Do consumers really
understand the PCP product and the processes involved with the end
of the contract? Ian Dewsnap of Benchmark Consulting reports from a
series of interviews with retailers, in the second of a three-part
series dealing with the use of PCP in the dealer finance


Photo of Ian Dewsnap, leader of Benchmark Consulting’s UK operationsLast month, I
speculated on why buyers were buying PCP products at record levels
across almost all major car brands, and wondered whether dealers
and lenders were focused on taking advantage of PCP’s strengths as
a customer retention tool – or just taking advantage of the public
appetite for low rates.

From the further discussions
I’ve had with dealers, it seems the overall processes and controls
addressing issues with PCP are pretty good. As ever though, there
are a few matters which could be improved.

For a start, there has
definitely been a move to push marketing money in the direction of
PCP sales in order to draw the customer on price.

This has been happened in a
variety of ways, from the ‘old fashioned’ but still relevant low
APR subsidies, to a little more creativity on packages involving
servicing or insurance.

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On a payment basis, the
application of funds to either down payment entry or towards the
support of residual values can also make the product look very
attractive when comparing monthly instalments.

However, while it is clearly
in any manufacturer’s interest to send more customers into the PCP
product for the sake of retention, do the consumers really
understand the product and the processes they find themselves in at
the contract end?

Recent changes to legislation
mean that more consumers will get a better explanation of the
product at the point of sale, and thus a better chance to
understand the product they are purchasing.

As we all know, however, the
point of purchase is often an emotionally driven place, and there
is still a great deal of complexity involved in the various terms
and conditions surrounding the vehicle purchase.

The bottom line is that most
customers will still focus on monthly repayments looking attractive
and affordable.

Don’t get me wrong though;
customers in many ways are set up to be more aware of the way the
PCP proposition works than ever before.

Some are ex-company car
drivers who view vehicle acquisition as a cash flow purchase rather
than taking the traditional view of buying a car as an asset

Manufacturers and dealers
have recently invested heavily in training their salespeople, and
have found that the specialism of the business manager role is of
greater value to the sales process than ever before.

Treating customers fairly is
not only a recent watchword, but the right thing to do if you wish
to get repeat custom – something that PCP can help

After all, there are solid
reasons why the product can be good for customers as well as
dealers. There are many instances of PCP allowing customers to buy
newer cars more often, protecting them from residual value falls,
and giving them great experiences with financing beyond the simple
sourcing of money at reasonable cost.

But there is still room for
better qualification of customers. Two-year terms do not suit
everyone and some customers have found they are not able to afford
to change vehicle at the two year mark, having been enticed by a
great offer initially.

There also seems to have been
an increase in customers being tempted by new cars on PCP as
supplies of late used start to be at a premium – but look at the
part exchange coming in from these deals.

Sometimes the signs are there
in the condition or mileage of the car at trade-in that the end of
these contracts might be problematic.

There seems to be a view that
residual values are set to benefit as the supply of used cars dries
up in the coming years (thanks to lower new registrations in

This would definitely help
re-sale to those customers who realise equity on their PCP as a

But perhaps manufacturers are
too focussed on time bound contact cycles. Surely there is room for
an equity-based look at the customer database; comparing balance
against likely trade value electronically might throw up a quite
different pattern on cycle of contact, as well as give the dealer a
meaningful and hotter prospect call.

Manufacturers and dealers
are, however, finding that some payment walks are too large for the
customer. Sometimes this is due to the combination of price rises
and depreciation.

Even so I am sure that,
sometimes, improved qualification with the customer might have
resulted in a longer term, or an alternative HP product being

Tough to sell when the
manufacturer has made the PCP such a focus for marketing

If we are truly talking about
keeping hold of customers, then retention starts with this

Ian Dewsnap is leader of
Benchmark Consulting’s UK operations