Author: Richard Jones, managing director, Black Horse (pictured)
Last month, I commented on the forthcoming FCA motor finance market study, in particular on commission structures. While we still await its publication, I wanted to reflect on discussions I have had across the market. We are living in uncertain times, but they are not unprecedented.
Many influences are bringing pressure to the automotive value chain.
Manufacturers face big increases in investment to deal with electric and autonomous vehicles and races in technology, refinement and emissions. Add in China’s market stall and profit stresses appear – manufacturer collaborations will surely keep increasing.
Retailers have (generally) faced declining profits as margins shrink and costs rise.
They are responding with measures such as aftersales focus, the used car value chain and increasing earnings from ancillaries, in particular F&I.
The latter has become so important I wonder if any retailer groups would survive without it. Therefore, high conduct standards are essential, both for customer outcomes and a viable business model – F&I partners must be chosen wisely.
For lenders, a combination of strong competition, high regulation and low interest rates have meant customers are (generally) paying less for motor finance over time – good news.
However, funding costs are rising and retailers may look for a higher share, so lenders also face margin squeeze. Lenders focus on credit and RV risk, especially given the consumer credit cycle, although that is hard to predict in our current environment.
Finally, digitalisation is providing more choice and facilitating the rise of the ‘middle-middle’ players in the value chain – be that for cars, finance, insurance etc. Who wins from these models? Is the customer winning? Is the total value chain simply getting squeezed along the way?
We shouldn’t be – lenders, retailers and manufacturers need to collaborate more in these circumstances. Building strong partnerships over time is a way to navigate pressure, adapt and develop winning models together. Then our customers are well served, provided with good value and all in a model where partners make a justified return. Exciting times.