Motor Finance brought a
number of experts together to discuss non-finance products at
POS.
Go deeper with GlobalData
In this
fourth round table discussion hosted by Motor Finance and
Frontline Solutions, industry insiders were invited to attend a
discussion around the state of insurance and other non-finance
products at the point of sale.
The following pages provide
highlights from the conversation that followed, in which dealers,
insurers and sales training experts set out their ideas about the
opportunities and challenges faced by providers of financial
products at the point of sale.
What F&I products
are now of most value to dealers in order of priority and
why?
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By GlobalDataSteve Reynolds:
Gap protection programme. No bones about it; it’s cheap to
purchase, easy to sell and can be sold at a reasonable
margin.
Stan Walker: I
agree, Gap is our prime product within the dealership. It’s low
cost and profitable. You are (to Steve Reynolds) about 70%
penetration; we are about 60.
And do you think you can
push that further?
Stan Walker:
Yes we are always looking at ways to do that.
And the rest of table,
any thoughts on the value of Gap at the moment?
Kevin Johnson:
I am hearing many stories about new generation Gap and I have asked
for it to be explained. I am told there is a possibility in the
future that it is going to be sold on an annual basis.
Serkan Obuz:
The Association of British Insurers (ABI) may well ensure all Gap
policies are fully cancellable and refundable or transferable at
any particular point in time, so where you could sell Gap for a
three-year period, you are not going to be able to do that without
a risk of having to refund the customer.
So, you can’t take all the
profit on day one. I think we are probably all in the same position
as providers, in that we are all looking for a way to adhere to ABI
guidance without jeopardising the dealership profitability with our
products.
Kevin Johnson:
My next question would be: “If you have got a really large
dealership with good penetration, and you are making am bucks a
year on Gap, and then you go on to annual – how close to your
original million do you expect that you would make?”
Serkan Obuz: I
think if it moves in that direction we’ll probably see a massive
fall in Gap sales.
You can’t take a bulk amount of
profit on day one. So if you sell it on a monthly paid monthly
cover, you will get monthly commission.
If that is the case, the
appetite to sell it will reduce, because a major focus in the
dealership would be profit in a given month’s profit and loss
figures.
The same thing happened with
income protector – that was launched to overcome the issues the
Competition Commission created and it became an even better product
because, instead of paying for your finance payments, it paid a
lump sum you could use not only for your finance, but for other
things.
Rates were reduced because
dealers wanted it to be sold for a fairer rate, but the problem was
that it was monthly commission.
So, we had this fantastic new
product out there, a number of manufacturers and dealer groups had
it, it was easier to sell, but unfortunately nobody sold it because
there was no profit on day one.
Kevin Johnson:
Does HPI have a standard view on how long a consumer keeps a new
car?
Daniel Burgess:
Three years – longer in an economic crisis.
Serkan Obuz:
Where there is a monthly pay option there tends to be a much higher
cancellation rate.
Say, for example, that rate is
around 10% – if you translate the same sort of percentage to a
system where it is a transferable and refundable, paid up-front
product, then it means risk premium would need to go up.
David Bond:
Consumers will be protected, but to a degree they need to
understand that the more time goes by, the more valuable the
product is, because the gap is bigger. £25,000 savings after
two-and-a-half years is big; at the beginning you could almost give
it away because the risk is so small.
Hopefully that will be covered.
Consumers will benefit. Dealers will take a little bit of a hit
backwards, but hopefully not too much.
Kevin Johnson:
As insurers, are you going to be generous on the
commissions?
David Bond:
Well, not so much the commissions, because commissions with Gap is
based on the decision the dealers make. That’s their choice.
Commission is up to them. On the renewals, nothing is going to
change too much.
Marcus Dixon:
The biggest issue is that few credit companies want to issue 36
monthly payments – you are talking more 8 or 12 or 24.
Dave
Sherrington: Yes, and while what is being discussed is
guidance from the ABI, it is rooted in consumer law. We all want to
avoid another mis-selling scandal.
And I would just like to pick up
on a couple of points in that light. First, the dealers and finance
companies will know, on average, how long a customer will keep a
car. I don’t think this will be as long as three years, more like a
28 to 30-month cycle, but the longer it goes on, the more the
benefit of Gap grows.
And if it is the right product,
sold in the right way, then there is no reason why the customer
won’t keep it. I guess the biggest barrier is dealers’ provisions
for debit backs.
As suppliers, we have got to
come up with innovative ways to incentivise them to sell.
Inherently it is a good product, but I think we have to be very
mindful of what regulators are trying to achieve – and it is not
just ABI guidance, it goes a lot deeper than that.
It’s not being
viewed as a high-risk product right now, but what is the chance of
that position being re-evaluated when we have a new
regulator?
Alex Lugt: If
we can’t self-regulate, we will have severe regulation coming upon
us like we have now with PPI, so let’s put our heads together and
think how we can do it right with Gap.
The ABI is trying to set up a
situation where we self-regulate, and this applies not just to Gap
but to extended warranty too, and to any guarantor
schemes.
Dave
Sherrington: Yes, there will be a new regime, and the FSA
has just recently published its feedback to a discussion paper
regarding product intervention.
Historically the FSA has
regulated point of sale and after-sale with consumers. Going
forward they’re intending to extend those powers to intervene in
the R&D process of developing products and having the ability
to say: “I’m not going to allow you to sell that to a distribution
channel.”
As good business practice we
should be prepared for where the regime will end up, so we have to
develop and design products that have the consumer in mind, that
are right for the customer, but that can still be sold profitably
by distributors.
Sabina Hegarty:
Another issue to take into account is that you can actually buy Gap
for up to £50,000 worth of cover for £200 online. For the same
product you’ll be paying £600 in a dealership for maybe £20,000 of
cover. Once customers cotton on to this, the industry is going to
have to be careful.
That is a valid point.
How are dealers going to manage their provision with the online
channel offering this sort of price?
Serkan Obuz: A
lot of providers are changing their parameters to ensure they do
have a great level of cover, for example, to remove claim limits
completely and remove limitations on what valuations
are.
I think that is part of a focus
to improve the product. If you are improving the product to give
the customers some kind of pro rata refund if they cancel, perhaps,
there is an argument to be had that perhaps the cost of it should
reflect the added benefit that you are giving the customer to keep
your margins the same.
Or you could say you’ll sell
more of it if you’re giving that added benefit.
Marcus Dixon:
The biggest problem is that, now, if somebody came in 18 months
down the line you can still sell them another Gap, whereas you will
lose some of the commission if you sell the top-up policy. And
obviously you pay an extra premium.
It is tricky but it is something
my company believe will be enforced at some point. Some dealer
groups want to do something right now, others want to see what
happens. There are other insurers out there saying: “We will give
you these extra benefits but without charging you for them.” That
is not sustainable.
Eventually dealers are going to
sign up to that kind of concept, but somewhere in the contract will
be the fact they can up their premiums at some point.
Kevin Johnson:
We have been on the internet selling Gap since 2004 and warranty.
It is not a big market.
Depending on how the new Gap
moves forward, do you think the lenders are going to manoeuvre to
capitalise on the situation and do you think perhaps the car
insurers might think this is now the opportunity to include it as
an add-on? In other words, could there be more threat coming into
the dealer from other channels?
David Bond:
They already are. But the first year is such a big risk and they
give it away for £20-£30. But if you double that, the risk gets
greater – do they want to give that away?
Kevin Johnson:
And lenders?
Daniel Burgess:
That is interesting isn’t it? They could build it into their
fees.
David Bond:
Well, lenders have tried to give away Gap – “If you take our
finance product over 36 months we will give you Gap”.
A major retail funder did this,
then their dealers said: “If you are going to do that, don’t come
to us.”
What new or existing
products should business managers be selling now or selling more of
now?
Sue Healey:
Supaguard is a great product, which protects the exterior and
interior fabric of the vehicle. It is not regulated by the FSA so
the profits are high, yet the initial investment is fairly
low.
In terms of payment protection
it is generally the sales people who sell the product, not the
business manager – he has enough to think about. Whereas before,
Supaguard did come under the business managers’ domain, when the
FSA regulations came in it was moved out to the sales people, and
understandably so.
We provide a lot of training in
terms of where to introduce it in the sales process.
As long as it is hooked in early
on, a lot of dealers successfully sell it. So it is certainly
profitable and some of our most successful dealer groups are
achieving 50% penetration month on month.
Does anyone
see any new products emerging?
Steve Reynolds:
Does anybody use SMART? It is a fantastic product, but we don’t
sell it because we don’t sell BMWs, Mercedes or Jaguars, we sell
Fiat Puntos.
In my view, SMART is a product
that will be claimed on. My problem is the net cost is too high.
You buy a policy for about £168 for three years.
David Bond:
Company Car Care looked at SMART, but unless you have lots of
people selling it, the insurers get a bit nervous. It has been
piloted by several dealers, but feedback has been that it is
perhaps one product too many. I question the continual growth of
these small products.
Sabina Hegarty:
Some people say it’s expensive, but consumer reaction to pricing
can be surprising.
For example: when I first
started in business we were asked by Bentley to come in and see why
they weren’t selling any Supaguard. I observed them. They were
selling the product at £300. We said put the price up to £1,499.
They did, and it was flying out. Customers couldn’t see the
perceived value at the low price.
Sue Healey: To
agree with David, sometimes there are so many products – where do
you draw the line? You can get very concerned that suddenly one
product just replaces another. Where people prioritise things, they
do so in terms of profitability and interest from the customer.
That’s why we wanted to do something that you don’t have to sell as
a stand-alone.
Nick, is there an
attitude amongst consumers that there are too many financial
products?
Nick Lindsay:
Yes, we are all experts in our fields, we all understand the
products and they all make sense to us, but to the public they are
complex and if consumers don’t understand them, they back away from
buying products that actually make sense for them.
So the biggest challenge is the
qualification of the consumers, and making sure sales people are
confident in the process.
Steve Reynolds:
That is why we differentiate the products between sales people and
managers, because otherwise you are in danger of becoming a
travelling salesman.
So you finish up with the sale –
but then you have got the payment protection and Supaguard, or
whatever else, and the customer goes “phew” when it is all over.
You need a small selection of products.
Sabina Hegarty:
I asked all my business managers yesterday if I could do one thing
for them, what would it be? They said to reduce the amount of
products you give us to sell.
We will qualify the customer and
work out which of the stable of products we are going to offer. But
we won’t offer all six products every single time, but pick two
that we think are the best.
The hit rate is very high on the
two they pick. They are qualified properly; they have identified a
need and the customer is willing to buy that product. They know how
to deal with different customers. I think that is what the market
wants.
The customers are becoming
overloaded. They go home and they will take 10 calls a week saying:
“Have you been mis-sold?” Now you have to be careful of
bundling.
My team says dealers are
focusing quite heavily on service plans where there is a huge
amount of uptake. Customers are happy to have £1,200 service plans
because they are tangible. They know they are going to need the
service so they buy it.
David Bond:
Dealers don’t make any money on them.
Sabina Hegarty:
No, but they feed the after-sales department and if you do that,
sales will grow. Service is long-term profit.
The shift from five-year
HP to shorter PCP contracts shows the dealers are thinking more
long term in terms of retention. Are they getting people back
in?
Sabina Hegarty:
Stan said something earlier about reducing profits where you sell a
product – you make a little bit less money but you sell a lot more
products. And that’s it – little and often. If you sell enough
deals, you have got the customer, and that customer will come back
to you.
Daniel Burgess:
You are totally right – long term. The problem is short-term
profits. You have got to hit the target this month because you did
it last year and you have got to do it again. That is the
dilemma.
Stan Walker: We
pay the business manager selling the service plan £35 for every one
they sell and it works very well. It is getting the people back
into your showroom.
Does that
incentive come from after-sales?
Stan Walker: It
comes from the sales department. The service customer will come
back to you.
David Bond:
Tesco is a big name. You have got Tesco tyres, and next January
they start Tesco servicing. That is going to be about two-thirds of
the price of dealer servicing. So simple customer retention is
key.
Stan Walker: We
pay a business manager £35, but if he didn’t do that, what would it
cost to actually get a customer back in? We are actually more
successful selling plans on delivery than we are
upfront.
Kevin Johnson:
If you go back 10 years ago in the States there were probably 70
lenders and 30 insurers and they used to provide the dealers with
F&I logs.
Today, the majority of US
dealers are actually using a system like Andy’s, where there are
multiple suppliers all logged in.
If you look how that has now
evolved in this country, more and more people are taking on Andy’s
system rather than a standard set of F&I logs.
My question is: to what extent
over the next five years are the finance calculators going to
evolve on dealer websites?
Steve Reynolds:
We don’t use them, we won’t. We will have the calculator in branch
when we have got the customer sat in front of us. You have sold the
sausage and the
sizzle.
Our view is to get them in
first.
Kevin Johnson:
If you look at the likes of BMW, it is still maybe in its infant
stages but it is there, and my gut feeling is that the consumer is
going to insist on it, and on making their own decision.
Daniel Burgess:
For new cars it will be a hit. That is where I think the danger is
– someone will think it is a great idea; you do your insurance and
your finance online and you actually don’t need to go in to the
dealer.
Sabina Hegarty:
Yes, but 10 years ago we were all panicking about the internet,
thinking “we are going to lose all our customers”. But BMW has the
spec facility, where you can put the car on, turn it around, do all
sorts of things and then you can spec the exact car into the
calculator. People still walked through the dealers’ doors because
they can touch and feel the vehicle there.
Stan Walker: We
have had a calculator on our website for two-and-a-half years and
it has not affected anything we do.
This feeds into how to get
customers interested, giving people a call a week after sale from a
call centre. Where do you think the value is in
outbounding?
We do that for our credit
insurance and it has been very successful, but that’s not to say I
won’t want to bring that back in once the PPI issue has gone away.
I might want to bring it back in-house. That might be my long-term
view. I don’t know. It is working very well at present.
Serkan Obuz:
Our experience is very similar. It works well with income
protection and service plans, because these are products consumers
understand. It also works really well with warranty renewals. With
Gap it has always been challenging. It is such a new concept with
so many people it is difficult to get buy-ins over the
phone.
Sue Healey: I
did some training with one of our groups the other week. I was
surprised because, within Supaguard, we encourage people to revisit
the customer after the order, but prior to delivery.
I was quite astonished to find
this group phoning the customer three or four weeks after they have
taken delivery of the car, inviting them back for a valet, and they
are doing really well with Supaguard sales.
Kevin Johnson:
I think it starts from the dealer’s website. The link between the
experience you give the client on the dealer website, down onto the
showroom floor, and afterwards from the call centre, is very
important.
You have got to be clear with
your goals on the experience for the client. You need to look at
good user-friendly technology.
