Following BMW Financial Service’s announcement of a capped rate finance offer last year, its multi-brand finance provider Alphera is now rolling out its own as it seeks to implement simplicity of sales process and transparency for customers.
In an exclusive interview, Alphera Financial Services’ director Andy Gruber (pictured) outlines the company’s goals and his hopes for the sector: how dealer finance penetration can exceed 80% in 2016 and the benefit of a TripAdvisor for the finance providers.
AM: The market in 2014 could be summarised as one of extraordinary confidence, particularly in the new car market. However, there was an underlying cautiousness around the FCA and its impact. Did this taint the waters slightly last year – or is this being too negative?
Andy Gruber: 2014 was a hugely successful year for our industry overall and we had record growth and record levels of car sales, record levels of finance penetration.
But interestingly towards the end of the year you could actually sort of see elements of the market cool down. The F&I sector was forced to almost focus exclusively on the topic of the FCA and areas such as business development became a second priority while the industry was sorting itself out with regards to the legislative implications, trying to understand what the FCA was about and what it actually required.
AM: Did that hamper creative thinking around products and their delivery; did it really stop the entrepreneurial thinking into how products and the way they are taken to market could improve in a natural way, organic way?
AG: There definitely was an element of that. Again, the FCA has meant such a big change in mind-set, and the application of new rules. Obviously the industry is still going through the application process as we speak, and it's such a significant piece of work that requires some real changes in most operations that, at the end of the day, there was not the capacity available in most cases to just freely think about the next big opportunity or innovation, and instead there was considerable focus just on getting the FCA application in and understanding the implications.
AM: So it put the brakes on what would have been an even more successful year?
AG: You would never know the full facts, but having spoken to a number of partners the feedback was, from almost everybody, that there was, at the latter end of 2014, more time spent on administrative and regulatory topics than on any other.
AM: You mention the application process is still on-going, but has there been an acceptance that FCA regulation is, A, a good thing, and B, the change can be managed?
AG: I'd love to say univerally, yes. But you'd more accurately h ave to acknowledge there will be partners that are fully on-board and embrace it for the opportunity that we in Alphera think this is - focussing on the customer, and the best customer outcome with all the benefits in retention, and sales improvement - but there will be others more reluctant to embrace the FCA and have probably stuck to the old ways of doing things.
AM: Why resist the change?
AG: FCA is, of course, a principle-based regulator. This means, by definition there are significant grey areas in interpretation.
So it's actually very difficult to therefore say one particular behaviour is really bad and another is really good. People will find a way to argue that the old ways of doing things is still in line with FCA requirements.
We, however, think this is a bit far-fetched and actually, the ‘old way’ of maximising the profit in every deal and each customer interaction is something that needs to firmly belong to the past. As an industry we need to work hard towards phasing out that behaviour since it will just contribute to the continuation of the negative perception of the industry.
This perception, in itself, will mean the loss of sales and retention opportunities.
AM: What are the issues you’ve been in dialogue about with your dealer partners that need to be addressed most urgently in order to embrace the new regime?
AG: The focus on the immediate profit in every interaction rather than the long-term benefit for the customer and for the business that a fairer interaction with the customer would entail.
BMW Financial Services has set a maximum credit rate of 10.9%, with the opportunity to discount from there if you have, as a dealer, to actually help save a deal. Alphera has done something very similar - we have set our maximum rate at 14.9%.
AM: How does this varying to rates you had been doing business at as an average?
AG: Due to the breadth of our business, from being a captive to Aston Martin down to providers to the independent car dealers, it's very difficult to come up with an average.
AM: Why was 14.9? right for you?
AG: It is the benchmark we apply across our business. For example, look at some of the prestige dealers: it wouldn't make sense to start at 14.9, because no customer in that segment would ever take finance at 14.9%. So, obviously in this instance, we start lower.
The rate is very much tailored towards the risk profile that we see with individual partners. And so 14.9, from our point of view, is actually where the vast majority of our business was undertaken and, therefore we as a business feel comfortable this is a suitable ceiling.
It's higher than BMW FS because, clearly, as a non-captive, our risk profile is a different one.
Often we are not the first string finance; we are dealing in a different segment to BMW FS that is a captive to the BMW brand dealers. So, we needed to reflect that in our approach.
We've also stripped out any additional bonus elements and have everything reflected in one payment. There is no volume bonus any more. We don't have product differentiation. We don't have loan differentiation. We work off averages that should therefore allow the dealer to properly focus on establishing the real needs and requirements of the customer without anything pushing them towards thinking they need to sell five year products or they need to sell PCP over HP, etc. So the very simple and very transparent approach we've taken is actually one that should empower the dealers to do the right thing with customers.