The world of finance has changed as a result of the credit crunch, so it was somewhat disappointing to read the roundtable article (AM April 23rd) and the negative perceptions of banks and finance companies:
“Delegates felt that banks and finance companies were not supporting retailers sufficiently – their decisions could quickly and ruthlessly pull the plug out from under their clients. Slow decisions from finance companies were also blamed for lost business and a negative customer experience.”
Disappointing because right now dealer finance represents a significant marketing and value opportunity, albeit conditions have changed compared to more recent years and dealers of all sizes should be talking to their finance partners about how they can help to release this value.
Underwriting has tightened in all lending quarters; yet point of sale dealer finance remains very much open for business and very competitive when set against other lending forms.
Moneyfacts recently noted; “Risk continues to be the focus in all lending activity, but with no guarantees on the debt being repaid, unsecured personal loans have seen some of the sharpest increases.
"Despite bank base rate being at an all time low, personal loan rates stand at a nine year high. In such a risk adverse market, lenders are only offering loans to the most creditworthy applicants and then at a premium. The majority of lenders advertise typical rates, so borrowers shouldn’t be surprised if they have to pay a higher personal loan rate than that shown."
The opportunity for dealers and dealer finance can quickly be seen in a better light, in spite of, or in fact because of tighter underwriting!
The market for finance has changed significantly as a result of the worst financial crisis in recent history.
A shortage of wholesale funds to lend, lender consolidation and withdrawals have all impacted the availability of money and the choice of lender.
In motor retailing the sector can ill afford the loss of any more finance suppliers with the potential impact on stock funding as well as bottom line F&I income.
Supporting finance companies and working more closely with them has to be the new paradigm in dealer finance.
As Professor Peter Cooke puts it so succinctly elsewhere in AM when commenting on the expected severe downturn in the new car market: “The clear message is: change the dealer business model or expect a marked contraction in business”.
Analysis of the wider lending picture clearly suggests that dealers are very well placed to help consumers source finance to achieve their desired purchase.
A glance at current loan rates quickly reveals a wide range of prices (that dealers can typically compete with) and a flavour of the restricted access with many lenders only offering loans to existing customers; what they don’t reveal is the levels of acceptance, which are understood to be low and sometimes very low!
In the showroom finance facilities are available and rates can be attractively priced when compared with some of the personal loan rates and acceptance levels can be helped by the secured nature of hire purchase.
A decade of easy credit has ended and the country as a whole is entering a more prudent restrained economic period.
Finance across all forms has been harder to access and underwriting will become more rigorous not least of all because of new regulation.
That said, market conditions right now mean that it is eminently possibly to grow finance sales in the showroom, but these same market conditions mean that the model of yesteryear must change.
Pricing must be equitable for the consumer, the dealer and the finance company – earning a little from a lot by treating everyone fairly should become the mantra.