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Banks' direct loans could threaten car dealer revenue

Dealers are urged to sharpen up the way they display online finance offers now Lloyds Banking Group has become the first bank to launch secured digital car finance in the UK. Some dealers see a bigger threat as banks assess the rising potential of direct loans.

Initially, Halifax Car Plan Extra is restricted to eligible customers buying used cars through dealerships but it will be extended to new car PCP and HP deals by the summer. Halifax customers can prearrange secured finance for a used car and have the money transferred to a dealership when a sale is agreed.

Mark Standish, chief executive at MotoNovo Finance, said direct lenders always have the potential to damage dealers’ F&I revenues: “Lloyds’ offer, as a secured lending proposition, has the potential to disrupt more than just the finance sale. In a PCP sale there are implications for the whole part exchange, guaranteed minimum future value and monthly rental scenario.
“I suspect some dealers may be reviewing their finance suppliers to get the best level of dealer centric support. Dealers reticent about online finance online will be thinking carefully about the threat that is now very clear.”

Black Horse, also part of Lloyds Banking Group, has reassured its dealer partners that its commitment to the point of sale motor finance remains the same. Chris Sutton, managing director at Black Horse, said: “We appreciate any change can be daunting. The way consumers want and expect to transact has changed significantly over the last few years and the trend towards use of online or digital methods will become even greater over time.”

Richard Hoggart, managing director at DSG Finance, said: “We can't influence the level of competition but can continue to offer convenient, competitively priced and suitable products to deliver the positive customer outcomes that the FCA rightly demands.”

James Tew, managing director at iVendi, said: “The kind of product offered by Lloyds takes valuable finance income away from dealers and will be of genuine concern for them.
“Within the process, dealers sell the car to the lender, who becomes impacted by ‘merchantable quality’ in the event of a problem with the vehicle. Where a dealer has a working relationship with the lender, they tend to resolve consumer issues but, where done directly, lenders have to carry the can. If a situation is not resolved, it could lead to the dealer being not included, or removed from, a lender approved list. This disrupts the process for consumers who just want to buy a car from at dealer through a direct offering. It all gets very complicated.”

Julian Rance, head of Paragon Car Finance, said: “Good dealers have access to a wide range of lenders, including manufacturer finance, mainstream banks and specialist lenders. Provided rates and terms are competitive, dealer finance will continue to appeal to customers who like the ease of arranging all key aspects of the car purchase under one roof.”

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  • John - 21/04/2015 12:07

    All that will potentially happen is that if this became wide spread, dealers will recover proitability in the sale of the metal - maybe not in the short term due to manufacturer quotas being pushed but eventually the market will re-balance Imagine, dealerships making money from the sale of the car as opposed to commission incentives which historically promote poor conduct and behaviours with the old DIC/VB model. Along with the FCA now showing it;'s teeth, the reliance on high finance commissions is soon to be a thing of the past it is about time the industry woke up to the reality that continuing to rely on commissions is tantamount to business failure