The past two years have changed the way car dealers can provide finance and insurance products to car buyers, while a very active sector regulator looks on closely. The dealers quickest to embrace the new regime under the Financial Conduct Authority (FCA) are the ones who are still securing strong levels of F&I income for their bottom line. But all can still raise their game further, and AM has consulted expert suppliers in the sector for their top tips on improvements.
1: Shout about your accreditation
Dealer websites and marketing materials tend to include their FCA accreditation in the small print. As it is such an important part of the sales process, shouldn’t they make a big noise to consumers about it?
Paul Guy, managing director at Automotive Compliance, said: “They should be shouting their FCA authorisation from the rooftops with pride. They operate regulated businesses that treat customers fairly, in line with regulation, and offer facilities that ‘Bob and his bunting’ can’t. This is going to have the biggest effect on used car financing.”
Guy said used car dealers who failed to gain authorisation would only be able to sell vehicles for cash and offer non-regulated warranties. “This puts those who have FCA authorisation in the premier league of dealers, as customers can identify they are dealing with a firm is that is regulated,” he said.
“Customers who buy from a dealer who has passed the FCA criteria, and operates ‘treating customers fairly,’ are able to make a purchase using the full suite of facilities that the lower league dealer can now no longer offer.”
2: Use the internet well
Kirk Franks at Alphera Financial Services believes one of the biggest opportunities for dealers is to build on their online quote systems: “Many already make good use of their presence to highlight static deals, while a large number also have interactive HP and PCP quoting systems. A great deal of investment is going to further develop dealers’ online finance offers. This allows people to make comparisons before visiting a showroom.”
Paul Brotherton, head of business strategy, improvement and support at Black Horse, said most dealers still preferred to drive showroom traffic from their website. “Application and fulfilment of finance online is not available,” he said.
“Manufacturers’ websites are far more advanced, but mainly in the area of vehicle configuration. Research shows there is an opportunity for dealers to improve the speed of follow-up of web enquiries through ‘contact us’ functionality.”
Brotherton said most dealers relied on third-party software providers working with their media company. “Lenders are generally supporting this type of initiative, but none really takes the lead role at the moment,” he said.
Karl Werner, head of sales at MotoNovo Finance, said to increase finance sales to used car buyers, dealers need to ensure their finance rate information was online, while also informing and educating prospective customers about dealer finance. “Above all, dealers need to develop their online finance process capabilities to enable customers to self-propose their own finance,” he said.
Werner said used car finance was behind new, with only a small increase in sales over the past 18 months.
3: Understand your customers
Gerald Grimes, managing director of Hitachi Capital Consumer Finance, believes flexibility, and risk based on a car not the buyer, are the two key measures that help dealers sell more financed cars.
“This strips away a lot of the hassle for the dealer, leaving them to focus on selling vehicles,” he said. “It also allows us to give the best deal to the customer, regardless of the car.”
Grimes said building a credit appetite around an individual, rather than the asset, made it possible to write deals that enhanced dealer earnings. “That applies to both metal profit and financial commission, with the flexibility to facilitate incremental deals,” he said. “More importantly, it gives customers what they want – affordable payments.”
Grimes said dealers should look to partner with finance houses that bring the technology and expertise to enable their business to thrive and complement their own knowledge. “Together, this can create a powerful partnership to drive sales,” he said.
4: Deferral isn't defeat
Since September 1, any dealers selling GAP insurance to car buyers must give the consumer a four-day deferral period between presentation of the insurance (on day one) and completion of the sale (on day four). If the customer chooses to waive this, they can sign the sales contract the day after being presented the product, and no sooner.
David Parrondo, deputy managing director at Mapfre Abraxas, said the GAP deferral period would allow features and benefits to be clearly explained face-to-face with customers.
“It’s a chance for dealers to ensure they are meeting as many customer needs as possible by offering an opportunity to purchase a range of relevant insurance products,” he said.
Parrondo said the FCA would stipulate dealers must advise customers GAP could be bought elsewhere. In practice, that meant online, so dealers should work with insurance partners on ways to keep their products competitive.
5: Broaden the portfolio
Adrian Foster, managing director of consultancy Adroit Automotive, said there is still a future for regulated insurance add-ons, but profits will be on a different scale to those previously enjoyed, due to the FCA’s emphasis on giving customers better value and treating them fairly.
“Dealers will have to go down the road of offering four or five lower-cost products and getting the customer to buy two or three rather than their current strategy of offering three and the customer might buy one,” he said.
With proper customer qualification and analysis of demands and needs, a tailored portfolio of insurance products can be presented to the consumer. These may range from MOT insurance, ideal for all cars more than two years old, to alloy wheel cover for executive cars and SMART repair insurance for urban dwellers likely to suffer car park bumps.
To avoid concerns about potential product bias, managers may choose to offer the same commission to sales executives across all products.
6: Accept help
Nigel Land, marketing director at AMS Insurance Services, said dealers should take advantage of suppliers’ free on-site training.
“This helps to structure the customer presentation to improve closing rates. Use point-of-sale tools to demonstrate the real value of GAP insurance and provide information to explain differences between your policies and those of competitors, including those online.”
Land said dealers should take their time because there were so many documents for a customer to read and sign when they purchased a car. “If you rush the process they can become distracted and frustrated,” he said.
FCA: dealers should show claims ratios
The Financial Conduct Authority (FCA) is proposing that automotive retailers must show a claims ratio on all general insurance add-on sales as part of new measures it is looking to introduce.
The FCA recently released a discussion document on the value provided by general insurance products and has suggested three potential solutions for dealers to adopt:
■ a claims ratio as a stand-alone value measure.
■ a package of claims frequencies, claims acceptance rates and average claims pay-outs.
■ claims ratios and claims acceptance rates.
The “value measures” will affect all general insurance add-on sales across all market sectors, not just automotive, but the discussion paper follows on from the FCA’s crackdown on GAP sales.
New value measurement rules are likely to affect how products such as MOT insurance, tyre and alloy insurance and paint protection insurance will be sold.
Christopher Woolard, director of strategy and competition at the FCA, said: “We are committed to introducing a measure of value for general insurance products.
“We believe consumers in this market need to have greater transparency about what they are paying for.”
Woolard believes the FCA’s suggestions set out in the paper will boost competition between finance and insurance companies to offer better deals.
The FCA is currently reviewing the input received from a public consultation and is expected to implement its changes by September 2016.