A special relationship: Motor Finance brought together a number of experts to talk about the differences between US and UK car finance, namely advertising, generating leads and compliance. Can we learn anything from the Americans?

This month, Motor Finance, in collaboration with Frontline Solutions, invited seven car finance professionals to attend the eighth of 12 round table discussions. The following pages highlight the afternoon debate, in which the three key points of interest were:

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  • US and UK car finance advertising
  • generating ‘finance leads’
  • compliance and regulation

Finance leads: how can UK dealers generate them and make best use of them?

Shamus Hodgson: Can UK dealers create finance leads in the same way that US
dealers do? Obviously they can, but the more pertinent question is why they choose not to.

Yes Car Credit was a success because it sold finance first when the availability of finance was a concern, whereas the prime customers are interested in the car.

As a non-prime funder, of course we’d love to see the US model in place. A huge percentage of the population miss out on a dealer-supplied vehicle because they don’t feel they can go down that finance route due to it coming at the end of the sales process.

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Graham Hill: As a consultant for Yes Car Credit, I was asked to call clients following their purchase. I was amazed to find that there was a fairly high proportion of them that were actually prime customers. However, the process was so simple: an online application for credit, visiting the sales site, then being told what car they could have – it made life very straightforward. Many customers were prime candidates but paying sub-prime rates because of the ease of the exercise.

At Yes, provided you could eat, breathe, and drink water then you pretty much received the credit, subject to an affordable rate, other than if you were an undischarged bankrupt.

Alex Cooke: At our dealerships, we will give you $100 (£64) if we can’t clear you on finance, and that actually only costs us about $2,700 a year. But it means we can talk to them immediately about finance, because we’ve drawn them in on that basis. Now you can funnel them straight into finance talk first to see if they fall into prime, subprime or near-prime.

Teresa Darlison:We’re trying to direct the conversation towards finance at the earliest opportunity, but it’s the same old story. If you allow the dealer to see the score, will they make an assumption on that customer? Of course they will. If I have a customer who has been declined by two prime lenders with a score of 530, the reaction is to start questioning, when you should be making the deal. It’s the old adage, a customer walks in a pair of wellies and a pair of old jeans, and he’s not going to buy a car. Well yes, actually, he is.

Chris Sykes: I had quite a detailed conversation with a dealer not long ago. He was very proud to show me this new script they had written of how they were going to talk to customers in a much better way, and when I asked the question: "Are you going to ask them if there’s any reason they believe they won’t get prime finance?" his reply was: "Oh no, we haven’t thought about that, we can’t ask that."

There seems to be a real fear of just actually asking direct questions. I think the majority of people out there know that acquiring finance isn’t a given like it might’ve been a few years ago. Asking someone at an early stage, even if the customer doesn’t tell you the truth, has got them into a space where you’ve started talking about the opportunity. There’s an area where dealers can really be more confident with their patter and get it in at an early stage.

Graham Hill:Discussions have been taking place recently regarding pre-vetting of applicants. This doesn’t mean setting up a credit line, but letting the customer know whether he’s going to be a prime or subprime candidate, taking away some of the disappointment when he makes a credit application to find that the car that was going to cost him £200 a month is now £400 a month at subprime rate.

Again, the model goes back to Yes Car Credit. They were selling finance first but focused very quickly on the cars. Their adverts would exclaim: "If you’ve had problems with finance, come to Yes Car Credit because we can help you", and then they would show a desirable row of cars. Because that’s really what people want, to get the finance sorted out quickly, then concentrate on the car, knowing that they can have a two- or three-year-old car and get out of their 10-year-old heap of junk.

Darran Simons: In the current climate it is important to grow new and alternative revenue streams. Providing finance brings with it a lot of challenges, but it is proven to be good business for those that get it right. Motor retailers in the UK have a strong track record of diversification, and we’ve done a lot of work to help improve customer loyalty for those seeking to boost aftersales
business, but it’s important to remember that their core business is about maximising sales and getting vehicles off the forecourt.

Shamus Hodgson: But that’s where I think the Americans think in a more joined up way than we do – in order to shift the metal, you’ve got to have the finance in many cases, and actually if you don’t proposition the finance at the appropriate point in the sales process, you’re losing a lot of those customers.

It isn’t just F&I and selling the car; they should be entirely joined up in process and profit. They can’t afford to ignore the finance and profit of the metal. All the dealers I speak to say its tougher to make profit out of metal at the moment. Dealers in franchises particularly are under pressure to shift units, but at the same time they need to try and create other profit opportunities elsewhere.

Darren Greenyer: I think one of the issues about profit levers is that the dealer principle would probably be to say: "I want you to pull every lever you can to make profit."

However, a customer walks into the showroom and who’s the person he sees first? A salesperson who talks about vehicles and shows you the one he wants to sell. Further down the line, if you’re lucky enough to have a business manager, you get into that scenario where you start to talk about finance.

If finance is to be a big profit lever you don’t want to wait for customers to walk into the showroom. Finance companies and dealers need to be working together to speak with their existing customers to say: "Its coming towards the end of the agreement, you’ve taken a vehicle from us and you’ve taken finance from us". Customers with equity already invested in you are the customers you should be marketing.

What can the UK F&I industry borrow from the US advertising model?

Shamus Hodgson: I just think UK consumers might react negatively to some of the finance first selling in the US. Look at the ways cars are marketed, its all about glamour, sex and performance. I think part of our reticence to talk early on about money is actually, we don’t want to talk about it! The beautiful piece of engineering is what companies have spent millions marketing – money is secondary.

It’s quite a British thing to consider talk of money as vulgar; it’s a necessary inconvenience that we will discuss later on. Not only does there need to be a change in dealers, there needs to be a change in finance
companies to support dealers with propositions that work up front. Credit reference agencies also have a role to play and consumers do need to catch up with the reality of finance.

Darran Simons: In the current climate it’s important to grow new and alternative revenue streams. Providing finance brings with it a lot of challenges, but it is proven to be good business for those that get it right. Motor retailers in the UK have a strong track record of diversification, and we’ve done a lot of work to help improve customer loyalty for those seeking to boost aftersales business, but it’s important to remember that their core business is about maximising sales and getting vehicles off the forecourt.

Alex Cooke: There’s a company over here I use who puts together a 30-minute slot for us with a theme, which we call blind advertising. The last theme was $88 down, $88
a month. They film testimonials from people that have got cars and didn’t think they could, and put urgency into the infomercial by saying that there are limited funds
available.

To get in on the deal you have to call the number or log on – we get mostly calls – and there are live operators standing by to take your information. They get the information off the customers and forward the information to the dealers, and then we call them and set up an appointment. What’s nice about the way this works is I give them $5,000 a month and they guarantee me 500 leads. When we run those spots, we don’t get people calling if they can get finance on their own.

The adverts are generated for subprime, and I would say 95-98% of potential customers are subprime. As a percentage of my overall customers, about a third are subprime.

Darren Greenyer: I think in the US there’s a much bigger market for the localised advert on local TV. Other than quite obscure channels on Sky you don’t come across those, and nor is it necessarily going to be cost-
effective for them to do that, because you are talking tens of millions for sustained TV ads.

Alex Cooke: That’s where this might work if you can get together with dealerships all over the country, and organise maybe a couple of dealerships in each geographical pot, and then nationally advertise a half-hour show. Then you can have a cost-per-lead charged to the dealer from whoever is running them. But you have to find someone who’s willing to do that all together.

In the States, it definitely didn’t start with dealers getting together. They don’t want to share their leads. It was started up by an advertising company. They did very well, and now there are a couple of them doing it.

Chris Sykes: The manufacturers have definitely stepped up their online ad campaigns. Recently, we’ve heard about the cost of acquiring leads. I didn’t hear brokers talking about that for years, but now it seems every other conversation I have is: "We’ve had quite a down this month, because leads are up to £16 or £20 each for the applications."

It seems a big part of that is if you type in ‘car finance’ now, you’ve got a lot of the manufacturers there. Sainsbury’s Bank, personal loan companies, etc, are all competing for those types of online enquiries.

Darran Simons: In the US, where there is a huge consumer target market, television makes a lot of sense, and with enough money and a good enough hook they’ll get people through the door. Brands in the UK need to take more of a multi-channel approach to marketing and take full advantage of digital, to ensure that communications can be more accurately tailored to those they want to reach.

Teresa Darlison: At Frontline, we have several customers who are using the credit enquiry and it’s turning out to be a massive success. We get the statistics on a weekly basis and we produce a certain level where you can see where the cut-offs are from
certain lenders. I have a particular dealer whose efficiency I’ve improved by 50% in only two weeks.

I go through the deal as well, so I look at it from an ex-finance and underwriting point of view. Would I have changed my mind on that? Come up with a different answer? No, I wouldn’t. It’s amazing the success that’s coming through, not just with high-level but with mid-prime as well. You can look at the graph and see, that’s the line. That’s where I need to cut it off.

Shamus Hodgson:Adopting a US approach to car finance adverts would certainly involve regulatory challenges. However, some of the UK television and press advertising aimed at subprime customers is not that different. There’s a slightly different tone, which there is in all adverts from the UK compared to the US, but the implication is the same.

What happens at the moment is that there aren’t many funders or dealer groups who are prepared to put money into adverts to go directly to customers. Again, this goes back to the question of who owns the customer, and who pays money to acquire the customer?

Pre-credit crunch, a lot of the second-charge mortgage providers were targeting customers who would struggle to get a normal bank loan. They would use specific phrases such as: "Yes, even you", and talk about personal situations that the consumer may have suffered from, such as divorce.

Graham Hill: In the Yes Car Credit model, everybody that applied, did so online. They didn’t have to talk to anyone and have the embarrassment of explaining to a stranger: "I’ve got four CCJs but they were three years ago and I don’t know if that affects me."

It’s the ideal solution, there’s nothing worse that sitting in front of someone you don’t know in a showroom and having to admit you have a little or a lot of adverse credit but you’re still hopeful you’re going to get some finance.

If we could get everybody working together (and that includes the finance companies, as they would need to change their way of working to dovetail into this process), whereby when a customer turns up at the dealership they’ve already been scaled to be either a prime or subprime customer. They would already know roughly what it will cost them per £1,000 borrowed before they turn up at the dealership.

Chris Sykes: It’s not just the customer that experiences that state of disappointment when they find out they’re subprime, it’s the dealer as well. Maybe the dealer has lined them up for a prime deal – in the back of their mind, they’re thinking how much money they’re going to make from this deal, and as soon as the customer is declared subprime, they’re disappointed. We know for a fact they think of that customer now as a second-rate one. However, customers who are subprime are a growing market. They’re not just the people who can’t pay or won’t pay; they genuinely could have had an issue, and deserve to be treated just the same as a prime customer.

Alex Cooke: If a customer wants to get pricing and to come in to see the car, we treat them completely differently from someone that’s calling for finance to buy a car.

If a customer calls up wanting to apply for a loan, the best thing to do is take him through information, get him qualified and set the appointment. Trying to sidestep the pricing over the internet or phone just doesn’t work.

On finance applications, the most important thing is to take all the information. We find that if we don’t stay on top of our reps they forget to get more than one way to contact the customer, particularly on finance leads.

One thing we’ve just started doing is texting people, and I would say 90% of texts get over. If they call into our centre and we miss the call we have a safety net which generates a lead that automatically goes into our system.

Darren Greenyer: For the UK, the problem is still the question of who owns that customer. On one hand you have the finance house, who doesn’t necessarily want to upset the dealer, and on the other you have the dealer, who probably isn’t too worried about upsetting the finance company, but may not have the time or resource to do anything with it.

If the finance company gives the lead back to the dealer, are they certain that that finance is going to come back to them? There is a way of being slightly smarter which may happen, whereby the finance company goes to the dealer, and tells them they have a customer who is pre-approved at a certain level. Clearly you’ll need customer agreement if you need to do a new credit check for that, but I do feel there needs to be a closer working relationship between the finance company and the dealer.

Shamus Hodgson: One of the challenges now is that the dealer network is very disparate. A BMW franchise will have a very limited amount of things they can do from a marketing perspective, but an independent used car business will have a very different strategy. A one-size-fits-all model is impossible. Having said that, there is an appetite in the market to find consensus.
This could be through systems such as Frontline or HPI, who can use tools to achieve a level of similarity between dealers and finance companies, or though databases, which at the moment could use improvement.

Darren Greenyer:There are various organisations out there which you can put your database into. HPI has a product where we can tell you if the vehicle has changed hands, whether the customer still lives at the address, whether they’ve died, etc – they can pull out all those bits of information for you.

We have had huge databases come in with 100,000 customers on them, and out of those, 7-12% of them will have incorrect information listed. It always comes down to time and money, doesn’t it?

We even have it with finance houses, doing cleanses via the FLA. They do take time to complete and IT resource is not always prioritised on such a task. But the amount of money being wasted by those that do direct marketing without cleansing their database is massive.

I got a lovely glossy bespoke Nissan brochure the other day with my name throughout the book – I haven’t owned a Nissan in seven or eight years and have only just bought a new car, so there is a lot of money wasted.

Shamus Hodsgon: We have to get databases in a shape where they’re accurate and up to date, and we have to actually use that information. Unless you are re-soliciting, and making sure that the information you send out is relevant and accurate, there’s no point even having the database.

To what extent can we in the UK make good use and profits out of the tactics in the States?

Alex Cooke:Compliance is a work in progress, but it’s becoming a big topic in
the States. There’s a course called the Association of Finance and Insurance
Professionals, which we make our finance managers get certified in.

They, and myself, had to take a federal test, a state test, and an ethics test in a testing environment, and you have to score 80% or better on all three modules to get certified, with certification lasting two years.

Knowledge is power. If you know what the rules and regulations are, and you have a process and procedure to follow them, then you’re going to stand a lot better chance of being able to defend yourself against audits.

Darren Greenyer: On the face of it, it would appear that we are light years apart in terms of regulatory framework. I would suspect with commission disclosure on the horizon in the UK, this gap is likely to widen.

What you do get in the UK finance market is the ability to adapt. CCD was a big fear this year yet, since its inception, point of sale finance has increased.

Darran Simons: A lesson we can take from the States is encouraging customers to be more credit-aware. Where consumers are aware of their credit score, and how their credit history will impact on their ability to obtain car finance, there is less potential for good sales time to be wasted at the credit hurdle.

Teresa Darlison: I’m intrigued by the Association of Finance Professionals. We have SAF over here, but I know of dealers that sit the tests for the salesman.

The salesman wouldn’t have a clue if you said: "What is a conditional sale? What is CCD?" There needs to be more education. A customer will go into a sales process and be infuriated, because they don’t feel like the salesman understands the transaction.

In my work I’ve gone into a process with a salesman and asked him questions, and he’ll say: "Er, I’ll just get you the keys. We’ll take a look at the car. It’s white. It’s lovely."