The UK market may already have a number of online classified sites, but MotoNovo believes there is a gap in the market and has created a site designed with the dealer in mind. Karl Werner, CEO at MotoNovo, speaks to Jonathan Minter about the soon-to-launch site findandfundmycar.com
With the likes of Auto Trader and Motors.co.uk growing the number of cars they sell and with the amount of revenue they are generating also increasing, it is unsurprising that businesses and investors are looking at the online aggregator space as a potential avenue to expand into.
What might be more surprising is that one company looking at this is MotoNovo, one of the country’s largest independent lenders, and that the site it plans to launch in the first quarter of 2017, findandfundmycar.com, will not directly generate any new money. Everything the site earns will instead be diverted back into advertising the platform.
Instead of looking at an online sales platform as a way to earn more money, the lender is looking at the site as a way to ensure dealers remain a core part of the customer journey, and that dealer finance continues to grow.
This is because, according to Karl Werner, chief executive officer at MotoNovo Finance, something has not quite worked in the used car financing space for a number of years now.
On the one hand, used car finance levels have grown fairly consistently since the recession, and there are a number of positive statistics one can point to in order to show a healthy market.
However, from a penetration point of view, as far as the numbers of customers who want motor finance compared to those who actually end up with it, Werner is not satisfied.
He explains: “There is an interesting formula we quote from time to time, which is the 80-20-80 conundrum – 80% of used car buyers need to borrow money to buy their used car, but by the time they get through to the showroom process, only about 20% or 25% of them actually take dealer finance, even though among those that do, satisfaction rates are now close to 90%, as ourselves, Black Horse and others do quite extensive CSI work with customers.”
In looking for an answer to why this discrepancy exists, Werner says he has found a bit of a lack of innovation has been a problem, and that the whole sale of finance could be more focused on the needs of modern customers, who often want to access finance quickly, digitally and in private.
MotoNovo has spent the past few years trying to drill that message into its dealer partners, and has seen an increase in finance take-up as a result, but Werner says: “After a number of years it became clear to us that a number of other influences were starting to take more of a leading hand.”
Chief among these was the emergence of online brokers looking to get motor finance to customers directly without the dealer being included in the journey or the income. The largest online aggregators often use these brokers now.
On top of this, a more recent trend has been the emergence of banks offering HP or equivalents direct to customers which, again, cuts the dealer out of the finance sale.
According to Werner it eventually reached a decision point where the lender could either decide to sit back and watch the market evolve, and do the best it could along the way, or launch its own online proposition, from which he thinks dealers will get a better deal.
As such, the tagline MotoNovo has ended up using for the new site is: “By dealers, for dealers, to the benefit of customers”.
The project originally came to light approximately two years ago, and has been worked on for the past year and a half. Over this period the lender has conducted extensive customer research and spent time on forums with the dealers ensuring the site would launch in a format they would find appealing.
One thing the company has not had to do is take on much additional headcount at this stage, and Werner says he’s happy he has the right people allocated in the marketing and IP functions already.
Explaining the proposition in more detail, Werner says: “So what findandfund will have is vehicles from dealers across the UK, their used cars, uploaded onto the website, with all the functions and photos, everything the modern consumer would expect to see. Alongside every car there will be finance products, with specific quotes, which the customer can amend.”
Along with this, MotoNovo has developed some special financial technologies for the website in order to make getting finance as easy as possible.
An example of this is that customers will be able to apply for finance online directly, and receive an answer online. This quote can then be used against other cars, and can even be taken and used at another dealer, if the customer finds something else they would prefer.
Alongside this, MotoNovo has worked with the credit bureaus to develop pre-approvals. Werner says the company has built a scorecard system so customers are able to enter a very limited amount of details based on their affordability and who they are, and from that will be given an answer and, if accepted, a monthly payment amount they have been approved for.
As a result of this, customers will be able to search for their car purely by the monthly amount they have been approved to spend.
An important point for Werner is that dealers are kept fully informed and included throughout the process.
Summing this up, Werner says: “The customer has been acquired at the top of the research phase, on the internet, but the dealer hasn’t been excluded.”
In comparison, he continues: “We think this is much more interesting, dynamic and competitive to the current aggregators, who don’t seem to be working entirely in the service or to the benefit of dealer customers, and the online brokers who are looking to claim motor finance for themselves, or the banks progressing a direct-to-consumer model, with HP and PCP, which we don’t think is healthy.”
Fundamentally, then, the launch of findandfund goes back to MotoNovo’s mission statement, which is related to what Werner terms the “triple win”: Any idea MotoNovo backs needs to result in better results for customers, dealers and lenders.
Famously, MotoNovo stopped working with online direct-to-consumer brokers earlier in 2016, primarily because Werner says he does not feel they match this scenario.
“It became increasingly obvious to us that the online model doesn’t meet our strategic aim, nor does it meet the rules of the triple win, because dealers don’t win with the online broker community. I’d also argue that customers aren’t better served by the online broker community.”
He adds: “Don’t get me wrong, they generate a lot of volume; let’s put it that way. But we’re not the type of business that chases volume regardless of our strategy. And it became clear to us that strategically customers weren’t really better off by the way the journey and the price works, and dealers certainly weren’t better off.”
The natural question is whether the launch of findandfundmycar.com and the decision to stop doing business with these brokers were linked.
According to Werner, as findandfund became more likely, with its ambition to make the dealer central to the online aggregator sale process, the company was not comfortable having a ‘Plan B’ with broker models that did not seem to support dealers.
That said, the two were not entirely dependent on each other, and he adds MotoNovo would have stopped doing businesses with online brokers even if it was not for the launch of the new site.
“The bottom line is we have a strategy, we have a set of ethics; we stick to them come what may. It’s not just online brokers. Any business model or product that doesn’t deliver on that won’t be something we’ll get involved with,” he says.
Looking to success
MotoNovo is currently six weeks into a 12-week recruitment period to bring dealers into the ecosystem, and the minimum number the company was aiming for has already been surpassed.
MotoNovo deals with about 3,000 dealers, and the minimum number targeted for the initial 12-week period was 1,000. The number currently recruited to the site stands at over 1,200.
Customers will be able to learn about the dealers as well as the vehicles, as the site will offer full dealer reviews by other customers, incentivising dealers to improve service.
The way dealers pay to list their stock will be a bit different from the norm. Whereas in most cases dealers pay to list a vehicle and, once that vehicle sells, pays to list a second, on findandfundmycar.com dealers will pay for an online space. Currently set at £1.50 per space per week, the idea is that if the dealer sells a car, they can reuse that space to list another car, and so on, until the dealer stops renting the space.
The logic behind the site is not to generate a direct profit, and money does not have to be returned to shareholders. Instead, all income earned from this will go into marketing.
As a result, Werner predicts the marketing budget is going to be larger than any other aggregator on the market today, however the cost to the dealer will also be the lowest.
Ultimately, he says, he feels the appetising of cars should be the remit of dealers rather than publicly listed companies.
According to Werner, MotoNovo has invested over £1m in developing the site and generating the IP, and has also put in significant marketing effort building the site and using its marketing experience.
None of this is to say the decision to launch the site was taken for entirely altruistic reasons.
Instead MotoNovo hopes to recoup its investment and eventually earn money by increasing the used car finance penetration rate.
Looking back at the 80-20-80 ratio (80% of people want used car finance, 20% get it, and of these 80% like it), Werner notes: “At the end of the day, if that 20% to 25% used car penetration becomes 50%, we will benefit as much as anybody else.”
All this means Werner recognises the potential benefit to looking beyond just MotoNovo’s dealers for the site, with the lender working with under half of the country’s 8,000-8,500 dealers.
To that end, Werner says other lenders will be invited to join the site. Although the site will launch in a pilot stage at first, he notes that MotoNovo has already gone public with an invitation to other lenders to join.
As an example of this, Werner points out that MotoNovo does not accept everybody, and there will be dealer demand for near and subprime lenders also to be working on the platform.
Ultimately, he notes: “It’ll be a network across all the lending community. And the person in the driving seat will be the dealer, not MotoNovo.”
Looking to what he hopes to achieve in the first year, Werner says he’d like the brand to have developed into something meaningful.
To this he adds: “I would like for there to be a large number of dealers and vehicles available for sale, several thousand dealers, and several hundred thousand units of stock available.
“That’s how I would see the site in a little over a year’s time. It’s established, it has a consumer recognised brand, it has a large number of the dealer population supporting it, and we’ve seen a return, both to the finance companies that support it, and to the dealers that have also supported it, that they are seeing a meaningful number of car sales generated from the platform.”
So far, Werner says, the company has received an “overwhelmingly positive” reaction from dealers, with people especially positive about the fact that the money is returned in advertising, that it is not for profit, and money generated on the site is instead reinvested into it.