done."
Problems with the economy
More immediate problems come from the direction in which the UK economy is moving according to Crump.
"I think in the new year we will begin to see the cost of money rise. And I think that has the potential to change the way we currently see campaigns and schemes. There’s also the potential for bad debt levels to start to increase," he explains. "I’m pretty sure rates will rise next year.
"We’ve been lucky for the last five years and with rates being so stable it’s worked great for captives," he continues. When rates do rise, however, the pricing of deals, and the offers of 0% finance will surely be affected he feels.
Unlike some people in the industry though, Crump is less inclined to believe that a pick-up in the European car markets will have a similar effect. In his opinion the discounting of cars in Europe to encourage sales has, if anything, been more significant than in the UK. This he hints will lead to a change in the European model rather a need to change the UK model once the continent picks up again.
As an example Crump is beginning work on a project with European counterparts to use the UK model where possible to cut discount rates on the continent. "If it works here why not try it? But the markets are very different. Each market in Europe is different, and PCP here might not work in some of the other countries," he says, remaining cautious about the idea while showing enthusiasm for the cross-border effort.
In the longer term the biggest change to the motor finance industry may well come from a change in the ownership model Crump believes.
It is a view held by others in the industry, and something Motor Finance reported on in the May issue’s interview with Alphera’s Andy Gruber.
"I think there will be more of a usage model," says Crump. "Younger consumers these days aren’t necessarily interested in owning.
"They are going to struggle to own a house, because they are never going to get a deposit and be able to afford a mortgage and once they get into that mentality, the next big purchase is for cars."
As a result Crump sees younger consumers moving more towards a model where they take a car depending on their needs and desires. This may mean taking an estate car one day and a convertible the next.
The difficulty with this model comes from how the finance company facilitates those changes. It’s a problem that Crump is already anticipating, "Again it comes down to the systems. How do you develop a system that can manage those quick changes?"
There are issues in terms of distribution too. "You could use dealers as a hub and have a stock of cars there for people just to phone up and book a car," but, he says, "if they’re big enough that is, and if they have enough room to store the vehicles, but you need to have the technology in place. You need to have the dealer involved in that whole process and you’d need to have the stock availability."
This is something that Crump says is not likely to happen in the next year or two however, as much due to the difficulties as to the fact that, in the UK at least, consumers aren’t ready to change their view on ownership. Crump says this will happen, "probably in the next five to ten years".
By that time Crump hopes the industry will have continued to grow and most importantly got over its worries with the regulator and see what the changes it imposes will ultimately do for the industry, Crump concludes: "There will be a lot more confidence in the industry, so hopefully more people will be prepared to take finance knowing they are going to be treated fairly and they are getting a good deal.
"That’s what I would like to see in the next few years. It doesn’t need to be massive, but as long as it’s good growth then I think it will be good for the industry.
