AM: Could the performances bonuses based on those four criteria match or exceed what dealers would have been earning in bonuses?
SH: No, it’s significantly less. The reason being, some of our dealer groups in the past could have earned 11, 12, 13% of the advance as a volume bonus.
We’ve taken it down to a maximum of 4%, because now they should be constructing a deal on the day that the customer finds acceptable, and the level of commission that they earn for a supplementary activity like financial services needs to be in proportion to the income across the whole transaction.
So, there’s a fairly deliberate expectation they need to focus on balancing their income in the car and the finance in future.
We don’t want dealers earning thousands of pounds on the finance, and nothing in the car, because that’s almost a little bit disingenuous with the customer. The customer thinks they’ve got a great deal, but then it’s all been recouped in the regulated activity.
AM: When are the bonuses paid, based on these four KPIs? Are they paid as regularly as the former bonus payments were made?
SH: In the old model, the bonus payments were paid monthly or quarterly. In the new model, we’re going to set a notional rate level for the bonus for the year, and we’re going to pay dealers with the deal. The idea there is that the transparency aspect of being able to tell the customer when requested how much commission’s paid is made very simple.
At the moment, with these volume bonuses, it’s very difficult for a salesperson to answer the question, when asked, how much commission is paid. With this, it’ll be extremely transparent, so they’ll be able to do that very easily.
AM: Do you think that your dealers will tell the customer about the commission straight off, without being asked?
SH: I would like that to be the case. We would prefer everyone to be required to disclose the amount of commission. It creates a level playing field for all then. The problem at the moment is, because that isn’t the requirement, it doesn’t happen very often, and if we were to require our dealers to do it, and the competition didn’t, that would put us at a massive competitive disadvantage. But where requested, we want to make it as easy as possible for our dealers to be compliant, and that’s why we’re paying the commission with the deal.
We are also though doing a quarterly, and then an annual, review of the level of performance bonus that we pay, and if a dealer has fallen short, we will debit them back that money. But equally if they’ve excelled and improved their customer outcomes, we will reward them more.
So there is a longer term potential penalty, should they not deliver good customer outcomes. We certainly didn’t want to make it the case that they could trot along for six months, eight months, doing things badly, and still get paid with no repercussions, and equally we didn’t want to make it the case that a dealer that improved their performance didn’t feel any benefit from it.
AM: Is there focus from you on how the sales process should change as a result of your new maximum finance rate, or is it up to the dealer? You’ve set out the stall, as it were, and now it’s up to dealers to execute this in the best way a dealer sees fit, or is BMW FS influencing that as well?
SH: Well, this change for us forms part of a bigger strategy within BMW. We call it modern retailing and it’s looking at the entire customer experience. So, even down to fairly basic things like the uniforms and look and feel of the dealerships, to make sure that they are focused on making the customers feel comfortable, and are being dealt with by a professional. Then on a more technical level, are our financial products being presented in a more uniform, transparent and simple way?
We’re also looking at the staffing structure.
We are reviewing the role of the business manager within the dealership. If we’re going to make the products far more transparent and far simpler to present, then arguably the business manager’s role of negotiating and driving up the profitability of the transaction is almost a thing of the past. We would like as much as possible to take negotiation out of the discussion. If it’s fixed at a price that suits the customer, the customer’s going to enjoy the experience far more. So the role of the business manager is under review.
There will be a strong position for a business manager in the future, but that they will be the champions for compliance, and they will be the champions for customer experience.
We’re doing everything we can to make sure the processes we advocate, allow dealers to offer the right products for the customer.
There’s no skewing of income around one particular product anymore. Even the training that we deliver now is as much focused on the potential risks in finance as it is the benefits and advantages, and that’s a real cultural shift. It would be almost unheard of three or four years ago to talk about the risks of taking finance.