A third (34%) of British car buyers expect dealers to earn commission on vehicles bought on finance, and a further 28% don’t mind so long as they’re informed, according to new research from Close Brothers Motor Finance.
The news comes as the FCA introduces new regulations for the motor finance industry, which come into force on January 28, 2021.
The changes, explored in the December digital edition of AM Magazine, include banning pricing models which link dealer commission to an interest rate and clarifying commission disclosure rules.
Close Brothers' research found that most consumers accept commission.
Just 13% of survey respondents said they didn’t think dealers should earn commission when vehicles are purchased on finance, although this rises to 18% amongst millennials (age 25-39).
Contrastingly, just 9% of baby boomers (55-74) think dealers shouldn’t earn commission.
While people are comfortable with dealers earning commission, they do think they should be told. Half of consumers think the dealer is responsible for informing them about commission, 18% think the responsibility lies with the finance provider and 8% with the media.
Baby boomers put most weight on the dealers at 61%, with only 16% thinking it should be the finance provider. Gen Z offer a counterbalance; just 36% think it should be the dealer, with 26% believing the finance provider is responsible.
Thanks to the clarified commission disclosure rules and guidance, consumers will have even more transparency and clarity over finance agreements. The research reveals that the majority of people are comfortable with the concept of discussing commission with their dealer.
Seán Kemple, managing director of Close Brothers Motor Finance, said: “For consumers, there’s a lot to think about when buying a car this year. The economy has been hit hard by COVID-19 and Brexit, and at the same time we’ve seen changing regulation around fuel type and congestion. Private car ownership has also become more appealing, with reticence around public transport and a fall in company cars. And we have seen the numbers of cars bought on finance rise significantly.
“That’s why it’s really positive that the FCA is again focused on supporting customers.
"Commission works well across a variety of industries which involve products being sold via intermediaries, including mortgages, pensions, and insurance.
"The new changes to motor finance will ensure that the interest rate people pay on their finance agreement is based on their own individual circumstances, and that there is complete transparency around the commission a dealer is earning. This means customers can be confident in their judgement of the impartiality of a dealer before they make a decision about how to fund their vehicle purchase."
According to the results of a recent AM survey, more than half of UK motor retailers believe they're ready for the new finance rules.
But Kemple said that Close Brothers' research among car dealers had revealed that many are concerned about the FCA changes.
He said: "They’re unsure about what the impact will be on their businesses and their customers, and one in ten are unlikely to meet the FCA deadline.
"Transparency and consistency have always been a priority for us as a responsible lender, and we’re working closely with our dealer partners to help them become confident in what the changes mean, while minimising disruption to the business or sales figures.”