Change in dealer F&I lies ahead with the Financial Conduct Authority currently consulting with the industry following its review of motor finance. Ahead of this change, we’ve considered the key areas that may change and what they may mean for dealers – first up is commission structures.
As a business, MotoNovo has been consistent in our view that regulation has been good for motor retailing and motor finance. In short, doing the right thing by customers will always promote greater levels of trust and confidence, something that is increasingly important in an ever changing market.
We’ve recognised that regulation must be seen as a force for good in our industry, and we’re dedicated to helping our dealers address the challenge head-on.
We all know that the traditional showroom-based buying behaviour has changed significantly in recent years. Today, we live and work in an ‘omni-channel’ environment; dealers have multiple marketing platforms to manage and the expectations of a highly informed customer to meet.
The challenge with the traditional product ‘push’ approach is that aggregation platforms have focused the retail sector on the importance of offering the lowest prices in order to rank high on search pages.
There can only ever be one lowest cost provider at any given time, but it has to be recognised that this strategy has created a ‘race to the bottom’ in terms of metal pricing and that low cost car prices have been balanced against other revenue streams.
This type of cross-subsidisation model isn’t sustainable, especially in light of the FCA’s recent review and various changes that will happen off the back of it to make automotive finance fairer and more attractive for customers. Now is the time for dealers to look at their current commission disclosure approach and step out ahead of the market.
Under the current standards, dealers must make customers aware that they may earn commission for introducing a customer to a finance company and if asked they must disclose the value of that commission. For dealers looking to push the potential of GAP/RTI and other added value insurances, it’s worth noting that the mark-up approach being used for these services is also being looked at by the FCA, in a separate thematic review to motor finance.
The regulatory focus upon F&I commission is unlikely to mean an end to all commission, but it may well re-set the values of such commissions and this is something that will become clear in the months ahead as the regulator, finance industry and other stakeholders consult on the way forward.
One potential outcome of the FCA’s review is that finance interest rates available to customers could fall when compared to the rates offered today. This is where a switch to using low rate finance as a marketing tool has real potential.
Look again at marketing costs – we all know that these have been escalating in recent years, so can you make your marketing spend more accountable?
The pressure on added value income areas makes a rise in car prices appear increasingly inevitable if dealers are to survive. This could be an opportunity to realign the dealer model back to its core structure of buying and selling right, and of providing customers with a high level of transparency. Link this to interest rates that are lower than those commonly seen today and customers’ monthly finance costs could be little changed from today.
Change represents an opportunity for the industry to re-boot and here’s how;
- Increase transparency and trust with consumers
- Focus marketing activity on the monthly cost to meet the way most customers buy a car
- Reduce marketing costs by focusing on results-based marketing platforms
- Realign the model around the metal and customer experience
- Compete/address the online broker challenge
And as always, MotoNovo will be ready to help and support dealers through the changes we see ahead.