Dealers, with the backing of specialist lenders and their trade organisation, are winning back the share they lost in point-of-sale finance.
In the 12 months to February showroom loans accounted for 52.9% of the total for retail new car purchases.
That compares with only 46% a year earlier and there are other reasons for optimism. Mainly, this is because most leading dealer groups are putting customer-facing staff through an online training initiative.
But can the momentum be sustained? Marshall Motor Group has proved it is possible – March was its best month for F&I since the new team led by chief executive Daksh Gupta took over in 2008.
The Finance & Leasing Association’s ambition is for finance sales made by showroom ‘SAF experts’ to account for 50% of all cars sold in the UK by the end of 2011.
The FLA, whose members are paying for the training, is pleased with the progress, but cautious for a number of reasons. Apathy was one of the reasons in the first place why motor retailers allowed finance and insurance, a valuable revenue stream, to dwindle to a trickle.
Then, in 2007, the FLA introduced SAF (specialist automotive finance) – a proof of competency in finance products.
The test has to be retaken every 12 months to ensure knowledge remains up to date.
In August 2009, the FLA extended SAF through the introduction of SAF approved, which extends individual SAF-certification to companies. Staff who come face-to-face with car buyers are now more confident and persuasive in selling finance.
SAF deals only with knowledge (finance products, terminology, legislation and more) and does not teach sales techniques.
The FLA says 19 of the UK’s 30 biggest dealer groups (Marshall Motor Group is one of them) have SAF approval. What this this means is that all relevant staff has been judged competent.
But the interlopers that enticed retail car buyers away from specialist lenders have not disappeared. The 2008 economic crash that became a prolonged recession made food supermarkets, high-street banks and internet lenders cautious about lending.
Turn knowledge into profit
They had moved in with attractive marketing programmes to capitalise on the opportunities opened up as the UK went online.
And they are preparing for a new thrust for finance sales, making this the start of the second round of the F&I battle.
The question now is what dealers and their finance company partners need to do.
The training phase is established, but its value can only be realised if dealers turn knowledge into profit.
With sales of new cars likely to be a continuing struggle, and a shortage of good used stock, dealers know they have to make the most of every deal with a retail customer to bolster profits.
This spring, the FLA aims to help that happen as it embarks on the key next phase of SAF – widening the push to make more car buyers aware of the advantage of arranging a loan at a dealership with SAF approved staff.
Paul Harrison, head of motor finance at the FLA, is hopeful that the percentage of new and used cars sold on finance will continue to rise.
“But we expect that if it does, it will rise much more slowly than we have seen over the past 12 months,” he said.
“Any rise will also reflect the level of competition provided by direct loan providers as they come back to market.”
The scrappage scheme has now dropped out of the FLA’s rolling 12-month average.
It influenced the statistics because many sales were of small, lower-value cars, so there was a reduced need for finance. There was an unexpected rise in the number of both new and used cars sold in January.
This was due to particularly attractive deals on the forecourt designed to offset the VAT increase in the same month.
But prospects for the rest of 2011 are not good and this makes sales of showroom finance important.
“Better information on car finance, through SAF, inspires greater confidence in consumers, who will hopefully keep coming back to dealer finance for future purchases,” said Harrison.
He believes food supermarkets and dealers’ other competitors remain hampered in gaining funds for loans: “The availability, acceptance criteria and APRs of unsecured personal loans remain less favourable than before the recession.
“This has benefited motor lenders – the majority have not amended their criteria and are able to offer bespoke, attractive packages to customers.”
Harrison is confident that most of the top 30 dealer groups will be SAF approved by the end of the summer now that 63% have won the status.
A further seven still going through the process include Jardine Motor Group and Citroën Retail. The FLA is in talks with the remainder.
More than 12,500 industry employees, including those working for lenders, are signed up for the SAF test. Among them are people working at almost 1,000 dealerships.
The FLA delayed the launch of an SAF publicity drive until enough dealerships had been declared competent.
“It is a priority this year for SAF to make more of a splash in both the national press and magazines aimed at consumers thinking about car purchases,” said Harrison.
“This will be aided by the increased coverage of the scheme to hopefully include all of the top 30 dealer groups and for sales made by ‘SAF experts’ to account for 50% of all cars sold in the UK by the end of the year.”
Around 35-40% of new cars sold in the UK are through SAF approved showrooms, but the share is lower for used cars. The FLA hopes specialist lenders and dealers can reach more used car buyers and dealers are responding.
“That will be a particular focus,” said Harrison. “Tesco’s move into used cars adds a different kind of competitive pressure to the used car market.
“The supermarket has strong brand awareness and a large, loyal customer base.
“But on finance not much has changed. Tesco will continue to offer unsecured personal loans to customers. Dealers can effectively compete by heavily promoting the wider range of bespoke products.”
Raphael Bank agrees. Miles Roberts, managing director, said the bank’s Southern Finance division was enjoying good business, and its retail loans sold through dealers are only for used cars.
“Consumers are attracted by quite low interest rates and enjoy using cash plus loans to upgrade to more recent and better used cars.
“Some are bringing forward their change of car, but auction prices for good used stock has risen.”
Roberts attributes Southern’s improved business to avoidance of rbad debts while some lenders have seen an increase, mainly because acceptances are through automated credit scores.
“We do manual assessments of risk and no sub-prime,” he said.
“We make an overall assessment and find that some people rejected by automated checks can be good risks.
“Not many car buyers are bad risks because of the threat of redundancy. It’s mainly because of poor cash flow management. Some people with £10,000 debts on credit cards want to borrow more, but we won’t allow an advance.
"Their debt may be manageable at the moment while interest rates are low, but they are likely to rise and the borrower could be squeezed.”
Other finance companies also say they are enjoying better times but Roberts added: “It’s important to be aware of any nagging doubts about the future in case things change.”
Benfield Motor Group is providing showroom finance for 40% of its sales of used cars, said managing director Nigel McMinn. “We don’t do this with aggressive rates for a short-term killing but look for a long-term gain,” he said.
“We have switched to Santander as our main finance provider ahead of Black Horse. Acceptance of proposals is high and Santander rewards us for handling finance well rather than for the size of our company.”
All dealer groups, regardless of which company provides retail finance, share one problem – mounting legislation.
Their efforts to retail more loans means that they have to contend with regulations designed to protect consumers, however hard they strive to do no more than win them for life.
The latest red tape is the EU’s new consumer credit directive (CCD). One source of irritation, say dealers, is that this pan-European ruling does little more than duplicate regulations of the UK’s Office of Fair Trading.
The FLA ran CCD training courses for members and introduced 20 questions to the SAF test for dealers. This ran alongside members’ own training programmes for dealers.
Page views on the FLA’s www.specialistautomotivefinance.org.uk website increased fivefold from its average level per quarter of 75,000 to 379,000 in the final three months of 2010.
Harrison said: “This was when dealers and finance companies were implementing CCD, highlighting dealers’ interest in getting to grips with the new regulations.”
He said one effect of CCD was to lengthen dealers’ sales process as they offer pre-contract information and explanations of the credit product.
Harrison has advice for them: “A car is the second biggest purchase most people make. The CCD sales process should be viewed positively by dealers. It gives them more time to talk to customers and cement relationships.”
- Getting the best from your finance company is the topic of an AM best practice guide: ‘F&I Management’. For more information, call 01733 468254.