The latest figures from the Finance and Leasing Association suggest dealers are losing yet more business to direct lenders and high street banks. This will come as no surprise to anyone on the front line of car sales.
Customers are going to showrooms better prepared than ever before. Not only have they done research on the car they want to buy, they probably also have a pretty good idea about what their existing car is worth – any number of guides and websites are available to help them.
Finally, many of them will have already researched the finance market and believe themselves to be aware of just how much it is going to cost them to fund the car. Again, this is not hard to do – there are finance loan leaflets at every supermarket check-out and every high street bank till. Converting a 'cash' buyer into a dealer finance buyer is a challenge faced by business managers every day of the working week.
But that does not mean conversion is impossible. And it certainly does not mean that losing business to direct lenders is inevitable.
In the first place, it is wrong to assume that a customer who has researched direct lending has actually arranged it.
It is quite possible he has got some outline figures from the lender but, unless he knows in advance exactly how much money he is having to borrow, it is highly unlikely he will have actually applied.
So, you still have an opportunity – but it is an opportunity which will only come once. If that customer walks from the showroom with an exact cost to change, he will almost certainly be back paying cash.
How to convert will depend on the circumstances. But the key attractions of the direct lender are likely to have been rate and convenience. After all, 8.9% APR and an instant decision look pretty attractive when you are standing in a supermarket queue.
The reality is somewhat different. For instance, rates of under 10% are only available on much larger loans of more than £10,000. The more typical £5,000 borrower is likely to be paying around 12%, which most dealers should get close to matching.
Equally, the best rates are only available to the best customers. Direct lenders work to extremely strict borrowing criteria and not everybody fits the computer profile. If there is any element of risk, the rate will go up.
There are similar problems with the apparent convenience. Yes, it may be possible to get an instant decision on the phone – but that does not mean the money is in the customer's hand or even in the bank.
Application forms have to be posted, signed and returned before a cheque can be sent out. That cheque then has to be banked and cleared. The whole process could take four or five days.
So dealers still hold some powerful cards. The customer is in the showroom, ready to buy; finance approvals are virtually instant and the rates are extremely competitive. There is a referral team on hand for any difficult decisions.
Chartered Trust has led the industry with the development of Equips, the internet-based finance approval technology which makes this all possible. And yes, it can even print finance documents for signature on the spot.
Try Equips for yourself – it is a powerful weapon in the battle for cash conversions.