Spencer Halil, director of Alphera Financial Services, on the growth of used car finance and why the industry needs better standards of training when it comes to finance sales.
What have been the big developments over the past 12 months and what’s next for Alphera in 2018?
We had a really strong 2017, with growth of 68% in the amount of car finance funded year-on-year. It meant we broke the £1 billion barrier in written business for the first time, taking us to a total of £1.2bn.
We also renewed our contract to provide finance for Aston Martin. That will continue for another three years and hopefully in the years to follow that.
We put in place a new dealer incentive scheme, called Know Your Customers, towards the end of last year, focusing on customer service rather than sales volume. To encourage dealers to secure as much customer feedback as possible, we also pledged a £1 donation to Macmillan Cancer Support for every completed survey and we have already raised more than £2,500.
We are very optimistic for this year as we’re in a good position for growth. We are launching e-signature technology, which is in a pilot phase at the moment. We will also be rolling out an e-commerce platform to the network this year.
What is behind that level of growth?
We have spent more than a decade building up relationships with dealers and brokers. When they have done well, we naturally increase the amount of business we write too, so we have been growing with them.
How big is the opportunity for dealers to increase finance sales to used car buyers?
Used car finance is our bread and butter. A big part of what dealers are getting to grips with is the young or pre-reg used car, particularly against a backdrop of softening retail demand for new cars. It will mean dealers will focus even more on doing a really good job in the used car market this year. There’s no reason why a used car finance deal can’t be positioned to be as competitive as a new car offer. I’ve been saying this for a while, but dealers really should be challenging their finance partners to do better.
As an average, 40%-50% penetration is a good level to aim for on used car finance. Those at the 20%-30% level will be there because they are focused on this speed-to-sale metric and I think that’s a mistake. That’s not to say you want customers waiting around for a decision, but there’s nothing wrong with slowing down the process a little to spend some more time and care and not rush things through.
How is the industry coping with Financial Conduct Authority (FCA) compliance and what are your views on the challenges that lay ahead in this area?
The industry has been coping really well with the demands of regulation. We’re at a point where every dealership is taking compliance really seriously and it has become a part of their culture. It has to be.
Maintaining that focus could be a challenge, as some may think that as the FCA looks at other areas, the pressure starts to come off the motor industry, but that’s not the case. I think there’s going to be more to come. For example, the FCA is expected to publish an update on its examination of motor finance this month.
Do you think the popularity of the PCP is under threat? What do you make of the negative press attention motor finance got in 2017 and how can the industry respond this year?
Of higher concern to the FCA is the sub-prime market, the difficulty some credit card users have in clearing debt in the long term, and the disproportionate fees charged for unauthorised overdrafts. I don’t think there is a negative perception of the product itself. PCP isn’t a sub-prime product, so it’s not really targeted at customers who are stretching budgets beyond affordable levels.
The real spotlight is on the proper sales process surrounding car finance in general, rather than looking at a particular mix of PCP or HP finance specifically.
If finance products are presented and explained in the right way, the product cannot be an issue. PCPs are a fantastic product for a lot of people, but they don’t suit everyone, and the industry has to have the professionalism and knowledge to make sure we are matching customers’ needs with the right product for them.
Do you think the industry needs a higher level of training when it comes to finance sales and what can be done about it?
We are really focused on helping our partners to raise standards and we know they are, too. We have partnered with the Institute of the Motor Industry (IMI) to promote a new finance accreditation scheme. It will be ready later in Q2, but improving skills and creating a ‘kitemark’ is something we are really passionate about.
We really want to improve the talent pool in our industry and work on the educational side of things. We are supportive of the Specialist Automotive Finance (SAF) test from the Finance and Leasing Association (FLA). It’s great on the knowledge and academic side, but there is space for something that is more focused on the practical side, for people at the coalface.
I would encourage anyone that touches anything to do with car finance in anyway to be SAF-approved, but this new accreditation scheme will be aimed at sales controllers and business managers. For people who want to go further, there is this new IMI accreditation or the SAF Expert, which takes things a stage further. All our frontline staff will do both.
This is the IMI’s scheme, but we have partnered with them and will have accredited trainers that can train dealers. I really would like to see Black Horse, Santander and MotoNovo get behind this too. It will be four days of training and then one day of assessment.
The ultimate aim is to have everyone in the car finance industry accredited. It’s five days away from the business, so it’s a commitment in time and money, but it’s also an investment in skills for the future and it will help things like improving the used car penetration rate back in the dealership. There will be room for 10 people on each course, so while it’s not going to change the industry overnight, it’s going to be enough to get something started.
What is the biggest threat to the franchised dealer model?
There’s been a lot of talk about direct sales and online sales, but the digitalisation of the sales process is just making things easier for the relationship between the dealer and the customer.
New sales models such as Rockar, and the recent development of its Hyundai sites being passed over to a local dealer group, show that we may still be some way from the model changing to mirror that. There hasn’t been a big take-up of that type of sales model. People still want to go to the dealership and they want to talk to a salesperson at some point in their journey.
Dealers cannot look at digital technology and see it as a threat, but it can definitely help to join things up in the business and that has to be embraced.
What are the big innovations you are excited about right now when it comes to online finance?
Open banking and the way that can help with affordability checks is going to be really interesting. It’s going to give secure granular access to help with decisions on finance and it will only be a matter of time before the motor industry moves to introduce those features.
Biometric data, such as facial recognition, retina or fingerprint technology, is going to make digital signatures really easy. People were starting to become more worried about fraud with digitalisation, but these new measures are going to see that problem reduce.
What do you see as the biggest challenge to your business this year?
It has to be fighting the attitude that 2018 is going to be a difficult year. While there is uncertainty due to negotiations around Brexit and customers potentially holding off purchases because of that, unemployment levels are low and economic growth is looking OK.
We need to make sure we are not overreacting to those concerns. There has been talk of multiple interest rate rises this year and while that may happen, I also don’t think the Bank of England is going to risk disrupting the economy with anything drastic.