Black Horse managing director
Chris Sutton, tells Fred Crawley why the dealer finance giant is on
course to lend £3bn this year, even though 2010 may be a bumpy ride
along the way.
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Following surprisingly robust
results from Black Horse’s parent, Lloyds Banking Group (LBG), the
dealer finance giant has found itself in a strong mid-year
position.
Impairment and bad debt levels are
ebbing faster than expected after peaking in mid-2009, and
first-half profit for 2010 at LBG’s asset finance division,
comprising Black Horse and Lex Autolease, is £105m. It’s a far cry
from 2009’s first-half loss of £250m, and significantly better even
than 2008’s figure of £35m.
Despite managing director Chris
Sutton’s concerns for the volatility of dealer sales during year
ahead, the company’s full-year lending estimate of £3bn shows that
it has every intention of maintaining its heavyweight position in
POS.
When Sutton took charge of the
business just over two years ago, things had the potential to turn
out very differently. In January 2009, just six months into his
tenure, LBG’s takeover of HBOS sparked a huge integration challenge
including the absorption by Black Horse of the Bank Of Scotland
Dealer Finance (BDF) business, which operated along very similar
lines (and often through the same dealerships) as Black Horse.
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By GlobalDataBy this time last year, BDF’s
frontline resources were built into Black Horse’s field sales
force, and the old BDF systems were taken offline in August. In
addition, several thousand dealer relationships came into the fold.
While many dealers with links to both BDF and Black Horse simply
transferred their business to the latter, many more that had been
BDF customers alone were able to switch POS provider.
Nevertheless, given how much
stakeholder pressure LBG was under to shrink its balance sheet
following the HBOS takeover, many speculated that Sutton’s mandate
would be to severely downscale the huge consumer lender.
New direction
Cuts were inevitable. At the start
of this year, it was announced that 57 jobs would be lost at the
combined POS business, with Black Horse also ceasing to take
business from the broker channel.
Rather than being motivated by a
desire to reduce lending, the cuts were made in order to move the
business away from a transactional model and towards a series of
committed dealer relationships with dependable monthly volumes.
Most of the jobs lost involved liaising with dealerships with which
Black Horse had no ongoing, committed relationship.
Another factor that gave rise to
concern about LBG’s level of consumer lending was the decision to
divest its personal finance and loans arm, also branded Black
Horse. Some 58 branches and 372 jobs went, making it a central
lending function operating alongside the motor business.
Personal finance came under
Sutton’s aegis in February, by which time the cuts had already been
made. While some customers are still being migrated to Black Horse
from the old BDF book, it seems that significant company-wide
restructuring has come to an end.
Sutton says: “We have had 12 months
of business as the ‘new’ Black Horse and I can’t foresee any major
changes from what we are doing now. We are through the worst of the
recession in terms of lending, our underlying costs have been
significantly reduced, and I am very happy with the award-winning
service levels to our dealers and customers.”
Bump on the
road
Sutton admits to being concerned
about the trading climate up ahead. This is not fear of a double
dip recession, which he describes as “unlikely”, but more an
awareness of the difficulty and uncertainty that prevails in
dealership sales on a day-to-day basis.
“Things got off to a surprisingly
slow start in 2010 – perhaps because of the snow, or for any number
of other reasons.
“Nevertheless, for the first five
months of the year, we were very comfortable with the levels of
business being written.”
“The last two months have been
harder and have shown no consistent pattern. The message I get from
our staff in the field is that, while sales are being made, the
market is still very tough.”
A case in point is the unexpected
13.2% drop in new car retail volume seen in July, after a year of
gradually improving monthly figures.
“Whether it was down to summer
holidays, the World Cup or people delaying their purchase until the
new registration plate, hopefully July’s figures are no more than a
bump on an otherwise slow and steady journey towards recovery.
Impact of VAT
rise
“The market, however, remains in a
fragile state. The increase to a 20% VAT rate in January 2011 may
cause a surge in demand this winter, but the first quarter of next
year could see weaker sales as a result.”
In addition, Sutton expresses his
chief worry for the consumer market – that spreading anxiety about
the real impact of public sector cuts, let alone the cuts
themselves, will seriously dampen car sales.
While Sutton may be far from
bullish in the short term, he remains confident in the £3bn lending
target, and has no doubt in the company’s ability to withstand
short term fluctuations in sales.
He points to the progress being
made in building closer and more profitable relations with
dealerships as one of Black Horse’s strengths.
Profitable
partnerships
“When I came into the business, the
market was driven by volumes rather than returns, which led to a
number of classic problems,” says Sutton, alluding to the fact that
POS finance profits were skewed towards dealerships.
“The cost of holding capital has
pushed up prices and margins, however, and in the last 6 to 12
months we have been getting a decent margin, while still remaining
competitive on price.”
Black Horse’s decision at the start
of the year to reduce investment in acquiring transactional
business means that the focus of the company’s 184 field sales
staff is to secure committed relationships with retailers.
“By committed I mean working as
closely as we can to help maximise both the capacity of retailers
to sell cars, and the value they get from us,” Sutton says.
A great portion of this value lies
in the technology behind Black Horse’s POS offering which is a huge
point of pride for the business.
LetsUConnect (LUC) was launched in
October 2006, and gives dealers access to every aspect of their
finance offering.
The speed and accuracy of the
system has won considerable industry acclaim, winning Black Horse a
Motor Trader Innovation Award and the Institute of Transport
Management’s Finance Company of the Year trophy for five
consecutive years. In May, Black Horse was voted top finance
company by dealers in the Car Dealer Power Awards.
Through promoting the electronic
signature technology built into LUC, 35% of business processed by
Black Horse is now paperless from proposal to settlement – a
stunning increase on last year’s figure of 18%.
As well as improving dealer
cashflow, LUC’s paperless process has had a demonstrable effect on
lowering levels of fraud, and has improved customer experience
significantly, according to satisfaction surveys.
Considering that it has had to deal
with the twin challenges of a national banking merger and a
recession of unprecedented depth during the last two years, Black
Horse seems remarkably stable.
While Sutton’s concerns about the immediate state of the market
may mean another six months or more of hard work for
the business, the profits it stands to make from its new
operational structure as sales grow easier will no doubt give it
good standing among LBG’s wholesale banking properties.
