AM: Out of the 25 dealers that have adopted the new maximum rate, what are they typically selling at?
SH: Different dealer groups have adopted different approaches. Some of them are starting at 10.9, because we all agree that’s fair and reasonable, and then, if the customer requires it, they’re coming down.
It’s helpful for them to be able to say, ‘look, BMW has set this rate of 10.9%, and we all think it’s fair, because you’re a special customer, or because you’ve got a particular focus on the rate, we’re prepared to offer you 9.9’.
So, they’re offering a discount in the same way as they do with a car. There are dealers out there that are starting with 9.9, because they prefer that single figure offering.
Our next challenge will be to consider a lower, fixed rate. One idea is 8.9%. Banks and direct lenders don’t offer a variation of rates. They offer one rate – you buy a loan from us, it’s one rate, and we’re looking at that as potentially being the inevitable outcome, and we have one dealer group that’s going to be piloting that model for us, at 8.9%.
AM: So you’re starting at 10.9% now, but you could actually come down to a blanket rate?
SH: Yes. We see this as a journey. To really deliver the most customer-centric and fully-compliant model is going to take some time for us to really understand what it looks and feels like.
AM: The FCA is saying the same.
SH: Sure, and we need to take feedback from our customers. We need to take feedback from all of our stakeholders, our regulator and then our dealers, in that order. The end game is yet to be fully-formed, so what we’ve done is taken a very significant step on that journey, and the way we evolve and adapt in the future will undoubtedly take us in slightly different directions. But as long as it’s always pointing at the same goal, and we end up with a model that’s as customer-focused as we can possibly be, then we’ve achieved our objective.
AM: When will you know whether the 8.9% pilot is successful, and therefore you could roll it out to the network?
SH: There are three questions that I need to be able to answer before I’d recommend that to our board. First of all, how has the current 10.9 model affected our customer experience? And what feedback have we had from the regulator?
We’re expecting the regulator to come to us quite early with a view, because we’re such an important player in the market.
And third, how have the dealers responded?
How has the 8.9% model worked with this individual dealer group?
Undoubtedly from a customer point of view, one rate at a very competitive level, with less negotiation, is better, but we also have to be a sustainable business.
AM: Do you know what other manufacturers’ or suppliers' rates are, typically?
SH: Yes. We do a lot of market research. We also, not surprisingly, have a lot of past colleagues and contacts in these other companies, and if you look at the likes of VWFS, it’s centring around 11.9. Black Horse seems to be comfortable with 13.9% and 14.9%. Quite a number of them are looking at this cap discount structure, and part of the reason we decided to go earlier than everyone else was to try and influence the market. We wanted a lead on this. We felt it was important enough to show a strong leading first impression.
AM: How have you changed the way dealers earn from selling finance?
SH: We used to pay our dealers exclusively on the rate that they sell at, so the higher the interest, the more they earn, and the more volume they provided, the more they would earn on a volume bonus.
We decided that volume bonus wasn’t a helpful indicator for customer experience, and it certainly wasn’t something that the regulator encourages, so the volume bonus has gone.
We still pay based on the rate, but it’s on a discount structure, so they earn less the lower the rate, but it’s fairly healthy at that 10.9% anyway.
But there’s also a significant portion of the money that a dealer can earn on a performance bonus based on customer satisfaction.
There are four KPIs: customer satisfaction, retention, used car penetration, and dealer investment.
The latter is the level of investment that a dealer puts into customer infrastructure like group compliance officers, group training managers and so on.
What we’ve already seen is that penetration’s improving in dealers that have embraced the new rate.
The simplicity of it has provided a clear advantage, dealers tells us.
Dealers and the salespeople find it very simple to implement and customers understand it. We’ve already had lots of feedback to say that the fees being taken away has been really well responded to. It’s all quite anecdotal at this stage, bearing in mind it only launched on October 1, but we’re confident that we’ll be able to demonstrate a measure of all effects quite early.
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Steve Boucher - 05/12/2014 17:03
It's interesting to see that the new BMW Finance advertised rate of 10.9% is higher than the average rate BMW dealers have been charging - could someone explain how this is putting customers first? I appreciate that dealers can discount down the rate, but if you are 'treating customers fairly', shouldn't you be offering all of your customers the lowest discounted rate?
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Vauxwagen - 06/12/2014 21:16
@Steve Boucher - Unfortunately most of the industry can't seem to get their heads around TCF. TCF isn't about offering every customer an identical rate and product. It's about offering products that are appropriate to the customers needs and requirements. Different rates create competition (from the manufacturers, dealers, banks, the direct lenders etc) which also means customers are more likely to be treated fairly, as they can always say no. Good qualify qualification, should ensure that customers are offered appropriate products. If one customer is offered a 10.9 APR with a free service contract and another is offered 7.9 APR without a service contract, who is being treated fairly? Well both of them as long as the products are appropriate. Offering a customer a 4 year Contract Hire agreement, when they have told the dealer, that they change every 2 years isn't treating a customer fairly (unless they understand that they won't be able to change at 2 years). TCF is about being clear, open, honest, transparent and ensuring the customer understands what they are buying?
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Steve Boucher - 08/12/2014 09:06
@Vauxwagen - There are elements of every deal which are open to negotiation - the FCA are only concerned (at the moment) with finance and insurance sales. Their question is 'why should one person be offered a lower interest rate than another?' Unless the lender is using risk-based criteria to make their decision, there is no reason.
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jim smith - 05/12/2014 17:27
These statements from BMW bear little resemblance to what is actually happening in the market place. Customer's are APR driven currently, with many quoting Direct Lender APR i.e. sub 5%. Perhaps the BMW showroom receives few such customers, but the mid market brands certainly do. One final point - virtually every manufacturer answers PCP - now what is the question !!
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DJB - 08/12/2014 17:51
@jim smith - The idea that you can get sub 5% APR from direct lenders is not true in most cases. UNLESS they are doing an equity draw down on the house. By the time the customer has applied, the rate will have shifted to over 10% easily in most cases. The rate they offer is not the rate that they get. By this time the customer will have gone through the process so will stick with the rate offered. It's up to the Dealership to get that message across to the customer and do a little research on market rates...
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R Patel - 09/02/2015 08:33
This is great and I have seen that starting rate when I made a purchase recently. But there are dealers that use alternative finance house such as Black Horse (Lloyds) and their starting off rates are above 10.9. Should customers specifically walk into a dealer, ask only for BMW finance and start there? I tried that with one dealer and despite their usual blurb about finance houses were quite insistent on using Blackhorse, for whatever reason they veered away from BMW FS. Perhaps they get a better commission from other finance houses rather than BMW FS, but after reading this article it makes sense now. BMW should also think about dealers changing their policy of not emailing out a quote, that still bemuses me considering all quotes must be put in writing first. Some do it but the majority don't. I was once told that all calls are recorded and that lives as proof of the verbal quote. Well done to BMW for taking this step now get the dealers to improve their service levels, particularly on the financing side.
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