Following a tumultuous year, the
motor finance industry could be entering a new period of growth.
With many changes looming on the horizon, Peter Cooke asks if now
might be time to sharpen up on risk management
Recently, I was working with a group of
dealers in an affluent commuter town south of London. As one does,
I asked how the recession had affected their business. They smugly
admitted the most recent month was the best on record. ‘Recession
is two slightly smaller gins before dinner’ was the very clear
message. ‘Scrappage’? Nice, but not really necessary, buyers are
still there. ‘Finance?’ not a real problem at present.
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I will be interested to watch the situation over
the next six to 12 months as the economy starts to recover. While
the economy may already have or may be close to bottoming out, as
with adolescents, the period of growth ahead could be full of angst
and hormones.
The economy could well be entering a whole new
business era with a slow, painful and perhaps turbulent growth.
Consider some of the issues that government, businesses and
suppliers, not just of credit but also of vehicles, may have to
resolve over the next year – and what steps might you, as providers
of vehicles and finance, need to take?
We are certainly not out of the woods yet. A new
multi dimensional survey of global financial centres, by the World
Economic Forum, concludes the United Kingdom to be the world’s
leading financial centre.
However, that same survey puts the United Kingdom
below Nigeria, Panama and Bangladesh for financial stability. It’s
serious – there are financial red flags waving on the horizon if
Britain does not get its financial house in order quickly. Remember
what happened under Jim Callaghan.
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By GlobalDataWill the poorer, more prudent countries be happy to
continue to bail Britain out through buying our debt?
Inflation, we are told, is not a significant
problem – at least in the short term. But is that true across the
board?
The cost of domestic energy is escalating while
wholesale prices have slipped. The cost of food appears to be
rising steadily above general inflation. Equally, how many price
rises have there been in the motor trade in the last year?
Sterling too has not had a memorable summer, or
autumn. While some politicians may claim that weak sterling is good
for manufactured exports, they forget the other side of the coin:
as a net importer, a weak currency leads to higher prices.
The country is moving towards a general election.
The election in turn will lead to changes in policy and direction
which, in turn may create a level of political and economic
turbulence.
Talk of serious changes in tax is rife, again, that
could well be the harbinger of changing financial models for both
individuals and business which may, in turn lead to different
business strategies.
Against this potentially turbulent economic
background there is still a health warming out for further rises in
unemployment which in turn will put further strain on the
state.
Thus, we have a situation of ‘green shoots of
growth’ but are those shoots emerging in a period of unsustainable
economic development?
And what about individuals, entrepreneurs,
businesses – are they spotting business opportunities and wishing
to take advantage of the potentially growing economy, despite the
associated risks?
Quite simply, as car sales organisations and
finance providers for those vehicles, what different signals do
these issues mean for business? Is the industry moving towards the
new Eldorado, or does it need to be twice as careful as we have
been during recession?
Resetting standards
The missing phrase is, I think, ‘risk
management’.
Individuals, perhaps starved of changing their cars
over the last couple of years, as well as businesses seeking to
update or restructure their fleets to satisfy changing business
patterns, or introduce new policies to downsize and reduce their
carbon footprints, may all seek new or replacement vehicles.
My question is a simple one: have you reviewed your
risk management strategy and client qualification since the
business and industry started to bottom out and recover from
recession?
Even if businesses, indeed individuals, have been
long-standing customers, there is no guarantee they will be as good
in future as they have been in the past.
At the start of any economic recovery, new
customers and new ways of doing business emerge.
Now could be the time to review current risk
management strategy all the way from accepting new business, new
clients, to disposal and security arrangements to ensure you have a
best-practice strategy rather than a second-best strategy in
place.
While the second-best strategy and practice may
have been acceptable even a couple of years ago, a lot may have
changed in the meantime.
Oh, and a caveat with the revised risk management
strategy. Make sure everybody in the organisation is aware of it
and knows what responsibility they have.
Maybe the ‘age of austerity’ and enhanced risk
management could cause the size of gins before dinner to shrink
just a little?
Professor Peter Cooke is the KPMG Professor of
Automotive Management, University of Buckingham
