As the UK’s biggest independent motor finance provider announces a strategic shift from margin protection and process optimisation to business growth, Fred Crawley asks what this means for a market already brimming with growth ambitions.
With finance penetration into auto retail ticking unfalteringly upward each month, and the motor finance market continuing to grow beyond its pre-crisis dimensions, it can be easy to think that this quiet boom is solely down to the grand strategy of the manufacturers, and the increasing deployment of captive finance to catalyse the consumer appetite for new cars. But take away captive new business volumes, and the independent market has still shown a definite, albeit more cautious, growth curve.
What’s more, momentum appears to be building: forecourt staples such as Barclays Partner Finance, Northridge, and MotoNovo have all recently made bold and confident statements of their growth ambitions, while Santander Consumer Finance, one of the two multi-billion-pound players in the business, has maintained a reasonably bullish attitude to growth for some time.
Add to this the development of lenders such as Moneybarn, Moneyway and The Funding Corporation into the wide-open arena of near- to subprime motor finance, and you have an independent market where virtually all participants are looking to take a larger slice of the proverbial pie.
For some time, the most notable exception was Black Horse – the largest provider into the sector – as a result of the enormous challenge handed to it by the financial crisis.
But today, says managing director Chris Sutton, the funder has just as vigorous appetite for growth as any other company, part of which will be achieved by new service propositions and part of which can be built around the marketing and perception of its “powerful” and “solid” brand.
Such adjectives could apply equally to Sutton, who was voted the most influential person in UK car finance in this magazine’s poll of the industry late last year (see: Motor Finance 98, December 2012).
£3bn and change
While its peers have achieved growth incrementally, Black Horse experienced its own vast expansion at the most turbulent point of the financial crisis, as parent bank Lloyds Banking Group merged with HBOS and triggered a commensurate merger between Black Horse and its largest rival, Bank of Scotland Dealer Finance.
Since late 2009 the business, under the new leadership of Sutton, focused all resources on efficiently putting together the two largest businesses in the market.
It has maintained service levels across a huge dealer base and preserved margins in a banking climate where return on assets had taken on unprecedented importance. But with the monumental task of integration complete midway through 2012, Black Horse’s broadest strategic direction changed significantly – from consolidation and conservation to a definite focus on growth.
“We’re now at a stage where the integration is completely finished, and we have a solid foundation to take us forward,” Sutton explains.
“There are definitely opportunities. Clearly captives have taken a bigger share of the market, and we’ve lost a little ground to other independents as we wrote less new business than the components of the combined entity had done in 2007 or 2008, but we are now gaining back market share.”
Certainly, not too much ground has been lost. This year, Sutton expects Black Horse to write “well over” £3 billion in new business, compared to a 2010 projected total of £3 billion. In the first quarter of this year alone, the business experienced a 20% year-on-year increase in new business compared to 2012.
To embark on this new campaign of growth, of course, Black Horse has needed the support of its parent Lloyds Banking Group, something which Sutton says has been firm throughout the period.
“The communication from Lloyds Banking Group was that, over the last two or three years, we proved we could deliver integration at the same time as running a profitable business.
“We managed to demonstrate to the group that this was a good place to invest capital.
“We ‘earned the right’ is a phrase we use internally. We made Black Horse leaner, invested in technology and improved customer service.
“We haven’t needed to recruit over the last few years, integration meant some slimming down. Now we are in a very different world where we are looking to expand. Not in huge numbers, but we are recruiting good quality account managers to add to the team we have.
“We felt we had two of the best sales forces in industry, and we kept the best of them, that’s part of what makes us market-leading.”
Sutton says there will be several strands to growth at Black Horse with the first being through a greater share of dealer business, including both work with new dealers and a greater share of the business within existing partnerships.
With multiple other lenders talking about growing market share at present, Sutton is confident Black Horse can sidestep the risks of commoditisation and pragmatic about the point of sale industry.
“Dealers will put business to a number of different funders,” he says. “We believe our proposition is strong enough to grow our existing share. We are not trying to compete on a commodity basis; we realise price is one of the components of the package for dealers, but not the be all and end all.
“We feel our technology, settlement, customer service, and support through field-based teams really adds value to a dealer’s business.
“We have enough to achieve higher finance penetration and sell more cars.
“We do not go out to compete solely on price. Price is more important to some dealers than others, but there are few who deal with us solely because of the best rates or commission.
“We’re spending more and more time and investment looking at how we supply effective leads to dealers.
“We, as a group and as a business, have a lot of insight into customer behaviour.”
As an example of the service proposition under Black Horse, Sutton says the company is supplying dealers with leads where the customer has the propensity to settle finance within three months, alongside which, the company is piloting an equity calculator.
“We have customer details and can work with the dealer to find the right moments in a customer’s agreement to contact them with an offer, to let them know their settlement figure and what car they could get the customer into for the same price.”
Similarly, the acceleration of the payment process undertaken by Black Horse at the end of 2011, says Sutton, has led to its proposition business being “practically 100% online”.
Today, in excess of two-thirds of the company’s business is processed by e-signature, and linked to the faster payments process, meaning dealers can deal with customers on a paperless basis until the final agreement and “have funds in accounts the same day they submit the documentation,” claims Sutton.
By aiding dealer cashflow in such a way, without levying a charge, and “regardless of where the dealer banks”, Sutton says “makes Black Horse stand out from the others”.
On top of which, the lender is implementing other customer service amendments and further, “major” changes online, including the launch of a dealer portal to enhance online support of retailers, and Sutton has been pleased by the response.
“In line with most, we sample and survey dealers and end-consumers. We have a very high score in both groups, a net promoter score of 60. We certainly believe that’s market-leading. Amazon and John Lewis are maybe looking in the 70s, but they’re exceptional.”
The final strand of growth according to Sutton revolves around the company’s tie-in manufacturer programmes and maintaining its consumer appeal.
“We have a strong tradition of working well with manufacturers through our history, many of whom have gone on to make full captives,” he states.
“We are really keen to expand on that side of the market, working with manufacturers who need to find a partner who can provide the funding and work as a branded finance offering.”
However, Sutton adds that “scale” has increased in importance to the lender following the integration period.
“We did exit some smaller relationships, such as Lotus and Proton. Anything new needs to be a good brand, to hold the same ideas as we have, and needs to be of a significant scale to make the joint venture financially viable to both parties.”
Alongside this, Black Horse is also looking at the increasing size of the UK car finance market and aiming to grow the company by holding its proportionate share within it.
By Finance & Leasing Association figures, the UK car finance market, new and used together, was worth £16.67bn in the 12 months of 2012. In 2008, as the credit crisis first flickered, it was worth £11.26bn.
Within such a market, Sutton says aim must be to “keep the Black Horse brand powerful” and to maintain the “high proportion of consumers who associate it with solid high-street performance”.
Sutton at the FLA
As well as managing director of Black Horse, Chris Sutton was chairman of the Finance & Leasing Association (FLA) from 2010 to 2012, replacing David Betteley, director of financial services at Jaguar Land Rover, and replaced by Phil Ross, general manager of Honda Finance Europe.
During Sutton’s two-year tenure the Association signed the vast majority of the UK’s top 30 dealerships to its Specialist Automotive Finance programme, recovered more than 1,300 vehicles – worth over £21m – in conjunction with the ACPO Vehicle Intelligence Service and lobbied against the application of the Financial Services & Markets Act to consumer and small-business credit under the proposed Financial Conduct Authority (FCA).
When he assumed the role in May 2010 while Conservatives and Liberal Democrats knocked together the shape of their coalition administration, Sutton said “this is an exciting time to take over” and promised to work “to make sure our voice is heard by the next Government and by our regulators.”
Following the first proposals for the FCA, Sutton told attendees at the FLA annual dinner in March 2011: “After the recent whirlwind of regulatory change a period of calm would be nice, but it’s not going to happen.”