Question to James Snow:
James, how can the motor finance industry maximise book performance
and get maximum return in the current market? How are the companies
you are working with handling their arrears management and how can
motor lenders reduce costs and control arrears within this
area?
James Snow: I would
like to address this question in two parts. First, in terms of
maximising book performance and return, when times have been good
over recent years the majority of focus and investment generally by
motor finance companies has been in improving the new business
channels and capability, point-of-sale dealer systems, processes
and sales staff and so on. The loan administration back office has
taken a secondary priority and lacked the necessary investment.
Go deeper with GlobalData
In my opinion the difference is all about
exercising specialist skills and competencies. At a strategic
level, loan servicing can make a significant impact on the total
returns from a loan portfolio given the right investment and choice
of partner.
Even a small percentage improvement in
servicing performance (and the reduction of losses) can make a big
difference to the total returns on, say, a £1 billion loan book
that far outweigh any additional cost of a premium service.
Many lenders struggle to keep pace with the
change needed in back office systems and processes driven by
regulatory compliance, internal and external competitive pressures
and people management challenges.
But a good independent third-party loan
servicer delivers all of this on an economic and variable cost
basis, according to the size of the loan portfolio, as part of a
comprehensively defined outsourced service.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataOn an operational level to reduce costs and
control arrears (and to answer the second part of the question), in
terms of arrears management, we manage the complete lifecycle of
arrears, both early and late stage for our clients. We seek to
deliver maximum performance through using a host of account
management techniques and processes and experienced people.
For example, we carry out extensive data
analysis to produce segmentation through our own rules engine to
drive highly-tuned customer and asset management strategies for
both pre- and post-delinquency accounts, as a result minimising
default levels and increasing total returns.
Good data including up-to-date and accurate
contact data are essential, along with an easy-to-use but
sophisticated collections system that can manage both individual
and team-based account handling, tracking cases and producing
up-to-the-minute management information.
We have highly trained and multi-skilled staff
that are able to manage both prime and subprime loans. We use a
balanced scorecard approach to individual collector performance
linked to incentives that drive both individual and portfolio
performance.
Another example is that we deploy bespoke
strategies supporting letter/telephone/smart diallers/SMS activity,
where response success can be accurately monitored and measured and
where we can frequently vary our campaign approach.
Those who haven’t invested in collection
platforms will find the current conditions difficult. Many motor
finance lenders are not geared up for non-prime business.
Question to John Sinclair:
John, have you seen a change in the applicants that you have been
seeing at British Credit Trust?
John Sinclair: We
have yet to see the changes because the market is yet to return to
pre-crisis levels. Most customers are waiting for better times
which means they are holding onto their vehicles longer, which
means early settlements are lower and as a consequence VT trends
are up. This trend is also having a dramatic impact on parc and
price levels of used vehicles.
But when confidence levels improve the changes
in risk appetite which will prevent large numbers of customers
accessing used vehicle finance, as they used to know it, will be
dramatic.
Pricing for one thing will change
dramatically, reflecting increases in cost of credit yet to come,
but also around mitigating increased credit and VT risk .
Chris Sutton: When
interest rates do eventually rise, the cost will have to be passed
on to customers in some form. I don’t see pressure on margins at
present – I think the current market is providing more of an
acceptable rate of return, especially compared with the recent
past.
Doug Moody: There
has been a polarisation of customers, with the grey area between
the ‘good’ and the ‘bad’ credit risks now narrower than it has ever
been.
We’re almost in a situation where there are
‘haves’ and ‘have-nots’ as far as underwriters are concerned. The
focus on costs has driven us to greater automation, which means
that, as everyone uses the same two or three suppliers of
scorecards, everyone gets the same answer. Risk-adjusted pricing
still has to be proven.
From a captive point of view, we are very much
focused on brand retention, not necessarily captive finance
retention. Across Europe, for people who buy Mercedes, if they use
Mercedes finance, they stay with the brand twice as long and change
car twice as often.
The used car dealers are charging very high
APRs because that is the only area left for them to take commission
out of. We’ve all been chasing our tails to boost used car sales
and it’s counter-productive – as a captive, are we there to make
money, or are we there to help a manufacturer sell cars?
Steve Gowler: We
track the credit quality of our applicants, and it hasn’t really
changed much since the credit crunch for new car customers, but for
used car finance applicants it has deteriorated.
Doug Moody: Dealers
have become too used to high commissions, and captives have been on
the ‘drug’ of constant promotions and campaigns. Now, we have to
think about customer retention as well as downstream profitability.
If we don’t need to offer cheap finance in order to sell cars, as
now, will the customer stay?
