Stock funding for used vehicles may not immediately be an area dealers have considered in their preparation for the Financial Conduct Authority (FCA) environment. Nonetheless, if stock funding is arranged with a finance provider to include any reciprocal retail support arrangement, wherein the dealer could benefit in return for providing retail finance support, I would urge them to look at it closely.
The FCA requires dealers to disclose the amount of any commission, fee or other remuneration payable to the dealer if requested by customers in advance of their agreement being signed. This means any financial benefit to the dealer from a stock funding/retail support programme would be covered by the FCA requirements. Stock funding that could be impacted by reciprocal retail finance arrangements could include: unit stocking, ‘advance advances’ and ‘advance commission’. The subsequent requirement to calculate any stock funding benefit on a case-by-case basis could prove complex.
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While this is not a new requirement, the FCA’s rigorous approach to regulation and desire for transparency means that this potentially overlooked area now needs to be on the radar of all dealers with finance-linked stock funding arrangements. In today’s environment, we must recognise that consumers will become increasingly aware of the right to commission disclosure.
‘Unbundling’ retail and stock funding finance would immediately create clear water between the two elements. As well as simplifying the customer transparency experience, such an approach can also work to simplify the dealer F&I model, providing greater clarity on the true F&I income performance. It can also help to bring better focus to stock management.
By switching to a standalone stock funding arrangement that integrates with the dealer’s wholesale finance system, dealers can gain a clear picture of the cost and ageing of their stock. They do not need to estimate any retail finance impact. Our experience is that dealers value the change with a growing number discovering that this is helping them to manage their stock more effectively. Unlike a few short years ago, stock funding is very much available. Now is the time to take a step back and see how a review can help a dealer to support FCA compliance and profitability all at the same time.
David Mercer, managing director at NextGear Capital.
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