POINT OF SALE FINANCE
Question to Mark Standish: Mark, what should/could the
industry be doing to create a more sustainable long-term customer
proposition that is capable of coping with the threat from direct
lenders, mortgage providers, etc once they regroup and begin to
lend more aggressively to the car-buying public?
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Mark Standish: Over the past 10 to 15 years,
our sector has been severely affected by direct selling in all its
guises, and as a result of the credit crunch we’ve seen that threat
recede somewhat. It’s still a factor and I’m mindful that at a
point in the future, the direct lenders will regroup and come back,
albeit maybe not as aggressively as before. We have a window of
opportunity to improve our proposition now, so that when that day
comes, we’re ready.
The areas I’d like to touch on would be product, price, delivery
and customer perceptions.
The products are by far the best vehicle funding options
available, but we do have to make sure they are used and delivered
in the right way. As far as pricing is concerned, the mechanisms we
use for determining the price for customers remain crude and
outdated, and have resulted in better-quality customers subsidising
higher-risk customers, which has in turn resulted in better-quality
customers taking other forms of credit. We have to counter that.
And the way we counter it is the rate-for-risk approach, which is
definitely the way forward. The industry needs to back that
initiative. I don’t think one company can stand alone.
If you look at the commission model that is employed in this
sector, it doesn’t encourage sustainability or a particularly fair
consumer offering. We need to move to a partnership-based approach
with a competitive, transparent customer offering, which over time
will lead to greater opportunities and increased revenues for
dealers and lenders alike.
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By GlobalDataOn delivery, we have a huge amount to do. We talk about
ourselves being point-of-sale lenders, but where is that point of
sale? Is it the showroom, the forecourt, or is it the internet? The
future car-buying public will make more and more decisions online,
but we have yet to harness that technology as an industry.
One of the initiatives we’ve been working on at Carlyle, which
we will launch later this week, is a virtual business manager,
which tries to bring the finance offering to life online. A lot of
dealers will have a web page which explains the products we have to
offer, but these tend to be very dry and static, and I don’t think
internet buyers really enjoy the experience. We’ve used a series of
videos and bespoke illustrations to bring the experience to life
and there is a lot more that can be done in that area.
The final one is customer perception of dealer finance. I think
we’ve made some progress across this industry but there is a lot
more that can be done. The FLA’s SAF [Specialist Automotive
Finance] initiative is to be applauded and it is making a
difference, but it isn’t enough on its own. Lenders and dealers
should be looking at how we can generate increased funds for a
major PR and marketing campaign.
It would take a substantial investment, but the benefits that
would come from educating customers about point-of-sale finance
would far outweigh the cost. We could issue some sort of modest
levy on every finance agreement in order to pay for it. We could
perhaps under the FLA form some sort of committee to see how this
sort of fund would be best employed, with that committee made up of
lenders and dealers.
I’m certain that if we were to do this, it would put us in a
much better position come the day when the direct lenders regroup
and aggressively try and win back the market share they’ve lost
over the last 12 to 18 months.
Jo Tacon: Every time I read about motor finance
in the general press, it is always under attack for being too
expensive and a rip-off – which I think is profoundly unfair and a
far too simplistic way of looking at the situation. The industry
really needs to get its message out there to counter the
misinformation and misconceptions which appear all too often in the
mainstream media.
Chris Sutton: The market we’re in is one that
no one has seen for some time. We are in a privileged position to
start the rebalancing. The gap between what’s available loans-wise
on the high street compared to at the point of sale is narrower
than it has been for a long time.
If we want to try and bank some of that advantage, and keep some
of the business going before it goes into terminal decline, then
promoting the advantages of point-of-sale finance has to be on the
agenda.
The sad thing is that we’ve got the products and benefits ready
and waiting, but we’ve got to get that message across.
Peter de Rousset-Hall: The direct lender is
able to operate a rate-for-risk policy that squeezed the point of
sale. If we applied ourselves cleverly to that and get the message
across that the rate which decent risk customers can achieve is
attractive, it would help enormously, but you have to change the
dealers’ mindset – which could be challenging.
John Sinclair: If you set up a dealer with a
‘difference in charges’ structure to achieve maximum rate from the
customer to achieve maximum earnings for the dealer, you create a
transactional business, which will damage customer loyalty. And
there is no future for a structure like that going forward.
Mark Standish: If we look back 15 years, how
many lenders were involved in this sector? Even if we just look at
the independents, there were 15 or more. What are we down to
today?
The industry is currently enjoying writing, thanks to the impact
of the credit crunch, better-quality business, at much higher
margins, but is it going to be sustainable? I think it’s a
relatively temporary situation.
Yes, we are reaping the benefits of it now, but we have a real
opportunity to invest in the future, and to create a much better
model that will stand the test of time. We also have to accept that
consumers themselves are becoming more savvy. They are demanding
more and more transparency in terms of why they are offered
particular APRs at the point of sale and they want to feel much
more engaged in the finance process.
Question to David Betteley: David, customer behaviour is
changing, and more customers will use the internet in the future to
source finance and to buy cars. What impact will this structural
change have on the current dealer/point-of-sale model?
David Betteley: There are trends we need to
watch closely – such as the move away from ownership to
usership.
The whole car process from manufacturing to distribution is
predicated on the ownership experience, but that is changing. In
Japan, for example, young people don’t want to own cars, they just
want to use them when they need them. Such a fundamental shift is
not going to happen straight away, but it could have a huge impact
on our business. Alongside that there is the move to smaller cars,
with smaller balances.
One of the big issues for me is the change in customer behaviour
and the rise of the web. We carried out a survey which showed that
88 percent of all Toyota customers started their journey on the
internet.
The use of online finance is growing all the time, and we’re now
getting comments from dealers thanking us for delivering customers
to them. Originally UK dealers worried that the online route would
rob them of their commission, but we have changed that perception.
It’s not been so easy in other markets – for example, in Germany,
dealers see the internet as a huge threat.
In the UK, I started a project called ‘10 by 10’ – 10 percent of
business to come by a different route to market by 2010. I don’t
think anyone is going to get there but the UK might get to 5
percent by 2010.
We’ve turned the corner with dealers in most countries, where
they now accept that this is a genuine and growing route to the
customer. It’s breaking that paradigm when the customer walks into
a showroom. We are making the transaction with the customer and
then directing them to the dealer. I see a time when, with this
route to market and our CRM capability, the dealers will be paying
us for leads. We are looking at risk for reward as well, but that’s
difficult to introduce into the UK market in the short term.
Our job as a captive is to manage the route to market through a
profitable and professional dealer network. We’re not cutting the
dealer out – the dealer plays a very important part. We will build
the internet into a recognised route to market – the website is
just another way of getting people into the showroom. If we embrace
the internet and we own it, then we can actually charge for it.
John Sinclair: We are interested in the same
consumer behavioural changes which still require the dealer to be
centrally involved in the delivery process. Website origination is
simply about adapting to consumers’ behavioural changes, and not as
a process or strategy to circumvent the dealer.
Peter de Rousset-Hall: Customers will still go
through dealers – so what the dealer offers has to be credible
compared to what they’ve researched on the internet.
It’s not necessarily got to be lower than the cheapest offer out
there, but there does have to be a retention and renewal focus
rather than a commission focus.
Chris Sutton: We may miss a trick – there is a
consistent trend of people who are prepared to start their shopping
on the net, and if that affects car purchasing, the financial
purchase that goes alongside it could be nailed down long before
they get to the dealership.
If a website’s headline rate says 9.9 percent and they’re happy
with 9.9 percent, then they go into a dealership and someone’s
talking about 10 or 11 percent, you’re on the back foot
immediately.
Mark Standish: It’s not only about telling the
online customer about your product. With the virtual business
manager, we’re looking at cash conversion, personal loan
conversion, credit card conversion and mortgage conversion;
actually pointing out the pitfalls of funding your vehicle by those
means. It’s important we do this as it forms a key part of the
education process.
Doug Moody: Two years ago we did a lot of work
with the FLA around a PR campaign to talk about the uniqueness of
motor finance products, but the PR agencies we talked to all quoted
a seven-figure sum, whereas our budget was about a high five-figure
sum.
We’ve just done a massive piece of work with focus groups with
customers, asking them to come up with the motor finance products
that they would like to see on offer; as it turned out, everything
they came up with is already available – PCP, PCL, HP and so
on.
We already have all the right stuff with all the right ancillary
products behind it. There is no brand new ‘holy grail’ finance
product that is needed. But where the system can fall apart is when
the retailer delivers it to the end user. That’s the bit that’s got
to improve.
