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Exclusive: BMW FS reveals plans to reduce dealer finance rate further

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.

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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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