Maybe it’s a shortage of news around the New Year, but when one
hears of the lengths people are going to regarding alternative
fuels – by-products of liposuction, spent oil from fish and chip
shops, and other totally unmentionable sources – one has to ask if
punters are losing, or simply becoming obsessive.
Fuel alternatives are a concern over which the typical
dealership or finance manger may have little realistic influence
even if they do make good dinner party conversation topics. Perhaps
one’s efforts might be focused on issues closer to home!
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A case in point is the availability of retail finance for the
would-be car buyer. Dealers and specialist retailers have found to
their cost their potential clients, over the last year or so, have
encountered the trauma of banks saying ‘no’ to easy loans for car
purchase.
At the same time, so one is led to believe, perhaps the biggest
single block to would-be buyers is the availability of finance for
car, particularly for used car, purchase.
Certainly a new and potentially beneficial business opportunity
has been created and is developing well.
Point-of-sale specialists have been stepping in to help plug the
funding vacuum with a range of hire purchase deals. At the same
time the OEM captive finance houses have put extra effort into
‘exciting finance packages’, primarily focused on new cars rather
than used, although their funds may be capped.
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By GlobalDataUsed cars outsell new by 3:1. Dealers typically sell more used
cars than new – and certainly there is an opportunity to generate
better percentage margins on used cars than on new, despite the
steady decline in average used car prices.
At the same time, one reads constantly in the professional and
technical press that automotive-related businesses – dealers,
contract hire companies, finance providers – must expect a period
of consolidation. Even banks are fair game. The last few months
have already seen one sub-prime lender stop taking further
business.
I don’t want to be unnecessarily alarmist, but these high-level
changes do start to raise questions, although perhaps not yet to
set alarm bells ringing.
Conventional wisdom has suggested that the prudent organisation
as a matter of course makes a credit check on potential clients –
it takes but a moment, and doing so has never been more important.
Not only does it give a comfort factor but it can also, in the case
of ‘rate for risk’ finance, influence the rate to be quoted to the
client as well as influence any credit insurance cover.
That is the downstream end of the finance equation, but what
about the organisations which provide funding for your clients?
Money in the bank?
When did you last review your sources of retail finance for your
clients? Have you ever taken a credit check on them? Do you know
who owns them – are they owned by organisations which may have
issues elsewhere, or may even be contemplating consolidation of
products, services and businesses on which you have relied for
years?
‘You can bank on it’ has taken on new meaning in the last 18
months – but many businesses have continued as before in the
blissful belief that their bank would be OK.
Maybe the next few weeks might be an opportune moment to
undertake a strategic audit of both the financial products and
services which you currently offer, to ensure you have a
customer-focused portfolio. While you are undertaking that
exercise, extend it to check the sources of funds you offer your
clients.
The concerns at the back of my mind are twofold. First, do those
funds all spring from a single company? If so, what might happen if
that source were to start consolidating its business – would that
reduce your client offerings? Or if that company were to stop
lending for any reason, what would it do to your business? Second,
do you need to have access to more than one ultimate finance
source, so if there are consolidations or more serious problems
with one of your sources, the business will not suffer from loss of
flexibility – or a total finance drought?
Recession is upon us, and in tough economic times we have to
look after our backs as well as our fronts – belts and braces may
be the order of the day.
Professor Peter N C Cooke, KPMG Professor of Automotive
Management, University of Buckingham
