Embracing FCA regulation to ensure the fair treatment of customers consistently can create a good customer outcome and a good dealer outcome at the same time. MotoNovo views the proposed regulatory changes to motor finance as a catalyst for positive change.
To ensure dealers create the fair outcomes sought by the FCA, it will be essential that dealers consider how best to meet customers’ needs throughout their car financing journey. Customer success must be at the heart of a dealer’s approach. In developing a customer-led ethos all areas of financing need to be considered from a customer perspective, generically and at an individual level including in the design of financial promotions, in sales interactions and ongoing service. To ensure this approach is being delivered consistently it will be essential for dealers to maintain appropriate systems and controls to monitor whether the strategy is successful and whether customers’ needs are being met.
Compliance with these standards may mean change, but get this right and a customer win can mean a dealer win as well and in a challenging market, this could be crucial.
The prize for dealers from embracing positive change in their approach to used car finance is threefold; compliance with Financial Conduct Authority (FCA) requirements, reputational enhancement, and financial. With new car finance data indicating a finance penetration of 91.2%, while used car penetration often lingers at under 20% and at best circa 40%, there is a huge opportunity for dealers; one that can be realised by delivering good customer outcomes consistently.
While much industry focus has concentrated on the £165 million annual credit saving to customers that the FCA identified in its October 15th Consultation Paper, MotoNovo is clear that dealers need to look to the positive opportunities the paper presents; they also need to recognise the threat of not changing.
The vast majority of people buying a car need finance as the current new car finance penetration evidences. If dealers fail to fulfil this customer need in a compelling, timely and compliant fashion, then in today’s increasingly digital car retailing environment, they risk losing not just a finance opportunity, but the car sale as well. However, get the customer finance experience right and car buyer and dealer can benefit.
MotoNovo’s analysts have been able to establish from the FCA’s data used in their recent Consultation paper that modest improvements in used car finance penetration could offset the annual customer interest savings sought by the regulator. It also indicates the potential to make incremental improvements, the potential opportunity is entirely reliant upon embracing the six good outcome principles.
Dealers currently achieving a used car finance penetration of 20% will need only a modest improvement to 26% to offset any fall in income that might follow from lower interest rates/commission; anything beyond this is an incremental gain.
For a dealer achieving a 40% penetration, a move to 51% creates the threshold for growth.
Success all stems from delighting more customers; however, we are not alone in working to engage used car buyers’ need for finance. Traditional personal loan providers and emerging broker and fintech channels are all seeking to gain customer approval. It is an increasingly competitive market and for many consumers, that journey starts online, where used car finance from dealers is too often under-represented.
We need to take dealer finance online with the type of Self-Serve capability that customers want and which we offer dealers, or risk losing the opportunity. With tools such as findandfundmycar.com and new pricing mechanics, we can transform used car finance to benefit car buyers and dealers. Changing to embrace new ways of promoting and delivering used car finance to sell cars is critical. Rather than wait, dealers can make these positive changes today and we can help them to achieve them.
By Mark Standish, CEO of MotoNovo Finance