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Motor Finance brought
a number of experts together for a round table to discuss the
current
status of brokers and to discuss and explore what the future holds
for the profession.
This month, Motor Finance, in
collaboration with Frontline Solutions, invited a collection of
point of sale experts to attend the third of 12 round table
discussions on the future of the dealer finance market.
The following pages highlight the
debate and discussions, in which brokers, lenders and independent
consultants made clear their feelings and opinions on the important
issue of what the future holds for the UK’s motor finance
brokers.
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By GlobalDataWhat role do brokers have to
play in the future of motor finance?
Shamus Hodgson: From
our point of view, as a funder, we are wholly reliant on brokers.
While the industry has changed hugely over the last two or three
years, brokers have only become even more important. When a
customer walks into a showroom and they don’t fit with a particular
finance deal, somebody needs to work that customer into another
deal and I see that very much as something that brokers can do.
Finance companies don’t have the skill
or the heritage in doing this and, frankly, we don’t want to be
involved in that process. Dealer groups certainly aren’t offering
that skill set on the floor, so that’s where I see brokers playing
a huge role. From our perspective they’re absolutely central to the
industry.
Richard Hoggart: The
role brokers have to play is entirely up to them. They can either
play a great role in the future of motor finance, certainly in the
retail market, or they can play no role at all, depending on what
activities they want to get involved in.
Since we started in 1989, things have
changed dramatically and they continue to change year-on-year. The
simple thing is that we have to make sure we change with it. The
only way that brokers are really going to play a lead role in motor
finance in the future is by bringing value to the dealer. If you
don’t add value to what the dealer can already do, then there’s no
role to be played.
Are there still significant
numbers of dealers who won’t use brokers?
Richard Hoggart: I
don’t think there are. There are plenty who are frustrated that
they need to use brokers, but the majority will accept that brokers
have a role to play for them. You can’t be all things to all people
so, as a broker, you have to make sure your portfolio is wide
enough that dealers will see something they need in what you have
to offer. The sensible ones out there – I’m talking about the big
franchise dealers now – recognise what their core strengths are and
also recognise areas where they’ve got some weakness. It’s down to
brokers to recognise that weakness.
Karen Spencer: We get
most of our business in dealerships. We do small amounts through
the internet, but mostly dealers approach us and we work a deal for
them. With regards to how dealers feel about brokers, I think as
soon as you get a deal accepted for a particular dealership, that’s
it – you’re in that dealership and they like you and trust you. We,
in the main, go out and sign up our customers at the dealership so
we’re getting to meet the customers, which puts finance companies’
minds at rest.
Andrew, as a company that
solely uses brokers, where do you see the industry
going?
Andrew Currie: When I
look at the repeat customers that we have to deal with ourselves,
it takes an absolute age to process them. It takes a lot longer
than anything coming from brokers. When you talk to these customers
and they’re on their tenth change of car, then you contact the
dealer and ask for the documents to be sent through, they don’t
know who you are because they haven’t got that relationship.
For us to manage that sort of
relationship is very difficult, but brokers do that day in, day
out. They put package deals to us that just flow through. There are
brokers who even send texts to their customers telling them when
their payment date is for their first three payments. It just makes
our job so much easier from that point of view.
Is it fair to say that brokers
are now taking on some of the work that used to be done by dealer
F&I functions, and some that used to be done by finance
companies?
Andrew Currie: I
would say that. You could get a deal that came in from a dealer
which would go onto our system and probably be auto-declined. You
get it though a broker, who actually profiles the customer and then
puts the package together, and it becomes a deal.
Shamus Hodgson: I
absolutely agree. We see brokers as an extension of our sales
engine, one that allows us to have variable costs rather than fixed
costs and I expect that’s what dealers see you as too, an extension
of their F&I function. When it works well commercially, it
works for everybody.
James Tew: Yes, they
are a sales and market distributor for finance companies, that’s
their core role. How do they achieve results? I suppose to some
extent they play on the apathy of the motor trade. There’s an
apathetic attitude for a lot of people when deals don’t fit. You
can split business into prime and non-prime. With non-prime, where
there has to be extra work done, brokers really can play on the
apathy of the dealer.
Craig Rutherford: We
did some research within a dealer group I work with and found that
six months ago, 80% of finance business was being done though core
captive lenders. That’s now down to 60%, because we have an
in-house brokerage that works harder at making deals
happen.
Shamus Hodgson: It’s
imperative that brokers take this opportunity. Brokers need to
skill-up effectively to make sure they’re replacing the skill that
has gone from the dealerships. I agree it’s about leveraging
apathy, but it’s also creating that value proposition that says
“you don’t have to be apathetic about this, there’s actually a
proactive solution in the market, people who know what they’re
doing and who have that skill set”. Rather than taking stuff
because others won’t do it, it’s more about going out and selling
that proposition to dealer groups.
Richard Shiner: I
think the role of the brokers also depends upon the funders to a
certain degree. For instance, you’ve got Duncton who deal solely
with brokers, but then you look at the likes of Moneyway and Marsh
and the outlook is less clear; one minute they want to deal with
dealers, the next with brokers. I think that’s what the role will
depend upon going forward.
Also, the likes of Unique and Castle,
for instance, are completely different to Evolution and DSG. We’re
more traditional brokers, I suspect, in that we deal directly with
owner-drivers or small businesses where you can add value to what
they want to do. We don’t look to do volume. We try to do more
profitable deals.
I think the crux of it all is down to
the lenders and whether they decide to deal solely with brokers or
whether they want to deal both ways.
In terms of supply and demand,
is there enough money out there to supply the demand there
is?
Richard Hoggart: It
seems so at the moment, but then a lot of things have ‘seemed so’
in recent times. It’s something you almost have on a week-to-week
basis. Who foresaw Fortis shutting the door when they did last
year? I didn’t. I think the only thing that shouldn’t surprise you
anymore is surprise decisions.
As a company, we decided that what we
really have to do is look at who represents a good profit for us at
this time and build a relationship with them. You’re not going to
get any hints from people. Hopefully, markets will stabilise and
funding will continue to be forthcoming. It always seems like
there’s somebody out there with an appetite. You just have to be
able to adapt yourself to be able to switch between markets.
Karen Spencer: I
think any brokers here now, that were here 10 years ago, have got
through the worst of it. Finance companies are coming to us now
saying “we want more business”. A year and a half ago it was
“please don’t give us any business, we haven’t got the
appetite”.
Most brokers have learnt not to put
all their eggs in one basket. We need as many lenders as we can,
because if a lender we relied on too much left the broker market,
that would be the end of our business.
We do prime, near-prime and subprime,
and we’ve got a good mix of business throughout those three
sectors, even though we’re quite niche.
Graham Hill: Looking
at the leasing sector, I’ve seen the ups and the downs in the
industry over the years and there’s a lot of added value that
proper brokers can bring now. I think that’s been recognised.
At the moment there is a little bit of
a downer because a lot of the main leasing lenders have withdrawn
from the market, or at least restricted their broker numbers,
although there is a move now to come back into that sector.
I think we’ll see a move in that
direction. Certain websites have not helped because they have
forced a lot of good brokers to become ‘bucket shops’, advertising
solely on rate – and that’s not good for consumers or small
businesses. They’re looking for more support and advice.
As far as the industry is concerned, I
think we’re going to see a growth of master brokers. If you look at
the big brokers, who five years ago were turning over 20,000 cars a
year – and we’re talking about new cars – that’s down to around
8,000 to 10,000 now. But they’ve got all the infrastructure to
handle a bigger volume.
These master brokers are set up to
deal with smaller brokers and work in conjunction with them,
knowing their background and knowledge.
Mark Spink: While
there are none here today, there are plenty of brokers out there
who deal directly with the general public – it would have been
interesting to get their perspective on this issue as well.
In terms of Frontline, when the
recession hit we didn’t lose nearly as many broker clients as we
were expecting. We lost one or two, unfortunately, and some shrank
in size, but after the recession things have bounced back and we
still seem to be taking on additional brokers, so obviously the
sector is growing again.
What’s your estimation of the
number of retail finance brokerages in the country?
Mark Spink: We’ve got
about 30 broker clients, but you have to estimate it must be at
least in the 80s or 90s. It’s amazing how many have survived and I
think that shows a marvellous resilience.
What are the most valuable
qualities brokers can offer to the companies they work with
and how is it changing?
Richard Hoggart:
Integrity. The good brokers have it. There are brokers out there
who funders don’t trust.
Not only based on track records, but
on their ability to build personal relationships. It’s not short
term any more; you’ve got to build up long-term relationships with
customers.
Jeremy Levine: I
think the important things are underwriting expertise, speed,
access to technology, the ability to provide niche products and
access to funders that others can’t access.
Craig Rutherford: I
think step one of any relationship is to find out what the
expectations are. If it’s truly a joint venture, then establish a
line of trust.
The massive trust issue between
business manager, broker and lender is deciding who forms the
relationship with the customer. That’s something that can only be
built up through a longer relationship.
Richard Shiner: I
think within our business it’s knowledge of non-prime business that
counts. That’s our niche. We don’t compete in the prime market at
all; we offer prime funders but very, very few. It’s about
knowledge and understanding the funders, what’s important to our
dealers, and what’s important to our partners.
Shamus Hodgson: There
needs to be professionalism. There have been plenty of times in the
past when brokers have survived for reasonable periods of time and
not displayed much professionalism, but those opportunities are
gone now.
It goes back to the point we were
discussing before. I very much view brokers as an extension of our
business, providing us with a service directly connected to our
business, so professionalism is vital.
You gain confidence in a broker in
exactly the same way as in a team member of your own business. That
grows over time, and is also reflected in certain brokers’
reputation in the market.
I also expect that a good broker needs
to have a chameleon quality – I’m just one of many funders they’ll
deal with, and my view of how things need to be done will be
entirely different to that of other funders.
Are you making more investment
in your businesses, now the worst has passed in terms of market
difficulties?
Richard Hoggart: The
biggest investment for brokers is always going to be people – it’s
a people business. Sales people are very difficult to find, retain
and get consistent results out of.
I’ve got people who worked for Jeremy,
who now work or me, and probably vice-versa. There’s a bit of a
roundabout that goes on. We are different and some brokers suit
some companies better than others.
We’ve had people from the dealer
market who’ve been business managers and want a change of
lifestyle; they don’t want to keep working weekends for the rest of
their lives and so on.
There’s no tried and tested formula.
We have been doing this long enough to know there isn’t any great
route to success. The proof of the pudding is in the eating. We
want more people, but they are very difficult to get hold of, and
doing it right means investment.
Jeremy Levine: We’ve
taken on six people in the last eight weeks. Over the last few
months we’ve had people choose to leave mainstream finance
companies to come and work for us as a broker, because they find
the opportunities and the way of working has a better future.
That’s a strong statement.
Karen Spencer:
Speaking as a small broker, at the moment we’re not looking at
investing in more people, but what we are investing in is the
people we’ve already got through training and development. Over the
next six months we will be looking to get more people on board, but
it’s a case of doing it slower so we can nurture them. We need to
make sure they’re right for what we do as a business.
Richard Shiner: I
haven’t really invested recently, due to the fact there’s so much
of the movement of staff that Richard was talking about. I have
previously invested heavily in people only to see them start up
businesses by themselves, so for now I’ve made a decision that I
should bring people to a greater level of skill within the
business.
What is going to change in the
market over the next three to five years?
Shamus Hodgson: It’s
up to brokers where they want to take their business. The market is
wide open at the moment. We’re coming out of a recession, in
theory. It’s not going to be easy and it won’t be short term. But
people are still going to need to buy cars.
Customers are becoming more individual
and more varied, as are their requirements. There’s absolutely a
future there.
There’s variation in terms of what
customers want; that means it needs someone to be involved in the
distribution chain to manage that.
That’s where I see brokers sitting,
but I think they can also drive what customers want as well.
Given that there are fewer brokers
than there used to be, they now have the possibility to have a
louder voice with dealers, funders, and particularly customers, and
start designing their own propositions. It’s a time of opportunity.
That opportunity is dictated a little by the market, but I think
it’s a great time for brokers to be masters of their own
destiny.
Are you talking about issues
like selling finance online and then introducing the customer to
the dealer?
Shamus Hodgson: Yes,
fundamentally there’s a part of the distribution chain that needs
to be occupied by somebody other than the funder, and other than
the dealer. The fact that space is there means there is the
potential to dictate what happens at other ends of the distribution
chain as well. One of the things that’s possible is to get closer
to customers at the stage before they come and look at a car.
Chris Sykes: We’ve
had a dramatic increase in the number of deals coming through for
finance with no specific vehicle in place. People are saying,
first, can we get finance for a car? And once they’ve got approval,
then the broker goes away and sources the car or deals with
dealers.
Craig Rutherford:
There are all sorts of value that can be added at the back end.
It’s about taking a potential deal after the dealer has had their
one, two, three bites of the cherry, then passing it on to a broker
partner and saying “see if you can turn that into a deal for me;
use whatever experience you have to turn that into something and
we’ll pay you a commission for that”.
Quite simply, I don’t have the
infrastructure within my business to be able to do that, so if
somebody wants to come into my business and do it on a deal-to-deal
basis, that’s fantastic.
James Tew: Lenders
are going to drive the market massively. If Creation, ING and
Alphera pulled out of the market, could a repeat of this meeting
take place in 12 months time? It’s highly questionable. But there
have always been replacements, there’s always someone new.
Jeremy Levine: I
think competitive pressure and trying to win quality group accounts
is driving the market. It’s going to involve the largest brokers
developing a technology-based service and writing more deals with
greater transparency and provision of information, fully
understanding what they are doing.
Richard Hoggart: I
think we’ve got to find new ways of delivering old products; to a
great degree not a lot has changed. You’ve got to find ways to make
these products look attractive, innovative ways to present them to
the dealer, and innovative ways to present them to the
customer.
If we do that – provided things remain
the same in the funding market – then there’s no reason why we
shouldn’t continue to prosper.
