Fred
Crawley talks to Spencer Halil, MD of Alphera, about moving
the captive finance house product offering into new
territory.
Go deeper with GlobalData
Given its place in a group for which brand is
such a fundamental strength, BMW’s Financial Services arm is
surprisingly adept at working with other people’s vehicles.
Alphabet, BMW Financial Services (BMW FS)’s
multi-marque fleet subsidiary, is well-known for its success in
financing non-BMW vehicles in the B2B world, with around 45,000 UK
vehicles on its books.
But another team within BMW FS, trading under the
name Alphera Financial Services, has been quietly building a
substantial business in the consumer sector over the last three
years – financing all brands of car, not just BMWs.
Gaining speed
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By GlobalDataHaving weathered the onset of the
recession with new business cuts in November last year, Alphera UK
is now getting its momentum back under the leadership of Spencer
Halil, who joined BMW FS in 2006.
When Halil came to Alphera in March of that year,
the team had just established its first dedicated payout and
underwriting teams, having previously been an exploratory
venture.
Alphera had existed since 2003 in Australia and
South Africa, where BMW had lower brand penetration than in the UK.
There, the move into financing other vehicle marques gave BMW FS
the critical mass of business it needed to offset its overheads and
grow profitably.
Having seen this success, Halil was keen to get in
on the ground floor of the new Alphera venture in the UK, and so
left his position at Volkswagen Financial Services to work as the
new team’s Scottish regional manager.
Within six weeks he had taken the role of national
sales manager, charged with developing the plan with which Alphera
would plunge into the UK market.
Whereas large scale decisions would occasionally
come down from BMW FS’s headquarters in Munich, Spencer says, the
quarter-to-quarter strategy decisions were all down to him and the
UK management team. Further autonomy came from Alphera’s governance
structure, with Halil reporting straight to Keith Dye, the CEO of
BMW Group Financial Services in the UK.
In addition, Alphera was able to use established IT
systems and resources from the larger body of BMW FS, so its staff
could dedicate themselves entirely to business generation.
This situation gave the team great freedom to focus
on its own growth, but also some big decisions to make.
“We didn’t want to pigeonhole our role in the
market until we’d worked out what prospective dealer partners
wanted,” explains Halil. “The strategic direction, as far as it was
known, was to provide a prestige service to the volume marketplace.
Based on BMW’s experience of the flexibility that prestige
customers required, we wanted to offer a similar service to our
dealers.”
One example of this flexibility is in the potential
length of terms offered – in contrast to the rest of the sector,
Alphera’s 48-month standard products and 60-month campaign products
are longer than average.
Whereas Toyota’s Redline finance program –
initiated around the same time as Alphera – was aimed at buyers of
vehicles manufactured within the larger Toyota group of companies,
BMW FS wanted its new venture to have as wide a range as
possible.
“A Kia dealer has the same right to top-quality
service as a Lamborghini dealer,” says Halil. “In terms of sales
channels, we always knew that BMW-related groups were our
springboard, and that’s how we got the ball rolling. But soon we
began branching out, with non-partner brands and good quality used
car dealerships, as well as a range of brokers.”
Now Alphera will potentially provide finance for
cars of any brand under the sun, although Halil points out that
rarer brands such as Noble and Morgan can be difficult to
underwrite due to their high values and high-risk pricing.
Cross-selling?
But is this expansion to financing other
brands simply a rather evangelistic mass cross-selling
exercise?
“We have to be very aware of this element, and
we’ve been asked that a lot,” says Halil, “but there’s no hidden
agenda, and no way we would use data to promote BMW group products
– our customer information is kept completely separate from that of
BMW UK.”
Very simply, he explains, Alphera in the UK was
born of the realisation that BMW FS had a very high finance
penetration rate in BMW sales, while BMW as a manufacturer had a
significant share of the prestige market.
To continue growing BMW FS’s penetration with
dealers at a significant rate, new volume-driven sales areas would
have to be opened up, or else margins would have to be sacrificed.
The answer for BMW FS was multi-marque financing.
Asked what the company would say to a BMW dealer
wondering why Alphera was supporting an Audi dealer, for example,
Halil explains: “The expansion of Alphera strengthens BMW Financial
Services, and the stronger it is, the more the group as a whole can
support BMW sales. Again, it’s not cross-marketing – just a way to
grow the group into markets that have not been previously
accessible.”
In any case, the model worked. Alphera’s first-year
growth surprised everyone – despite missing 2006’s first quarter,
its sales total for the year was 130 percent of target, while 2007
more than doubled 2006’s result.
Despite a slower rate of growth in 2008, the team
still bettered 2007’s performance by year-end, at which point
Alphera’s portfolio had grown comparable in size to that of sister
leasing company Alphabet.
Both Alphera and Alphabet, however, were affected
by November’s group-wide restriction on lending – the decision came
from Munich, says Halil, and was not taken lightly.
Although Alphera did not stop lending, he explains,
it restricted new business writing to a core of its most
well-established dealer partners in BMW-related groups.
Nevertheless, the sales operation returned to form
again in February of this year, and Halil was quick to rebuild
sales channels.
“We weren’t presumptuous enough to simply announce:
‘right, we’re back!’, but we certainly made partners aware at end
of Q1 that we were keen to take up our old positions in pecking
orders, and on similar terms,” he says.
While some dealers had made arrangements with other
finance providers in the interim, Alphera found that most if not
all were happy to take it back on board as soon as alternative
contacts expired. Whereas Alphera’s roster of brokers is slimmer
than it was in 2006, Halil says that the business’ current
introducers are among “the best in the UK market”, and are on board
for the long term.
Alphera’s internal sales operation has been beefed
up too – its ten regional business development managers have
recently been organised into three “pods”, each bolstered with
support from a newly-promoted zone manager, reporting directly to
Halil.
The business has also put a lot of resources into
developing its CRM process for dealer partners which, says Halil,
“will culminate in an online lead delivery service – we will be the
only independent finance company in the marketplace which is
actively passing leads back to dealer partners.
“We understand how much a dealer invests in
acquiring a customer, and with many finance companies, the best the
dealer can hope for is a promise not to resolicit the same
customers again. We believe that a customer is primarily the
dealer’s, and although we want an active role in managing that
relationship, we will always push them back in the dealer’s
direction,” he explains.
The new system will involve a dealer-facing portal
which, at key moments such as three months before the end of a
contract or at point of settlement, will prompt dealers to contact
customers and talk about their next purchase – the hope for Alphera
being the subsequent recommendation of its services.
Funding pressure
Despite lending having been resumed in
February, however, has the resurgence in business come at the cost
of higher pricing?
“Our funding costs have been under pressure,
certainly,” says Halil. “Nevertheless, we buy as BMW, which has
enjoyed better conditions than other automotive groups – this is
partly because of manufacturing resilience, and partly because the
group has absorbed a lot through its treasury function. Overall
we’ve improved our market rates through the year, and the credit
spreads we have to pay as premiums are improving month-on-month.
Right now, I’d say we can price as competitively as ever.”
Overall, Halil predicts that 2009 will see a fairly
flat growth rate, but is confident that all budgets will be met. In
2010, he says, a possible recovery in used car values, predicating
better customer confidence, might well precipitate a sales boost in
the first quarter, and a possible expansion to Alphera’s sales
team.
“Our original growth was so rapid because there was
so much out there to take,” reflects Halil, “but we’re not a volume
outfit. Our first priorities next year will be to increase our
commitments with partners, and strengthen mutual profits – that’s
the message for brokers and dealers to take on board. Anyone
currently working with us can look to develop that relationship,
and anyone else who wants to make that commitment is very welcome
to get in touch.”
