Jo Tacon talks to Norman Beaumont of ACF Car Finance
about the importance of finding a winning formula in sub-prime
finance – and sticking to it.
Go deeper with GlobalData
There was a revolution in the sub-prime motor finance arena in
2008, which looks set to continue into the new year. Most of the
major players in this space have exited the market over the last 12
months (see MF Oct ‘08), after the credit crunch put an
end to the era of cheap money.
But one company which has stuck it out in the non-prime car
finance arena is ACF Car Finance, and its sales and marketing
director Norman Beaumont is keen to underline the company’s
long-term commitment to the market. “We are extremely comfortable
with our current volumes, and more than comfortable with our
funding,” he says.
An offshoot of Chester-based lender The Funding Corporation
(TFC) – which is privately owned – ACF Car Finance, which has been
in business for 14 years, is a “provider of finance and cars”
rather than a finance company in its own right, Beaumont explains.
It acts as a conduit for TFC, which provides finance for non-prime
customers, and for Cygnet Financial Services, which specialises in
deep sub-prime finance. It has eight outlets – after closing a
ninth in Livingston in early 2008 due to “logistical reasons”,
Beaumont says – which stretch from Leeds to Maidstone. Although ACF
currently has “no plans” to open new outlets, the company is
“always mindful that there are pockets of the country that we could
move into,” Beaumont adds.
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By GlobalDataACF markets itself to customers as a ‘complete package’ – car
and credit in one. The approach clearly appeals to customers, and
the finance penetration rate at ACF’s outlets is “over 99.9 per
cent”, Beaumont says, with a “tiny” proportion of clients choosing
to pay in cash. And given the dearth of competition in sub-prime
motor finance, not to mention the growing numbers of UK consumers
who fall into this category, it seems that ACF may well be onto a
winning formula.
“We’re definitely enjoying the market at the moment,” Beaumont
says. “We’re in an expanding marketplace, as more consumers fall
into the non-prime category, with less competition – it’s fairly
ideal.” However, the company does not “see the need to expand” via
new channels, Beaumont adds: “TFC and Cygnet support ACF, and don’t
want to go looking for business from external sources.”
ACF’s customers are referred to the company via brokers,
traditional direct marketing, and its website, which provides
“between 30 and 60 per cent of referrals, depending on the time of
year, with about 40 per cent the average,” Beaumont explains.
Underwriting ‘reviewed’
Finance for ACF customers is provided by either TFC or Cygnet in
the overwhelming majority of cases, with Advantage Finance the only
external provider, doing “a small but valuable amount for us”,
Beaumont says. ACF previously worked with Welcome Financial
Services, an agreement which ceased when Welcome pulled out of
third-party HP in April 2008.
The credit crunch has led to both TFC and Cygnet reviewing their
underwriting policies and standards with changes implemented this
month to further improve the quality of the business being written.
The underwriting process at TFC is largely automated, so
“underwriters would see cases by exception rather than as a rule,
while at Cygnet every application is reviewed individually”,
Beaumont explains.
Once the underwriting process is complete, customers are
contacted in order to book an appointment at the nearest ACF
showroom.
The retailer also runs seasonal promotions. “Last year we ran a
promotion to get customers into the showroom between Christmas and
New Year – traditionally a dead time for car sales. It was a big
success and generated significant showroom traffic,” Beaumont
says.
The past year saw major changes at TFC, as the business was
restructured, with some staff made redundant. “We have exited all
other marketplaces, including secured and unsecured loans, apart
from prime leisure [TFC has a joint trading relationship with
Fortis Bank, called IM Financial Services Leisure], and now our
whole focus is on sub-prime finance, channelled through ACF,”
Beaumont explains. He says that the process has left the business
“stronger than ever”, and much more efficient: “Now, all our call
centre, underwriting and in-branch systems and staff talk to each
other, and we have much more of a buy-in from employees, as they
can see much more clearly the contribution their actions make
towards our business goals.”
Arrears well in hand
It is no secret that arrears levels are a worry for the vast
majority of motor finance providers, as over-indebted consumers
fall behind with their obligations. However, ACF benefits in this
area with TFC and Cygnet employing specialist collectors who are
experienced in the sub prime marketplace. Associate company
Red2Black Collections Ltd handles the TFC collections, with Cygnet
handling its own collections.
ACF has recently also taken a more direct role in the
preparation of its vehicles, having set up a “state-of-the-art”
preparation centre at Quedgeley, near Gloucester. The vehicles
arrive from a variety of sources – auctions, remarketing companies
– using ACF’s own fleet of six transporters and trailers to move
them. There is an independent MOT test centre on-site as well, and
all cars must pass an MOT and undergo a rigorous 136-point vehicle
quality inspection, before being professionally valeted, quality
control checked and despatched to ACF’s eight outlets.
Customer focus
Beaumont is keen to stress that ACF is “fully compliant” with
all of the Financial Services Authority’s rules, including the
Treating Customers Fairly initiative – “it’s at the heart of
everything we do”. Payment protection insurance “is never a
condition of purchasing a car”, he emphasises; instead, a
customer’s needs are closely examined and, if lender and customer
think it is appropriate, insurance will be built into the
agreement.
He is also proud of the fact that the Office of Fair Trading
(OFT) has extended both ACF and Cygnet’s Consumer Credit Licences
“indefinitely”, and comments: “Sitting as we do in the highest risk
category, to have this acknowledgement from the OFT is a fantastic
achievement.”
The gloom hanging over the outlook for the UK economy as the
country enters 2009 does not unduly bother Beaumont. “There are
significantly more people in the UK with impaired credit, meaning
we have a greater potential customer base; and as we are privately
owned, liquidity is not an issue for us. In the end, it’s all about
selling the right number of cars at the right margin – everything
else is peripheral to that,” he concludes.
