It has been another eventful year in the consumer motor finance market. Motor Finance spoke to leaders from the industry to find out which developments have caught their eye in the last 12 months.
Jonny Clayton, Oodle
It has been somewhat of a transformative year for the UK used car market. Outside macro changes, we have seen the retreat of large finance companies, new competition with disruptive business models, continued growth and traction of online offerings across car and finance.
We are finally seeing customers driving the needs and demands for change, and recognising significant growth in progressive dealers that are focussing on improved customer experiences within the buying process.
On the car dealer front, the path to purchase is fundamentally shifting, with the online buying process continuing to trend. Selling has become less about the car and more about the customer experience, and with so much choice available – including online finance options, the launch and traction of new marketplaces such as Facebook, Carnext, HeyCar and cinch, car subscription schemes, personal contract hire and ride-hailing apps, to name a few – dealers have a lot to compete with.
To remain relevant to the latest wave of customers and reach new and younger demographics, dealers are having to significantly up their digital game, and rethink how they respond to provide customer experiences seen in other retail markets. Services such as home delivery, return policies, better online imagery and information on the car, to drive comfort in sight-unseen purchasing, need to be better considered.
The good news is that people still want to own a car, but what they are now looking for is greater transparency, convenience and customer-centricity – options that afford them the freedom to change that ownership more often and with increased flexibility. Car makers are already getting that.
Twenty years ago, car brands had a limited set of models. Now they are actively creating and filling new niches with SUVs, sports SUVs, crossovers, electric cars, micro cars and so on. Car dealers need to keep up with this change, with better finance and rental options and flexible contracts to fill the gap between sharing and full ownership, and this can only be achieved with a better understanding of their customers, and providing seamless purchasing as seen in other markets.
Adrian Dally, FLA
2019 was a busy but productive year for the industry, with the Financial Conduct Authority’s (FCA) final report in March providing a useful staging point to highlight the progress made by members in updating their commission models.
When the FCA subsequently published proposals to ban certain commission models, we welcomed this move, as it would provide an end point for all the firms which had already begun this transition.
As point-of-sale motor finance is currently used in 91% of private new car purchases, it is important to ensure that these products can continue to support the car industry as consumers begin to make the switch towards low-emission vehicles (LEVs).
One potential barrier is that the 40-year-old Consumer Credit Act still considers each vehicle as just one asset, but today’s LEVs consist of at least two – the battery and the rest of the vehicle – so the regulatory regime that underpins the future of motor finance must be updated to accommodate the realities of a changing motor industry.
Our members are committed to ensuring that motor finance buyers get the best possible advice, so we revamped the Specialist Automotive Finance (SAF) programme during 2019 to ensure there is an SAF training option for every level of experience.
SAF Essentials is a basic introduction for new entrants to the industry, while the revised SAF Expert test has been formally accredited at the Level 3 standard, matching regulatory requirements elsewhere in the financial services markets, and those studying for the CertAutoFS (SAF Advanced) qualification can now use our new SAF Advanced Academy app to help them prepare.
Philip Nothard,Cox Automotive
In many ways it has been a challenging year for automotive, but I would like to start by focusing on the strength and resilience of our sector, despite facing significant headwinds in 2019.
Back in June, Cox Automotive forecast more than 10 million vehicle transactions in the UK in 2019, made up of 2.3 million new car registrations and 7.8 million used car transactions, and as we come to the end of the year, those forecasts are still on target.
Let us not sugar-coat it: transactions will be down year-on-year, but I believe we have seen a strong result considering the challenges in our industry and the wider UK economy.
In automotive, a number of factors have come together to put new car registrations under pressure. In the early part of the year, uncertainty around taxation saw many drivers hold back from ordering a new car.
The final part of the year has been dominated by supply shortages for the most popular models, partly as a result of emissions legislation: RDE in September, and the impending CAFE legislation that comes into force in January 2020.
Clearly, this has a knock-on effect on the used car market, and with fewer fleet and part-exchange vehicles available, supply of used stock has been a challenge for many retailers this year.
2019 has also seen the FCA introduce changes to the way finance can be sold, and while full clarification is still needed, motor retailers have already started to adapt their sales techniques and bonus schemes to comply with the new requirements.
All this has taken place against a backdrop of uncertainty in the UK, where ongoing Brexit negotiations and the changeable political landscape have made consumers and businesses cautious about their spending.
So, all in all, a year of challenges, and yet OEMs, fleets and retailers have continued to invest in the UK market, develop their digital and physical presence, and diversify into new income streams to boost margin.
With that in mind, I would like to celebrate 10 million transactions as a sign of the strength and resilience of the UK automotive industry.
Karl Werner,MotoNovo Finance
2019 has been an increasingly challenging year for many in motor retailing. The trend of a fall in new and then used car sales seen in 2018 has continued.
From a finance perspective, new car consumer finance has held up very well with in excess of 90% of consumers opting for dealer finance. The used car finance market saw new business increase 6% by value and 5% by volume in the third quarter year-on-year, but it continues to lag behind new car penetration levels with performances broadly in the 20-40% range.
The most significant news for motor finance has primarily come from regulatory developments. From 9 December, all dealers, brokers and lenders must comply with the Senior Manager & Certification Regime. The new level of personal accountability this brings will inevitably underpin a broader change in the industry, improving the overall customer journey within dealer finance.
In March, the FCA published its Final Findings report on motor finance, and in October it published a consultation paper identifying its proposal to ban discretionary commission structures and to increase the level of transparency surrounding commission and fees. This promises major positive change in the months ahead for the industry.
It is essential that the market does not see regulatory changes in isolation: other factors in play are placing pressure on the traditional car retailing model. Developing the role of motor finance, especially in the used space, can be the catalyst for positive change to start addressing the broader market dynamics.
In 2020, dealers will need to be leaner and more digitally engaged. In used car retail, the crown jewels will be stock. Managing and deciding how and with whom they collaborate to market this stock will be critical, and affordable finance can play a key role in an increasing move to online.