Peter Cooke
considers what the motor finance industry can do to ride out the
current crisis and prosper.
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It seems while half the world is trying to manage
its growth, the other half is apparently entering an age of
austerity. Gold has reached a new peak, there is oil for free in
the Gulf of Texas – and it is raining at Glastonbury. It must be
summer. Oh yes, and we have a financial and sovereign debt crisis
looming over the horizon.
Quite simply, what can the motor finance industry –
and your organisation – do to ride out the present crisis and
prosper? Is it possible? The next few years will sort out the men
and women from the boys and girls, that’s for sure.
Perhaps the first concern is: “What is likely to be
the shape of the vehicle finance market over the next three to five
years? Will people want to borrow for cars?”
The new car market has been pretty volatile over
the last few years and is apparently recovering – although success
is too often measured from a low base. The 2009 scrappage programme
may have boosted sales (largely of imports) in the short term – but
part of that bonanza was sales pulled forward from 2010. The
challenge now will be the back end of 2010 and the years ahead.
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By GlobalDataGiven a period of severe austerity, what might be
the responses of buyers – whether private or business, with regard
to their replacement cars? I would offer the following:
- Delayed acquisition or lower specifications on
both new and used cars; - Downsizing – both for economic and social
reasons; - Downspecification – from new to nearly new or used
cars; - Protection of cash flows;
- Risk averse attitudes becoming more prevalent –
but could that offer business opportunities?
Any, or all of these issues, are likely to take
place – the challenge is to turn them into profit opportunities,
not just on a one-off basis, but throughout the period of
austerity.
The challenge is to make every pound we lend work
harder for us – and be sourced more economically.
Once again, there are a number of principles which
might be applied to the wider market and then pulled down to
individual regions and even locations, depending on the situation.
Think about some of them – start in the private buyer area:
- Risk management – what groups of traditional lower
risk buyers may become higher risk over the next few years? - What trades and professions are likely to do well,
or be relatively well protected in a period of austerity? - What is the public sector work dependency in your
area?
These are ‘teach granny to suck eggs’ questions –
one can do the same screening for employment and, hopefully,
between the two sets of screens, begin to highlight the higher and
lower risk business opportunities.
So much for the first stage of the exercise – one
can identify the ‘better risk opportunities’. The second question
is ‘what automotive finance products do they want – and what can
they afford? A simple question in theory, but harder in practice to
resolve.
- Low risk – in reality that could mean a more
comprehensive service which reduces the prospects’ exposure to
unplanned risk. A new profit opportunity? - Extended acquisition product – more risk
management needed, plus information on the stability of the
prospect. - Minimum cash flow product/some form of better
residual value product – more risk but enhanced through interest
charges.
None of these issues are rocket science: in fact
they are all statements of the obvious. The skill is to be able to
bring those, and similar options, together into a business
model.
The greatest difference between the current
business environment and that of the last decade or so is that we
are entering a period of real austerity.
Look around your own organisation – how many staff
in management positions were in posts of responsibility and
authority during the last recession?
A lot of businesses have, in recent years, and with
the advent of the cult of youth, replaced many or all of their most
experienced executives. These people had worked through recessions,
and were used to a whole different way of working during those
times.
You might well, if yours is a ‘growth economy
company’, think about hiring, even if only on a part time
consultancy basis – some of that recently cast-aside
experience.
The recession and austerity mindset is easily lost
and takes time to grow, but finance businesses CAN survive, thrive
and grow – even in austerity. This is my fourth serious recession –
I will be interested to compare it with the earlier ones.
The author is professor of
Automotive Management at the University of Buckingham
