In the second of two panel discussions held during Frontline Solutions’ third annual F&I Conference and Awards Dinner, attendees gathered for a panel discussion on the world of car finance brokers, hosted by Glenside Finance and chaired by Motor Finance assistant editor Richard Brown.
Richard Brown: Why don’t we have all the brokers in a room more often? Why has there not been a meeting between all the brokers since the days of British Credit Trust?
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Kurt Bradbury: There was a huge appetite, a camaraderie, initially between brokers. We were all friends and led by that. There remains camaraderie in the North West with the motor brokers: Jigsaw, AUF, DSG, Mann Island, to name but a few.
A lot of the community was driven by the former lenders in the market, British Credit Trust, especially, brought people together. Andy [Shuter, managing director, Frontline Solutions] has done exceptionally well to get that ball rolling again.
As you may have picked up in Richard’s [Hoggart, managing director, DSG] talk earlier on [see Motor Finance 96, October], we’d agree we’re going to operate in certain ways and there should be a service standard and a way of working. We’d agree at informal meetings, and then certain brokers go away and change their behaviour and certain brokers don’t. There’s been a move from certain brokers to disassociate themselves. We’re in a tough economic climate and all looking for that edge.
Tim Marlow: I’ve got a JV with the guys at DSG. We both bring benefits.Looking at the meetings that have not happened, I’m aware lots of brokers are still picking up the phone in the market, speaking to each other. Are the meetings happening? In an official format, no they’re not. It’s good to do something like this, but informally they are still bouncing ideas off each other.
If you’re unsure, you speak to a lender and they say ‘speak to such-and-such a broker’; that is still happening but there have been a lot of changes. Over recent years, we do all seem to be busier as we’re growing. Time’s a valuable commodity.
David Cox-Greer: There are more demands on time now. When times were good, you seemed to have more time. As the drawbridge is pulled up, it gets more difficult.
You guys, the brokers, get together with the more-prime lenders that still have, for want of a better word, jollies. There is still some good business to be discussed at these things.
Those meetings still go on, but not in a formal way. It’s not structured whereby everybody gets together once a year, as they do here.
Jim Pike: There’s probably a need to have some association for car finance brokers. There used to be one called the BLBA, British Lease Brokers Association. I was in it with Graham Hill. It wasn’t primarily for car finance brokers, but the industry’s changed a lot over the last 20 years.
That would be great for brokers, to have an association, meet once every two or three months and just go over ideas. I don’t see everybody as competition, I see them as allies; friends more than anything.
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By GlobalDataCox-Greer: They have one for mortgages, the Corporation of Mortgage Lenders. That held an annual meeting to go through legislation and some pieces on the industry.
Marlow: It’s showing best practice. There is the National Association of Credit Finance Brokers, they have the motor division, but that’s been engulfed with commercial finance brokers.
Steve Hargreaves: Does anybody think it would work? Going on past experience involved in forming a dealer association, initially there was a bit of reticence because dealers were saying they weren’t going to share information.
You’re not going to share sensitive information like finances, but you’re sharing ideas and you’re perhaps pooling resources to lobby. Some group or body to do that could work. With this dealer association, formed back in the ’90s and is still going, the mistrust that people had, initially, disappeared. They realised they were competition but it works. If you have a mind, you can commit to it.
Marlow: It’s bringing together the core people. Those that are not going to abuse it get the ideas and do their own thing anyway. You soon get a feel for the people who are serious about doing it.
Bradbury: There is a hardcore that would be prepared to do it. There should be a representation at the FLA [Finance & Leasing Association]. I’ve investigated for us to become an associate member of the FLA, but it’s £10,000. It’s cost-prohibitive but people do share principles and are part of a hardcore.
I like the idea of the Campaign for Fair Finance and it’s something I’m going to get involved in, but we haven’t really got a voice. We’ve got these archaic rules, 38 years old now, and little seems to be happening. How can we be assured a next review of the Consumer Credit Act does away with these things, which everybody agrees need changing?
Pike: There could be anything from 200 to 500 car finance brokers in the UK. What you need is somebody at the front to form an association of car finance brokers. Nobody has time to do it. We would certainly support it, attend meetings and help out where we can.
Hargreaves: You’ve got to have clear objectives and, if you’re going to do it, you all sign up to it. From our perspective, we know which brokers we don’t want to deal with. We know who we’d like to deal with. Brokers aren’t bad people. You’re not some guys who have just walked in off the street, you’ve made a commitment. You need to have a voice.
Bradbury: The broker community and the people around this table play with a straight bat and we’re proud of that, but that’s not the perception. What is going forward is the legislation: CCD and, potentially, commission disclosure, which means our customers, motor dealers, must start taking broker selection more seriously. They need to know their supplier. If an accredited association with a trade association gives them that comfort then that’s definitely a good thing.
Brown: What changes would you like to see in the market, ideally or realistically?
Mike Burn: A bit more qualification from the dealers with regard to asking one simple question to the customers: Have they ever had any credit problems in the past?
Trina Clark: You’re still getting the three years’ address, three years’ employment, on proposals and it just creates more work. If they asked the right questions at proposal stage they’d get the correct information.
Pike: There’s the customer that admits they have had financial problems but is working now on a reasonable salary. He or she will be OK. Then there’s the person who says they have a couple of County Court Judgements. When you do the search, you find they’ve got 27. We don’t deal with those because we know they’ll go wrong.
Bradbury: Something I’d like, in the non-prime sector, is the education of motor dealers. We are helping these people get back on the finance ladder; that car can be the difference between these people keeping or losing a job.
Take a stance as a motor dealership; equip the sales team with the skills to converse. There’s a massive void in some areas of the retail industry. Because we’re all prime people around the table, the thought of paying 14% flat would make us shudder. These guys, they’re 14% flat because they’re in a situation. That’s a really big one: dealer education.
Cox-Greer: That’s a sea change because the manufacturer companies don’t do much training at all. They used to. When we were at Chartered Trust we had F&I training. Doesn’t happen any more. The only thing we can fall back on is the SAF. I sit on the SAF steering group on behalf of Moneyway. There’s not a lot else out there for these guys.
Hargreaves: From a lender’s perspective, it would be nice if dealers were more honest.
Cox-Greer: The brokers and their funders see it as a partnership. The dealers don’t because they think funders will always be there, just move and chop and change, but we all talk to each other. Dealers probably aren’t going to be there next year because they’re transient and move away.
Brown: Are we talking about a larger and more differentiated spectrum of subprime?
Bradbury: I see a growing appetite as the lenders and funders gain confidence in the market. They’re changing policy, almost on a fortnightly basis, going a little bit further.
That’s a consequence of the credit crunch. Many lenders lost their nerve. Now we’re finding that level again.
Cox-Greer: We were always having a conversation, broker bulletins coming out, giving confidence to feed back to dealers.
The quality from brokers, of deals they’re setting up, has changed. More brokers are doing what our direct people would do.
That’s cleaned up a bit and had an impact on what we do as a lender. It’s all about sharing confidence.
Hargreaves: Credit scoring doesn’t help the situation. We see proposals: why has it been declined by a prime lender? The odd, little default on a phone? That seems a bit harsh. I’ve said we don’t mind.
Credit scoring is an inaccurate science. That’s the problem. It’s good for us, of course, but as a system it’s flawed.
Burn: We bite very deep in the subprime market. We do credit search and we do credit score. We only use the credit score to determine the level of deposit that we need. Everything else is the underwriter’s perception and the outcome of the conversation with the customer.
Cox-Greer: We have to credit score, simply because of the volume. We simply wouldn’t have enough people on the floor to underwrite manually. But there’s a score cut-off where somebody does get involved. It’s the only way we could operate.
Brown: Will Black Horse ever start accepting brokers again?
Marlow: With the ‘captive’ dealer groups they’ve got, they probably don’t need to. Are they making money on that account?
Looking at some of the deals they’re doing and the big volume bonuses I’m not sure how they are making a return, but they must have profitability models.
Bradbury: Black Horse is well-positioned within the market and remains one of the market leaders. However, it seems their appetite to lend has been hampered by their lending capacity.
Black Horse is a barometer. When their liquidity and lending capacity returns, brokers will be knocking on their doors.
Burn: Forgive me if this is obvious to you guys, but why did Black Horse stop dealing with brokers?
Bradbury: In short, the credit crunch. They had to back their manufacturer ties, which they have. They’ve done everything I would do if I were head of Black Horse. They’ve got to look after the manufacturer side, the more prestigious, the more long-term, and I’m sure terminating some of their broker arrangements was a very difficult decision.
Marlow: It might go back to the fact brokers are sometimes tarnished by reputation. Lenders, not the majority, thought: ‘Broker’s got an issue there, default level’s gone through the roof, let’s just can it’.
It’ll be a decision made by someone a lot senior, it goes back to the broker image we have. I go into any dealer and say I’m a broker but I do things differently. You’re apologising as you go in there.
Bradbury: But you’re more sophisticated than almost any lender. We should be seen by dealers as absolutely essential because what we do, I’m sure, is make the difference between profit and loss. We might only provide 5% of their solutions but that is the difference.
Brown: If claims management companies are more often targeting dealers and lenders, are brokers missing the worst of the regulation storm?
Marlow: It goes back to the partnership stance. We’re there with the lenders. If the lender’s not happy, he’s coming back to our doorstep. We’re looking at the best way to handle commission disclosure now because we can sometimes have a car-sourcing agent, a dealer, ourselves and the lender. How do you get all four parties to disclose commission?
Pike: We’ve addressed that problem. We foresaw commission being a problem. We get the customers to sign a disclaimer saying they are aware of the commission and it’s reasonable.
That’s up front and covers everybody. If we give you commission, you give some to your dealer, you’re all covered because your commission goes on the disclaimer.
It also states they’ve been quoted the figures, they’re happy, they can afford it. When commission disclosure comes, it might be a retrospective thing and they might claim back. We introduced it some time ago.
Bradbury: That’s very prudent. I’ve got a different slant: The Consumer Credit Directive and commission disclosure are one and the same. The regulator is interested in what product the customer gets, how he’s treated and whether he gets adequate explanations.
Commission disclosure is a smokescreen. If a customer is knowingly sold a certain product because of X commission – irrespective of what the commission is – if there was a more suitable product, then that’s wrong.
In my view, the regulators will be more interested in the operator agreements between lender and dealer, or lender and broker. If you go to Dealer X, who’s routinely selling 60-month HP when he has a perfectly good PCP in his portfolio or something far more suitable for that customer’s needs and change cycle, that is wrong.
That’s where the dealer is going to come unstuck unless they have an audit trail of what the customer has been told.
Marlow: That’s the difference with our side. They’re direct with the dealers. You can say to the customer: ‘We’re taking this commission but we’re still 2%, 3% cheaper than anybody else out there’.
Is that wrong? The customer’s still getting a good deal on it.
Bradbury: It’s what’s driving the sales process. If the landscape in the dealership is: That is the product you sell, come hell or high water, or you will be disciplined; then the dealer has to take control.
It’s good for the industry. This is what’s going to differentiate my business, our business, from other brokers because we’ll equip dealers with that. Dealers are the ones who have to make a decision, but we need to equip our dealers so they’re not building up a huge war chest for the claims management companies.
Brown: Will we see more consolidation or fragmentation of brokers in the next few years?
Marlow: Definitely some are going to fall by the wayside. There might be a few casualties in there that can’t keep up with the growth.
Technology is not cheap. When you get your CAP codes, your search features, your HPIs, the cost of doing a deal ¬at a broker level – not even a lender level – will start pricing some people out. We’ve experienced some brokers going in at silly margins to get £200 or £300 on a £40,000 or £50,000 deal. We don’t work an hourly rate, but if we did, we just lost money on that deal.
Bradbury: There’s ignorance as to what running a brokerage costs. It’s not for the faint-hearted. CAP, HPI, Experian, it just racks up, just the cost to open the doors, forget the salary.
When I was working at Carlyle, now MotoNovo, and First National I didn’t realise how well-equipped and sophisticated brokers are, and have to be, to operate properly.
Cox-Greer: What you’ve seen is those ones that disappear because of disclosure, CCD and other bits and pieces; even the smaller brokers still have costs.
Bradbury: There’s a dichotomy. The brokers you want to deal with are investing to protect all their stakeholders. The brokers you don’t want to deal with are not and don’t have that pressure.
We need CAP to drive our systems. Without that CAP code, it just doesn’t work. We need that, the sophisticated brokers, XML into the funders to make it more efficient. It costs tens, if not hundreds, of thousands of pounds to drive our systems.
We have Maia online, which enables all of our dealers to get multiple quotes. The point I was making was the brokers that are doing it right are incurring the most costs.
Why are lenders dealing with brokers that don’t take their business seriously? They should have a different rate structure. That’s the frustration, these smaller brokers charging the same rates as the big brokers, more or less.
Burn: I think we saw, pre-2007, every man and his dog could set himself up as a broker on the back of Welcome Finance’s facilities.
Once Welcome disappeared, a lot of the one-man bands disappeared, but certainly, now, because we deal almost exclusively with brokers, I’m seeing more and more calls coming in from that type of operation.
It could be an ex-finance company rep who’s chucked his hand in and has relationships with three or four dealers, gets a couple of funders and tries his luck. That’s not the type of person we’d like to deal with.
They’re not sustainable. They’ve got no costs, but no real business growth aspirations either.
Brown: How much does the support of manufacturers’ captive finance providers stifle the opportunity for brokers to grow?
Marlow: I don’t think it stifles our opportunity. It’s competitive. Ferrari came into the market two years ago. It’s quite refreshing. They’re supporting their own metal. They are as desperate for the business as the lenders and brokers.
You can’t compete with deposit contribution and subsidised finance on some deals but hats off to them if they can capture finance and support their metal with bigger residuals at the back-end.
It doesn’t do me any favours but that’s what the industry needs. There’s potential risk but it’s a different market; they’ll be able to bail out if needed by retailing any problem cars through the dealer network.
You can get subsidised deals by manufacturers anywhere. We come into play when the client doesn’t fit the deal, whether it’s ourselves looking at a variable rate deal for someone who has a much cheaper offer through his bank, or whether it’s a mid-subprime where they’re never going to get that deal anyway. That’s where you tell dealers to re-educate customers to go for something else.
Burn: The keener manufacturer plans sharpen up the other lenders who operate in that marketplace: Barclays, Black Horse, whoever. That’s to the benefit of brokers.
If manufacturers’ finance is subsidising down to interest-free, then independents would be looking at a close, not comparable, package. It’s for the brokers to pick up customers who have just dropped out of interest-free qualification.
Marlow: Some will want to chase the dream whereas others will sit back knowing there’s a portion of people that won’t make that deal, maintain rates and profit margin.
I’d rather we work and have a good margin out of a deal because we’ve put time and resource in.
Burn: Either way, it’s not going to be to the detriment of the broker, is it?
Bradbury: Most of the manufacturers’ schemes are designed around getting the customer back into that change cycle using PCP. It’s educating the customer, which has got to be a good thing for a company like DSG. What we need is a non-prime PCP. The market’s crying out for it.
We don’t see it as a threat.It probably is damaging our volumes, given how aggressive the lenders are but we just find a different way.
Marlow: Land Rover is a recent example. They’ve been doing 0% offers to shift stock. It’s great for us because we ask customers: ‘Who’s paying for the finance?’ Then we give them a super low-rate deal by us and they still get the discount off the car.
The customer’s better off, especially if he’s going to be changing within a year, with the discount up front rather than spread over the subsidy. That’s where the sophistication comes in to make a deal happen.
Hargreaves: The manufacturer’s finance group doesn’t work for it.When it comes to the crunch, the opportunity’s there for the good brokers to do the business.
Marlow: It’s down to educating the dealers as well. Some business managers do their subsidised deals and they dock £200 or £300 off it. They’re eating into their own profit per unit, whereas they can cross-sell the customers on bigger commissions; that’s where we see a win with a lot of dealers.
Bradbury: This is why it’s critical a dealer group commits to one broker. That broker will then commit to them.
I want to educate dealers on the importance of selecting. Whether it’s DSG or whoever, just have one. Treat a broker the same way you’d treat all lenders.
For regulatory reasons, control reasons, for every reason, they need to look at this, know who they’re dealing with, know their supplier. If that broker can’t satisfy your needs, change it like you’d change your finance company.
Some dealers change their finance company every year. I don’t have reps running around, wasting their time with dealers that aren’t committed.
Brown: What is the biggest regulatory concern for brokers?
Clark: Ambulance chasers, claims management companies; if they’ve written this generic letter to you, if there’s not enough information to prove.
Cox-Greer: If the letter’s a standard letter, but actually doesn’t reflect in that letter what the customer is claiming, then kick it out.
Clark: We had one from BCT. All it had was the customer’s name and address. Do you ignore it? What are you supposed to do?
Bradbury: As an organisation, we don’t deal with claims management companies. That’s our first stance. Quite often we’re getting claims for products and customers we don’t even know and never even supplied.
We write to the customer, inform them we’ve had a letter and if they still want to pursue it, to write to us direct. Filter, filter, filter. Then you’ll end up with the genuine ones and you can do a proper investigation.
Brown: What else is on people’s minds?
Pike: From a subprime lender’s point of view, what do brokers look for in their lender?
Clark: Acceptances. Clear answers, as well. Just come back and tell me what you want to do.
Marlow: You can do extra work, but when you start deviating, you lose your efficiencies. Then you ruin your relationships with your dealers.I’d rather a quick ‘no’ than wait three days, get loads more information, and might get a ‘yes’ but the dealer’s lost interest.
Pike: What we try to do is make every deal work, but we can’t always do that so you ask for more information – bank statements, credit slips, driving licence – more deposit, maybe. It’s not a black and white science; it’s all about gut feel.
Clark: We’re just getting bombarded, a proposal on a fax and then a few minutes later we’re asked if we’ve got it. An hour later: have we got an answer?
You get it all day. If you’re getting that from all your dealers, it’s a lot of phone calls.
Bradbury: From a broker’s perspective, if anything goes right or wrong, the broker gets that accreditation from the dealer. Our biggest frustration is when our lender doesn’t take that case as seriously as we think it should be taken.That could be the make or break of a relationship.
When we aren’t getting the service, when our lenders don’t share that appetite and ambition, as Tim said, a quick ‘no’ is better than a slow ‘yes’.
Clark: Then you get quick ‘no’s when they haven’t taken the time to work with a particular lender. You have to keep e-mailing lenders to get a senior underwriter to have another look at it. I had an example this week, got it accepted in the end, but it’d taken two weeks. Somebody should have just looked at it properly the first time.
Burn: Just to defend the lender, we try, certainly, the lenders at our level, to make the deal work for the brokers. It may not be the deal that’s proposed, but we’ll make something happen.
We don’t keep money in the bank not wanting to lend it out but, equally, we want a fighting chance of getting it back. If asking for three months’ bank statements is going to help, then, we see that as a good thing.
richard.brown@timetric.com
