‘Prepare for change’ was the overwhelming message to come out of Frontline Solutions fourth annual F&I conference, which took place at the Royal Armouries in Leeds.
After an opening address from managing director of Frontline Solutions and chair for the day Martin Hill on the format of the event, Spencer Halil, director of Alphera Financial Services, took to the stage to outline some of the opportunities open to dealers and lenders willing to fully embrace a more flexible way of working with consumers.
Halil noted that 2015 had been a good year for the UK, after a prolonged period of growth. This had resulted in recent real-term wage growth, which was good news for the motor industry. While acknowledging potential pitfalls, such as international problems and a possible future interest rate rise, Halil said there was much to be confident looking ahead on a macro level.
This generally positive message was born out when he turned to the automotive industry, and Halil mentioned that almost 12% of total UK goods exports were automotive, while SMMT figures have broken a number of records in 2015.
Taking advantage of this growth would require adapting to modern change, he said.
A key part of Halil’s talk was that more than half of consumers will buy their car on their first visit to a dealership. Therefore, for those looking to engage with consumers as much as before, Halil said: "you’re going to have to do it online, in their space, and do it at their convenience." Otherwise the company will only have one chance to sell finance for half of its customers, he said.
Halil described this shift to digital consumers as ‘the most important change and trend within our businesses’.
"You need to be making sure your businesses are ready for that change, you need to be expecting your partners businesses to be ready for that change, and in the case of dealers, you should be demanding that your finance companies support you," he added.
A key part of this, Halil said, was that once a customer has selected a car and a dealership online, he should then be able to get a finance quote online as well.
He said: "What we’d like to see is a situation where a customer should be able to get their application through to us from the comfort of their desk, their chair or their bus seat. If it’s what they want to do, they should be able to conclude the transaction online as well."
Another area of change Halil identified was in regulation, with the rise of Financial Conduct Authority (FCA). He noted: "Compliance is a positive trend for the industry. It puts the customer first, and happy customers buy more products."
Regulation was the among the core themes for the next speaker, Adrian Dally, head of motor finance at the Finance & Leasing Association. He started by warning the audience: "You might not necessarily like everything I have to say on this, but this is really what the future is looking like."
Starting with some of the FCA’s powers, Dally drew attention to the imposition of the consumer redress schemes under the Financial Services and Markets Act, section 404. Comparing this power to the PPI redress scheme, which has resulted in tens of billions of pounds being paid back to consumers, he warned: "The statutory power the FCA now has in Section 404 is much stronger that."
He added that Section 404 was conceptually similar to a nuclear deterrent. While noting caution, Dally said: "I don’t think there is an imminent risk of the FCA using that power in our sector at this stage."
On top of this he pointed to the FCA’s willingness to impose unlimited fines, the ability to withdraw a firm’s authorisation, and intervene on products. It also has competition powers, and the ability to name and shame firms.
Avoiding these threats, he said, was based on the imperative principle of treating customers fairly. "Authorisation by the FCA is not the same as the FCA approving of everything you do," Dally added.
Moving on, Dally focused on the FCA’s recent studies into remuneration. Speaking about external remuneration (i.e. with partners), Dally said: "The FCA has looked at enough business plans across the sector to know that things aren’t right on external remuneration."
Looking at what the FCA would think of as ‘right’ on the topic, he outlined it at its most basic: "does the customer drive away from dealerships with the best available finance deal? If you can answer yes to that question, your remuneration model is probably ok."
The topic included commissions generally. He suggested only a brave person would bet against mandatory commission disclosure being brought in ‘before long,’ partly because this was the model the FCA has used in a number of other markets.
He compared the situation with commissions to buying a tin of baked beans. Speaking hypothetically, he said: "It’s one minute to eight, and you’re in your local shop, and want to get the cheapest tin of beans. The shop closes at eight. There a two brands available: a premium brand for 99p and a cheap brand at 49p. You ask the shop what the cheapest tin was.
"If this shop has a model which said: ‘if you sell a thousand of the expensive ones a day, you’ll get a lump sum,’ and the shop keeper has sold 999 when you ask the question, and as a result gives you that most expensive baked bean tin, have you been treated fairly as a consumer. And what has driven the behaviour of the super market?"
While admitting this scenario wasn’t a perfect mirror of the motor finance market, Dally suggested this was an example of a different market asking the same questions.
"The winds of change are fairly strong in this space," he added, saying: "This is, in my view, the number one risk for our sector with the FCA."
Speaking to Motor Finance after the event, Dally said he was pleased with the reaction to the topic. He said: "I think a good number of the audience wouldn’t have been surprised with what I had to say. Focusing on customer outcomes was very much what I wanted dealers to understand."
"I don’t really think a lot of people yet understand what the FCA is about. There is a lot of mist out there, for good or bad.
He said he thought that some of the audience thought the FCA was more complicated than it actually is on remuneration. According to Dally, the way the FCA looks at the industry is pretty straight forward: Does the customer drive away with the best finance deal the dealer could have given them. He said: "If you can say yes to that, you’re in a safe place. If you can’t say that, and your remuneration structures have driven you in that direction, then you’ve got something to worry about."
Aside from regulation, Dally spoke of changes to ownership models, looking at how PCP and hire purchase represented a ‘significant’ shift away from more ownership based models, such as personal loans.
Even further away from ownership was financial leasing and products such as personal contract hire. Over the past year PCH has more than doubled its market share, though this is from a lower based. Dally suggested this was a trend to watch in the future.
Tesla’s sales technique
Next on stage was George Bauer, vice president of Tesla Financial Services, Europe and APAC, which has set up a business structure to control as much of the value chain in selling a car as possible.
Admitting he was a ‘relative outsider’ to the UK finance scene compared to many in the room, he said: "It appears to me that for investment in IT and adapting new technologies, there is still room to grow. There is still paper moved and shuffled around, and in today’s age there are ways of going more digital, and doing away with the paper."
Tesla, which lacks legacy systems compared to other manufacturers, has moved away from these systems, Bauer said.
Aside from its cars being only electric, one of the differentiators between Tesla’s and other car manufacturers is that cars aren’t sold in traditional dealers, but in shops, often located in shopping malls.
"Tesla has the idea of owning as much of the value chain as possible," he said, adding: "That is all the way through, so our own stores and no franchised dealers, our own service centres and, over time, in house financial services – we just launched our own leasing company in Germany."
While Tesla currently has a white label agreement for its financial services in most countries, Bauer said the company was well on the way to setting up its financial services in line for around 2018.
The key part of the Tesla Financial Services in Germany Bauer emphasised was the fact that it is totally digital – from products to distribution. He said: "We are completely paperless, front to end."
The final section of the day was an expert panel made up of Mark Bennet, head of business development at Smart Insurance; Andrew Brammel sales director at Barclays retail solutions; Oliver Mackaness, director at Billing Finance; Shamus Hodgson, director of sales and operations; Peter Behrens, chief commercial officer at RateSetter; Tara Williams, director at I-comply and David Enright, managing director of First Stop Car Finance.
The panel answered a series of questions that had been asked on Twitter. Unsurprisingly the FCA soon came up, with one of the first questions asking if the FCA was anti-competitive. Williams spoke first on the topic, saying the FCA was not anti-competitive. She said: "There are reasons for what they do; I think they brought it [tougher regulation] to the industry at a time when it was needed. We’ve deserved some of what we got, and we need to embrace it. If we embrace it, it won’t be anti-competitive."
Brammel added that the industry was still in an education curve with the FCA at the same time that the FCA was in a learning curve with the consumer credit industry.
While none of the panel said the FCA was anti-competitive, Hodgson noted that there was a slight worry about unforeseen consequences. He said: "If the industry is being asked to adopt principles, and we’re adopting this in different ways, then there is a chance that guidance could be interpreted in a way that competition is drawn out of the market."
A second question was on the evolving role of F&I managers, which Brammel said was coming back full circle, with specialism becoming increasingly key. Behrens added that, as a result education and training were becoming increasingly important.
Technology also came up as a topic for the panel, who suggested that the industry was being pushed down the road of technological growth. Hodgson, for example, said: "We’re operating in a market we’re being asked to do more and more, yet we have a customer base which expect things to be quicker and more efficient. So technology will take an increasing role in every part of the process."
With the industry speeches completed, Falklands veteran Simon Weston rounded out the day event with a talk on his life and (as a proud Welsh man) Rugby. The evening saw Nigel Mansell, multiple F1 Championship winner and Louise Minchin, BBC reporter, entertain the audience as the F&I awards were handed out over dinner.
F&I Awards winners
- Business Manager of the Year Award: Adam Tauroginski, Car Giant;
- Product Service Provider of the Year Award: Blue Motor Finance;
- F&I Innovation Award: GHA Finance;
- Customer Retention Award: Lookers;
- Broker of the Year Award: Evolution Funding;
- Dealer of the Year Award: Evans Halshaw
- Treating Customers Fairly Award: Moneyway Motor Finance
- F&I Lead Generation Award: CarFinance247
- Sub Prime F&I Performance of the Year Award: The Trade Centre Wales
- NewComer of the Year Award: Fairmoney
- POS Additional Product Award: Lookers
- Annual F&I Achievement Award: Mark Bailey, The Trade Centre Wales
- Annual F&I Achievement Award: David Enright, 1st Stop Motor Finance