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Finance insight: Keep finance deals off the high street

The marketing spend and immense competitiveness of high street lenders means that many consumers choose to pre-arrange some form of finance package before they sit down in the dealership and negotiate to buy their car.

Nevertheless, the decline in volume of point of sale (POS) finance that has continued for the last decade is now levelling off. Carmakers’ finance houses and dealers’ independent finance house partners are providing more products and expertise, which allows motor retailers to fight for finance business.

POS penetration, as recorded by the Finance & Leasing Association (FLA), stands at 49% of the £18.6bn of finance provided to the motor sector annually.

Although this is a long way from the 70% achieved in 1997, it is a 1% improvement on 2005’s penetration and, given continued momentum, could see POS motor finance return to the 50% penetration achieved in 2002 and 2003.

The FLA is determined to see that momentum continue, and has begun working with the Retail Motor Industry Federation to help make POS finance a higher priority for dealers.

Its first step has been to launch a website for consumers (, which explains the different POS finance options available. It also details the consumer protection in place surrounding finance and insurance sales, such as FSA regulation and Consumer Credit licences.

The next step will be the launch in spring of the FLA Certificate of Competency in the sale of finance products. This will set an industry-wide standard, which is achieved through a short online. The test will require resitting on an annual basis.

Although gaining the certificate is not compulsory for finance sales, it is hoped to offer reassurance to consumers and to distinguish between dealers, says Peter Cottle, chairman of the FLA’s motor committee.

Cottle is a senior director of Capital Bank Motor and says his company will encourage its motor retail partners to gain the certificate to compliment the training and support they already provide.

“We want to get buy-in from all dealers. We want to give sales people the knowledge and accreditation that gives consumers the confidence that they will be sold the right finance product, over the right term and at a competitive rate,” he says.

Cottle feels the motor retail sector has had a lot of bad press and this initiative “will give dealers credibility”.

While POS finance penetration has declined in the last decade, Cottle argues that good dealers are able to counter that decline, with the help of their finance house. Capital Bank Motor has specialists who train showroom staff and work with the business to increase F&I sales.

The FLA is concerned that many customers who decide to buy a car don’t get asked if they need finance at the point of sale. Equally, it wants dealers to attempt to provide a competitive alternative if they discover the customer has a loan or package already arranged with a high street lender. Research conducted by the FLA last year found that in 40% of used car sales, dealers failed to discuss alternative methods of finance.

If dealers are concerned that they’ll reduce their profit margin if they offer a lower APR to win the finance sale, this is not the case if the dealership is able to increase the volume of its F&I business, says Cottle.

And rather than recruiting F&I business development managers, he recommends training all sales staff in this field. This will allow them to capitalize on their established customer relationship rather than push the customer on to another colleague at such a crucial part of the sale.

Dealers need to promote finance

Vehicle manufacturers are putting more emphasis on marketing the new car finance options available through their dealer networks.

Now dealers need to do the same, particularly through their websites, suggests David Betteley, FLA board member and managing director of Toyota Financial Services (UK).

“This is very much an issue for all dealers, as many rely on income from F&I, and consumers are changing their buying habits. They are researching more than before through the internet, and are taking the decision on how to finance or budget for their purchase much earlier in the process,” he says.

Improving finance marketing through devices such as online finance calculators, bundled offers and transparent pricing, gives dealers and manufacturers the chance to win back those customers who may have already talked to their bank.

Betteley also encourages dealers to promote other benefits of their POS finance service, such as customer-tailored products, speed of decision and the convenience of the one-stop showroom.

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