Ed Paulat won the Motor Finance Industry Ambassador award at the Motor Finance Europe 2016 Awards. Jonathan Minter caught up with him to discuss some of the industry’s larger trends
When the financial recession and economic crisis hit the world in the second half of the last decade, motor finance was not spared its effects.
Starved of outside funding, the industry witnessed falling car sales as consumer confidence plummeted. The result was a number of industry players pulling out of the market, and a number of car manufacturers looking to cut costs to ensure survival.
One result of all this was General Motors selling the controlling stake in its finance operations. The lender continued to supply finance but, no longer part of the parent company, faced a battle in the UK to maintain its status as the premier lender for Vauxhall.
Competitors at the time sought to take advantage of the separation to begin lending for new Vauxhalls. The issue was not fully settled until GM reacquired GMAC UK in 2012, bringing the lender back in-house. Even then, work would have been required to bring back on board any dealer partners it might have lost in the temporary separation.
Throughout this period, Ed Paulat has remained ever-present within the lender, ensuring the company remained with its head above water and, after the reacquisition, able to reintegrate with GM’s international dealer base.
The lessons learned in the financial crisis clearly have not been forgotten by Paulat, who is currently executive vice-president for UK, Sweden, Germany, Austria, and Switzerland at GM Financial.
One example of lessons being learned has been GM Financial’s launch of a savings bank in Germany. The launch had two key drivers behind it. The first was a need to diversify the lender’s funding sources. Speaking to Motor Finance, Paulat says the company needed to make sure it had access to funds even in difficult capital markets.
A second reason he highlights is the desire to strengthen brand loyalty and to give Vauxhall’s European equivalent Opel another ‘hook’ into its customers.
“If you provide additional products that are well-received in the marketplace, you can help to build brand equity,” he adds.
As a company, Paulat says, GM is trying to become better integrated into the customer journey, and the bank provided it with the opportunity to grow its brand, get to know customers and see if they have any mobility needs in the future. The bank has already attracted previously non-Opel-loyal customers, he adds.
Despite this, Paulat suggests the bank’s success in raising funds in Germany is such that the company does not need to look to launch a bank in other countries at this stage.
“Our funding requirements are well met with deposits that we have accumulated in Germany. I’m not ruling anything out, but there are no specific plans at the moment to expand that to other markets,” says Paulat.
Instead of launching a bank in the UK, Paulat says: “For us as a company, we’re working on a couple of product initiatives.
“We’re looking at where technology and innovation is going, and where our customer demands, expectations, and needs are going, and how we can cater for that from a customer self-service perspective. We’ve rolled out a customer self-service website that we’re looking to enhance.”
On a wider GM basis, Paulat says to expect more work around autonomous features: “Not just the driverless cars per se, but the development of things like collision avoidance, smart cruise-control and lane-departure warning moving down to more mainstream products.”
Vauxhall’s Onstar system will be central to this, he notes.
Another example of GM’s general move into mobility Paulat highlights is the recent investment in ride sharing company Lyft.
Some have argued that companies such as Lyft are a threat to traditional finance models, however Paulat does not see this as the case; instead, he calls it a “development”.
He says: “People in rural areas will have different transportation needs. Ride sharing is something that’s going to be more popular in densely populated urban areas, where the cost of parking is higher, and the cost of maintaining a car for the limited amount you need it, because you generally rely on public transport, may make relying on a car share the way forward.
“I don’t see that as something necessarily working if you live in the less densely populated areas”
So while he acknowledges there will be a trend towards more ride sharing opportunities, he adds this model will not work for everyone, or for all geographies, at least in its current format.
Companies such as Lyft are the result of two key trends: digitalisation and a shift from ownership towards mobility.
Paulat says lenders need to make sure they improve their digital offerings, and work with dealers to improve theirs, and he refers back to GM’s bank in Germany as an example of this, pointing to the onboarding of 30,000 customers in a year as evidence of how digitalisation done correctly could help drive business results.
Lenders need to work with the dealers as well, he says. At the moment dealership responses to digitalisation vary massively, and Paulat says some have reacted very well, with strong, customer-centric websites.
Unfortunately, he says: “Then you have the other end of the spectrum, who don’t fully leverage the power of the internet.”
At the moment it’s not too late, and Paulat concludes: “All I’m saying is this is the way the world is going; if you’re not doing it today, then you better be quick and catch up to what everybody else is doing, or you run the risk of putting yourself out of business.”
This is one of the areas where he feels lenders can help add real value to their dealer partners, by driving innovation and new technologies forward, adding: “It’s all about how you can integrate with your dealer, and ideally with the manufacturer.”
Expanding on this point, Paulat says: “It goes beyond the slick website, because now you need to create website traffic, you need to find new customers, which you can do in the traditional way, but again, people do a lot of research around cars and finance options before they ever set foot in a dealership.
“So you need to be relevant in your respective area, and we help and support our dealers on that journey and work closely with GM on various initiatives, to see how we can further enhance what they’re doing today.”
Collectively, the industry needs to work on this, and needs to keep innovating and adapting to keep up with changing consumer demands, as they will ultimately make the decision of whether they like what they see.
He notes: “Let’s be real, customers today expect real-time answers, or have expectations of a very short time before getting an answer from a business about an enquiry they make.”
On the topic of mobility, Paulat looks beyond just car sharing models which may not work for all customers, and instead pays extra attention to the fact that consumers are increasingly looking at a car as something that should be easy to pay for, like a mobile phone.
This may include everything that comes with a car, or that the car needs, such as services, inspection, or some forms of insurance, on top of the actual cost of the vehicle.
An international perspective
As executive vice-president of GM Financial in a number of countries, and having worked in even more, Paulat is unusually well placed to discuss the comparative strengths and weaknesses of the UK market compared to others.
And the good news is that he sees the UK as a very advanced market, adding: “The industry is hugely professional when it comes to finance and insurance sales, full stop. I’m not seeing the same performance across the other markets in Europe.”
On top of this, the concept of treating customers fairly is much more advanced in the UK than it is in the rest of Europe, largely as a result of a push by the Financial Conduct Authority.
“Consumer expectations are changing anyway, and they don’t want to be ripped off or have problems with their contract or car. They want competent people dealing with them, taking them seriously.”
One final area to which Paulat gives special attention is the UK’s used car market, which he describes as “incredibly sophisticated”.
This isn’t common in a lot of other markets, and in Germany, for example, he mentions the concept of a used car supermarket does not really exist. As a result, he says, “This is a profit opportunity that not every market has.”
When it comes to where the UK could look for inspiration, Paulat encourages UK companies to look to developing markets. Countries like this have almost taken a step beyond where the UK is in how they create digital innovation.
He says: “It seems like China is almost leapfrogging other markets. Just as the UK continues to evolve, all of us market players have to look at that and really see how we can continue to push forward, and not just continue to use the same tried and tested methods, but really look at how customer behaviour is changing, and evolve with that, or potentially come up with great new innovative service offerings that will provide a competitive advantage.”
While the UK market is more developed than other markets in some respects, and needs to keep an eye on developments in the developing world, there’s no question that the world is moving in one direction – towards greater digitalisation, and towards various concepts of mobility.
When asked what to watch over for in the future from the captive lender, one of the things Paulat highlights is the company’s new self-service offering.
It seems likely that this will not be the last example we see out of GM Financial pushing the digitalisation side of things.
What is your biggest frustration with the industry today?
People in the automotive finance industry forgetting lessons I thought everybody had learned from the financial crisis. Everyone agreed it would make sense to put the customer at the centre, which I think most people do these days.
But it’s also about risk discipline, how you go about competing for business, doing the right thing at all times, and embracing regulation as a positive thing. I think most people do it, but some seem to think they can cut corners, and I find that quite frustrating sometimes.
How did you originally get into motor finance?
I got into our German organisation in 1992 as an internal auditor. It wasn’t directly at the coalface of motor finance. They classed it as internal development training and a development opportunity, because you got to see the company inside out.
I did that for two years, and within a short period of time built extensive networks and relationships with people. I got to know the business extremely well.
What was your first car, and current car?
My first car was a Honda Civic that was a hand-me-down from my mum at the time. It was blue and metallic, quite a nice car, and I managed to wreck the engine within the first 12 months of driving it.
My current car is a Vauxhall VXR, because I still like cars that go fast, even if you can’t drive them that fast in this country.
What is the best part of your job?
The best part of my job is the client relationships, which I absolutely love. But I also absolutely adore the role of being an employer and a leader in this organisation, because I think we’ve made a real difference to our employees.
What is your career highlight?
It’s not a highlight in the traditional sense, but living and working through the financial crisis taught me some invaluable lessons about leadership. Every normal person would probably say: “The last thing I want to experience is that time again.” But if I put those emotions aside, and look at what it has afforded me and awarded me from a personal learning curve, I couldn’t have asked for better lessons in life – leadership lessons and business lessons.