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EU directive should raise effectiveness of F&I sales

However well dealership teams are selling F&I now, they are likely to get better over the next six months. And those performing poorly may well improve.

Surprisingly, it could all be thanks to an EU directive.

The incoming EU Consumer Credit Directive (CCD) is likely to be in place by November if training is completed in time, but the deadline is the end of next January.

Dealers should ensure all relevant staff understand the rules, both to keep within the law and to enable them to increase F&I sales.

Dealers’ share of motor finance has declined. In the year to February, according to the Finance & Leasing Association, point-of-sale’s share of loans for retail purchases of new cars was 45.5%.

In November 2008 showroom advances stood at 53.3%, well ahead of the 46.4% recorded in November 2007.

Mariam Mahmood, marketing and policy adviser at the Finance & Leasing Association, is positive about the arrival of Brussels’ latest directive.

“It’s an excellent opportunity for dealers to improve their methods of selling finance,” she said.

But CCD is not without potential problems. Paul Harrison, FLA head of motor finance, said an emphasis on giving customers “an adequate explanation” of the credit being applied for is one of the areas of most concern among lenders.

“The OFT’s Irresponsible Lending Guidance gives more detail on the practicalities of the directive,” said Harrison.

“The onus is on the lender’s staff to judge whether the customer has fully understood the explanation provided.

"This is a very subjective interpretation and could cause difficulties if not properly documented.”

An understanding of all aspects of selling loans to car buyers is at the heart of the FLA’s Specialist Automotive Finance (SAF) initiative.

Robert Forrester, Vertu Motors chief executive, supports SAF and the benefits it brings: “We were the first dealer group to gain FLA SAF approved status – proof of the competence of
all our employees in arranging loans”.

Ford Retail, the UK market leader’s own network of 42 dealerships, has become SAF Approved this spring. Alan Maloney, the group’s head of finance and insurance, said SAF training contributed to 2009’s 9% year-on-year rise in F&I income.

“SAF has helped us to achieve the consistency in F&I sales performance across the group that we needed,” said Maloney.

“It has made our people more professional and more able to explain complex F&I products.”

Ford Retail spends £100,000 a year on an independent audit of F&I sales. Maloney said the group opted for ensuring the “suitability” of F&I products it sold rather than only “eligibility” and was confident of being able to conform to the new CCD.

Janet Wilson, managing director of Close Motor Finance, was initially sceptical about SAF, but is now an enthusiastic supporter.

She hopes it will in time lead to a more uniform and higher level of skill in the way dealers sell finance.

A tool to sell more cars

“Some dealers are excellent at it, some are poor, and it has nothing to do with the size of the business,” said Wilson.

“We want dealers to use finance as a tool to sell more cars and retain customers’ business, and not just view it as something to add on at the end of a sale to earn some commission.”

Wilson also believes it is time for all in the sector to raise their game in making car buyers look first to dealers as the provider of a loan.

“We have an advantage at the moment because many direct lenders are still finding it hard to obtain funds,” she said.

One problem for the sector is finding a way to direct car buyers researching online to a dealer’s website for finance rather than allowing them to go to a direct lender offering a cheap rate.

“We need to get the message across that lending through a dealer means there is someone to go to if there is a problem,” said Wilson.

Need for registration

SAF applies only to finance products, but dealers need to be registered with the Financial Services Authority to sell any F&I products.

Through CCD, the EU wants the way credit is sold to people in all member states to be the same.

The Office of Fair Trading will be responsible for CCD compliance. Dealers will have to ensure that someone taking out a loan to buy a car understands everything about it.

Also, dealer staff will need to be sure of the customer’s creditworthiness: in other words, that they will be able to repay the loan.

Almost 8,000 UK motor finance specialists have successfully com-pleted the FLA’s online Specialist Automotive Finance (SAF) test. It is designed to improve an employee’s knowledge of finance products and relevant legislation and does not include tuition in the art of selling.

The FLA is revising its SAF tuition to take account of CCD. This is to ensure that SAF applicants are aware of it, and those already SAF registered will be updated when seeking re-registration after 12 months.

All those should understand it because training is being arranged over the next six months.

SAF approved was the first extension of the FLA’s training programme.

Many dealer groups and other companies have gained this status after all relevant staff showed an understanding of the finance products they are selling.

FLA members and other lenders and finance retailers need to be fully compliant with the regulations of the CCD because all credit agreements signed from February 1, 2011, will have to be sold under CCD regulations.

Dealer view

Robert Forrester takes pride in Vertu Motors becoming the first dealer group to gain approved status in the FLA’s Specialist Automotive Finance programme.

The chief executive believes in giving employees the skills they need to do their jobs well.

“We combined our own training programmes with the SAF initiative,” said Forrester.

“Though last year was difficult we continued to invest in a lot of training for our business managers – and now we are seeing the benefit.”

Approved status allows Vertu to display signs and stickers that tell customers the staff have achieved a level of competence.

“It’s a subliminal message,” said Forrester.

“It works because our customers know Vertu employees will treat them fairly. This has given us an opportunity to sell more F&I products at a time when direct lenders have found it more difficult to find the funds they need to lend.”

Forrester said this had been the first step and Vertu’s point-of-sale teams would continue to focus on building sales of loans and insurance products.

Motorpoint is the first major car supermarket to become SAF Approved, covering all 100 employees.

David Shelton, managing director, said: “We work tirelessly to ensure our sales force are among the most knowledgeable in the industry.”

Consultant's view

It’s easy to miss an important point about point-of-sale finance, according to a motor industry consultant: “The future is online with car buyers arranging finance via dealers’ websites.”

Car buyers increasingly use mobile phones to do their research, which is why dealers need to adapt if they want to make money out of F&I, he said.

“If dealers want to be seen as the natural place for car finance, they have to ensure it is available where and when the consumer wants it,” said the consultant.

“Clear unambiguous information is essential which means getting finance online in a far more transparent and obvious fashion than now. It must also be seen as good value, so competitive pricing is a given”.

He said it was important to communicate with consumers on finance before they reached a showroom, otherwise the finance decision could have been made and the funds sourced.

That removes a vital profit centre and a key tool vital to price negotiation and a long-term retention aid.

Carlyle Finance has spent almost £100,000 and 10 months developing a website

Two presenters explain different ways of finding money to buy a car and the meaning of terms such as dealer finance and secured loan. A calculator enables buyers to work out terms and repayment costs.

FLA campaign

The Finance & Leasing Association wants 18 of the UK’s top 20 dealer groups to have SAF approved status by the end of October.

It is one of two KPIs set by the FLA – the other is that all its automotive members achieve the same status by the end of June.

Eight of the leading groups are SAF approved, which means they can display a plaque and
promotional material, and two others are close to gaining the status.

Mariam Mahmood, FLA marketing and policy adviser, said: “SAF has gathered momentum over the past 12 months but it’s important that we set targets so that it continues.”

Almost 8,000 people in 1,100 companies are now SAF registered. This shows the progress made in the campaign to win back point-of-sale car finance from direct and high street sellers.

“We have some way to go because only 400 dealerships are SAF approved,” said Mahmood. “When we have a higher proportion we can list them on the FLA’s consumer website ( which gives car buyers impartial advice.

“When we have more dealerships registered, we will invite car buyers to enter their postcode so they can find one near to where they live.”


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