A study by Hitachi Capital Motor Finance claims dealers could miss out on as much as £246 million a year in finance revenue on used vehicles.
Hitachi’s analysis looked at the finance revenue missed by using Difference in Charges (DIC) commission structures rather than APR based models on used vehicles.
According to Hitachi, DIC is the most common method used by virtually all captive-finance companies. With DIC, the finance loan is recalculated at the buy interest rate, and the resulting interest charge is retained by the lender. The dealer reserve is the difference between this interest charge and the interest charge on the contract.
Hitachi says an average dealer is missing out on additional revenue of £26,031 a year per site in APR based commission alone.
Hitachi says changing to an APR model helps by removing fees and putting additional profit into the amount to be financed by the lender.
Hitachi also argues that APR based models are simpler to administer as they ensure customers are fully aware of the costs of the loan including the monthly payment, any interest charged and the APR.
Lisa Harrison, Hitachi Capital Motor Finance head of business development, said: “Despite the strong performance of new car sales, dealers are continuing to face pressure on profit margins.
“This study underlines the need to approach used sales revenue in a structured way. We know that right finance product on used vehicles can help close the sale and build customer loyalty. Hitachi knows that by building our lending criteria around the individual rather than the vehicle, we have more flexibility to do the deal and it supports the ‘treating customers fairly’ criteria, by building in affordability.”