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What the FCA's new consumer credit rules mean for car dealers

However, AM understands dealers that already have the FCA’s separate authorisation for insurance are being viewed as a greater risk and may require full authorisation for consumer credit.

The message for dealers and their motor finance partners is to embrace the change. The FCA’s regulation may even result in the franchised dealers’ business model changing, leading to greater certainty or stability for dealer profit.

At Hitachi Capital Motor Finance, managing director Gerald Grimes said the scrutiny of point of sale finance and insurance may make the industry go back to working like other retailers – buying something at one price, adding value and selling at another. Finance could be the promotional product.

“We may well see a consequence being the actual ticket price of cars increasing, because they have to get the profit from somewhere.  We’ve seen the kind of perverse statistics in years gone by where large dealer groups have actually made a loss on their sales activity but they made £50m with their F&I income. In that situation now, they would be categorised as a finance company,” said Grimes.

The demands put on finance sellers by the FCA may also lead to an opening up of the sales process, and a diminishing of customer complaints. Grimes said the hope is that the consumer will benefit from this, by being able to compare the deal more effectively against others in the market.

That may still prove a challenge for some in motor retail to see. The response of one director of a major AM100 dealer group to the FCA’s mandate of commission disclosure (see previous page) was concern that “a consumer champion like Martin Lewis could get hold of the wrong end of the stick and start advertising this as a necessary practice for consumers”.

Franchised dealers more exposed than used car dealers

One independent motor finance expert said: “Franchised dealers will be more exposed to this than used car dealers because the used car dealers make more money from the metal. Franchised dealers with large overheads and tight margins are reliant on the extra commissions and bonuses. Four-figure sums per car from add-ons are not unusual.

“The buzz phrase from the FCA now is ‘creating a better consumer outcome’. Culturally, this industry is all about selling. The FCA is not about selling, it’s about making it easy for people to buy.” While the FCA doesn’t understand the motor retail industry and its margin structure, it is willing to listen to dealers, he added.

That was a point echoed by Mark Smith, managing director of The Car Finance Company. He said the regulator will be keen to learn and understand how dealerships’ income is earned. His advice to dealers? “If everyone looked from the ‘outside – in’, asking the obvious question of ‘would I agree to this?’, it would be a start. We have invited a firm of lawyers to rigorously assess our entire business as a health check, and I would recommend taking advice from external experts rather than assuming all must be OK because no one complains.”

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