31 May 2018

By Andy Tong

Dichotomy. The Cambridge dictionary says that the meaning of the word is ‘A difference between two completely opposite ideas of things’. We often see this in politics where elected representatives say one thing and do another, but over the last few years I’ve seen a similar segment in the motor trade grow inordinately quickly, and it bothers me. It bothers me a lot.

I have a dilemma – I want to write about a serious dichotomy in the UK automotive industry, and if I do there’s a good chance I’ll upset some of my friends and key industry stakeholders – and yet if I don’t, then they will keep working with me in order to maximise the ever-narrowing funnel of perfect prime finance deals. Hmm. What to do.

You see, I work independently with funders, brokers, retailer dealer groups and used car supermarket operators – and I can regularly spot trends and patterns of behaviours that I can incorporate into training with a view to sharing best practice and eliminating the worst. This unique insight into the evolution of our marketplace is often what my customers want access to – cutting edge stuff that is quick to deliver, easy to retain, sells cars and makes money.

Tough times

The dichotomy is this: The language I have been hearing from dealers in the last five years is generic and ambivalent. When I ask them how they are doing they tell me “It’s alright”, “It’s not bad”, “Mustn’t grumble”, and the dreaded “It’s OK”.

It has been a full decade since the credit crunch arrived and financial liquidity slowed to a mere trickle. For the first half of that decade many dealers merely existed by finding ways to do what we as an industry had always done, but more of it. Marketing, advertising, online presence, SEO and organic search, whilst stoically maintaining a traditional mode of customer interaction when the customer was finally coaxed into becoming footfall. We all found it tough, but so have many of our customers.

Other priorities

In fact, our traditional customers are still out there but I noticed in the second half of that decade that they have a tendency to deal elsewhere. Let me be specific.

Our customers have had tough times in the last few years, and for a great many of them this has manifested itself in their credit score and credit search due to technical, occasional and often miniscule missed payments.

By doing the right thing and perhaps prioritising their mortgage over their mobile during difficult times, many of them often find themselves in a financial purgatory where their credit profile today simply isn’t strong enough to justify a prime lend.

I have a large number of dealer clients spending fortunes to market themselves, their brands and their stock – and yet have little or no controlling influence on nonprime customers. They attract, entice and excite their prospects into becoming footfall, then revert to traditional sales processes and do their utmost to make funding a ‘one size fits all’ solution.

This leaves your front of house team, sales and finance, as fatigued as the underwriting team at your prime funder panel, with the poor customer spun like a washing line in a tornado.

Not high risk

This is frustrating, and yet these customers are not bad, they are our traditional core bread and butter customers. Yes, they may have a financial blip or two along the way, but these aren’t the deep subprime high-risk customers we think they are.

These customers are merely near prime, slight seconds, almost perfect but not quite. Surprising really that as an industry and in general (here it comes) we are treating these people abysmally, and accordingly, they are dealing elsewhere.

Opportunities

These prospects are fantastic opportunities to do business, they are in the main as good as gold, but with an edge or two knocked off because life, job, divorce or economy has at some time in the last 10 years served them a curve ball. What is remarkable is that there are a few choice operators in the marketplace, smart operators, who have recognised this rich seam of business and are harvesting it.

They are selling cars to your customers, making good money in the process and they are achieving this by engaging with specialist funders who understand and work to make every deal possible.

Many of our traditional prime funder partners are owned by large PLC banks and are hamstrung by their parents’ complete aversion to any customer that represents anything other than maximum yield for minimal risk.

However, there are specialist lenders out there with tailor-made processes designed to not only accommodate but also to convert those deals from prospect to purchaser.

The dichotomy is when those dealer partners tell me that they don’t need such a specialist funder, that they either rework each deal with their prime funder panel (adding unnecessary searches to a user credit profile) or they simply wash out the deal to a broker.

This is great for all my broker pals, but for the dealer it represents a loss of control and a loss of revenue. This is daft if you have direct access to the specialist lenders but are choosing not to use it.

If you would prefer to lose ‘not bad’ and replace it with ‘excellent’, if you would like to convert a lacklustre ‘OK’ to a ‘fantastic’, then take a look at your funder panel and be prepared to make a few strategic changes. Remember the regulator wants to see the right outcome for the customer and the customer wants to deal, but you can only facilitate that process if you have the right providers on board.

YOUR ACTION PLAN

• Review your panel
• Make contact with appropriate providers
• Learn how their proposition works
• Be prepared to make changes
• Brief the team on why and when
• Treat every customer as prime
• Be prepared to retain profit and control

Tags: F&I, finance and insurance, subprime