It is considering a suite of solutions that it believes will revolutionize the sector.
The FLA will reveal the findings of its research into point of sale (POS) finance at its conference next month (February 7). The key points concern the lack of consumer confidence in the industry, poor sales procedures at the dealership – in 30% of new car sales and 43% of used cars, dealers did not discuss finance –and the need for finance companies to develop new products.
Martin Hall, FLA director general, says: “Finance companies and dealers sink or swim together. We both need to promote point of sale as more of a viable way to fund a car.”
Finance penetration on new cars slumped to an all-time low of 46% last year from a peak of almost 70% in the late Nineties.
Used car penetration is even lower, at just 18% from 24% in 1997. But this trend is not wholly due to the impact of the high street lenders. Many consumers are using cash to buy cars – 32% for new; 39% for used – because they believe that it gives them the best deal.
“Consumers don’t understand APRs and POS – those that use cash thought that POS would be too expensive,” says Hall. “There is a high level of distrust by consumers; we have to work on improving our image and explaining the benefits of POS.”
Part of the process of repairing the sector’s image could be an accreditation programme for finance staff, similar to the Automotive Technician Accreditation programme in the service and repair sector.
“We feel this would restore the reputations and establish trust. This is what we should look at, and we want to talk to the IMI about the ATA programme,” says Hall, who is also in talks with the RMI and SMMT.
Four areas have been identified for improvement: promotion by the industry of POS to consumers; better contact between dealers and customers; quality, availability and consistency of finance, including a look at the commercial relationship; and, product innovation.
“The market needs to change radically over the next couple of years and finance companies need to look at their relationships with dealers,” says Hall.
But the picture is not entirely gloomy. When asked whether they were more likely to use dealer finance for their next car purchase, 73% who used it this time said yes, 24% who used personal loans agreed and 14% who used cash said yes.
“There is an opportunity for dealers to convert this business,” Hall adds.
#AM_ART_SPLIT# More work to be done
Peter Cottle, deputy managing director at Capital Bank, believes the FLA research shows there is much work to be done by both finance companies and dealers.
“This is not something that is all laid at the dealer’s door,” he adds. “We need to work closer and smarter with our dealer colleagues.”
But he says the industry can no longer subsidize falling penetration at the dealership by raising commission levels. “We have reached our limit on this. Our margins are tight and we need to protect our penetration levels.”
Cottle believes the sales process needs to be evaluated, with accreditation an option to help raise F&I performance. “It’s our job to work with the dealers to improve the process, and to monitor and manage it with them.
“Dealers suffer from staff churn, which means the investment they put into training and development is limited. So we should investigate further if there could be some sort of accreditation to help dealers keep these people, by giving them a career structure.”
Finance companies also need to develop their own product offerings to keep pace with consumer needs.
“We need to react on product. If in five years’ time we have not addressed this, then POS will be in a very sick position,” says Cottle. “We need more personalized products for the market because the brands are different. And for personal leasing we need to take the industry with us to promote the product – we cannot do it alone.”