As Europe slowly finds its way out of the economic crisis the motor finance industry has found itself in a strong position, in a rapidly changing environment. Car sales across most of Europe are starting to grow again, even in France which struggled through most of 2014.
As car sales recover, it’s natural that motor finance volumes should start to increase as well – particularly in countries such as Germany and the UK, the two largest car markets in Europe, where finance levels are at over 70% for new vehicles.
At the same time, the technological and regulatory environments are developing at a rapid pace. Whether it’s the Financial Conduct Authority (FCA) in the UK or the general rise of autonomous technologies, companies are needing to work harder than ever to keep up. For those able not only to keep up with these changes, but take advantage of them, the opportunities are great.
Meeting in the Kempinski Hotel, Munich, on 23 April, industry leaders from around the continent met to discuss some of these opportunities and challenges, and to look at how different countries are meeting them.
The conference was structured into four parts: realising growth and emerging products from the market; pioneering sustainability, mobility and alternative vehicles; pursuing innovation as a strategy; and finally establishing a road map for the industry in 2015 and beyond.
Opening the conference, Christian Ruben, chairman of the German captive association and managing director and chief executive officer of Toyota Kreditbank, explained the shape of the German market for the audience members. He explained how over the past few years captive financial services have become an integral part of people’s car purchase in Germany, growing from 60% penetration in 2009 to a peak of 78% in 2013. Looking ahead he advised companies to embrace the digital future – especially advising technology companies of the need for constant development.
Following Ruben, Alain Brustail, European key account manager of Sword Apak, took the stage to question Colin Maddocks, director of financial services for Mazda Europe.
According to Maddocks, there’s currently a lack of supply for the kind of wholesale finance options that a company the size of Mazda requires, and he predicted this was an area few banks would look into in the immediate future.
Rounding off Session One, Andy Gruber, director of Alphera Financial Services UK spoke about the regulatory revolution that had occurred in the UK with the FCA.
He noted the FCA was a regulator with teeth, pointing out some of the recent fines it had imposed, such as its £126m fine of BNY Mellon for control breaches. This observation has proved to be very pertinent, as since the conference the FCA has issued a number of other multimillion pound fines to banks.
While noting the regulator has teeth, Gruber suggested that what the FCA was looking for broadly concentrated on treating customers fairly, and then being able to evidence that. Speaking to the European contingent, he said the three key things Europe could learn from the UK is: "It’s all about the customer; regulation is not a tick-box exercise, and that it you can’t prove it, it hasn’t happened."
The second session was chaired by Ian Dennis, business development director at Five Arrows Outsourcing Solutions. He introduced the first speaker, David Ghione, Europe sales manager for Tesla Mobile, who gave Tesla’s business model as a case study of a disruptive force in the market. One specific challenge he highlighted was the perception of range limitations. One way of overcoming this Tesla has come up with was the introduction of free ‘superchargers’ around the continent. A 30-minute charge on one of these will give the Tesla enough power for a 270km drive. There are currently 150 sites for this across the continent, with plans for more in the future. Unusually, Tesla sells its cars itself, without third-party dealers.
Alexander Prinssen, vice-president, mobility consultancy, of Athlon International, was next on the stage to discuss mobility from a car leasing operator perspective.
Looking at a pan-European level, Prinssen outlined a number of key trends which Athlon saw as impacting its business and which it is taking into account as it develops it’s business model.
"I fully agree with what was said this morning [by Christian Ruben] that we really need to see the urgency to make some steps going forward with technology," he said.
Other key trends outlined included urbanisation, and he noted the rise of mega cities such as London (which are expected to grow in the future), which are creating potential new customers.
Access to the data produced by increasingly connected cars is destined to become more important as the quantity and quality of data improves, as will the younger generation’s movement towards paying for usage rather than ownership were other trends mentioned by Prinssen.
Prinssen and Ghione were joined on stage by Luc Jansseune, general manager of OTA Keys; Dr Rainer Scholz, executive director, advisory services – leader mobility innovation group GSA at EY; and Gary Jefferies, sales and marketing director at Bynx, who then participated in a panel discussion on pioneering sustainability, mobility and alternative fuel vehicles.
Much of the conversation related to how electric cars were going to impact finance, and how the technology could be used in the future. Scholz added that cities will need to be proactive in promoting electric cars and car sharing clubs in order to combat rising congestion.
Scholz took to the stage again in the third session, this time to act as chair on the topic of innovation as a strategy in motor finance. He introduced the first speaker Hugh Dickerson, senior industry head, automotive, at Google.
Dickerson’s key theme was that technology was moving faster and faster, and that firms needed to work to keep up.
Comparing Google searches for car finance in 2012 to 2014, Dickerson said that although overall searches increased by 25%, computer and laptop searches were down 12% during the period. Instead, growth had come from tablets (up 130%) and smartphones (up 153%).
He also revealed that 82% of smartphone owners used their mobile phones while at the dealership. For these reasons, Dickerson said it was important to make sure you have an online presence, and that this presence was fully mobile adaptable.
"You can make finance inspirational," he said. "It doesn’t have to be dull and transactional. It might need a little bit more imagination but it can be done.
Dickerson then played a selection of banking commercials which had gone viral – such as TD Bank’s ‘Automated Thanking Machine (ATM)’ advert, which went viral on YouTube and has been viewed more than 20 million times.
Following Dickerson, Jo Howes, business development director at Intelligent Environments, took to the stage to discuss using digital technologies to put the consumer in the driving seat.
According to research from Intelligent Environments, over half (51%) of users check their phone either constantly or about once an hour. She also revealed research which revealed that 36% of people with car loans applied on the internet, compared to 47% who applied in person.
This was the opposite to how people applied for a personal loan, where 45% of people applied via the internet, and 34% applied in person.
Howes said: "More significantly, I think, just 2.4% of those were servicing their accounts online. So motor finance certainly lags behind other financial products when it comes to digital servicing." In contrast 93% of people did this for their current accounts, 56% for their savings and 9% for their personal loan. Switching customers to online users would free up call centre staff, potentially resulting in savings or freeing up those resources for other usage, she added.
"Digitally transforming an entire lending business is no small feat, without a doubt, but it is a journey that absolutely needs to be undertaken if you are not going to be left behind." She concluded.
Following Howes’ talk, Regina Coenen, director of business development and projects at Benchmark Consulting and Jonathan Holland, vice-president of business development at remarketer Adesa UK joined the stage to discuss the future of motor finance. Scholz began the discussion noting: "The future is mobile, with easy access to financing being key to consumers."
Coenen added: "In my experience in the motor finance industry the development of technical solutions has grown and become faster and faster. As we’ve learned today, there are many developments you need to make for regulatory changes, for example. I’ve found too many big organisation are afraid to fail, and take risks."
Holland, meanwhile, said companies need to use technology smartly to empower customers, in this case dealers, to give them the right level of information clearly and early. From a remarketing perspective, he added that technology improvments need to go hand in hand with improvments to the physical process, because: "it’s one thing to remarket the vehicle using technology, but you then have to fulfil the promise, and that is the delivery of the asset."
Unsurprisingly there were questions for Dickerson relating to the rise of autonomous cars. He said: "The Google driverless car is not about collecting data, it’s about having a car without a driver. So it doesn’t need to be connected to be able to work. The point I’d like to make about the connected car is that too often when I’ve been in discussions about connected cars, all the upsides I would see that have been identified by manufacturers seem to be quite selfish. There’s not much upside for the consumer. So when you’re talking about connected cars, make sure there is something in it for the consumer otherwise they’ll reject it as a cynical ploy."
Establishing a road map
The fourth sessions, chaired by group executive vice-president of White Clarke Group Brendon Gleeson, focused on establishing a road map for motor finance in 2015 and beyond. The first speaker was Mark Smith, managing director and founder of The Car Finance Company (TCFC).
TCFC has been one of the success stories of the motor finance industry, and Smith walked the audience through how the company had gone from a four-person start-up to one of the fastest-growing companies in the UK, with its headcount now in the hundreds, including the current chairman of the Finance & Leasing Association Nigel Clibbens.
Smith explained part of the reason for the company’s success was seeing a gap in the market (in this case the provision of credit for people unable to access it), combined with innovation and taking chances.
GE Capital’s key solutions leader, international Florian Waldegger then spoke on megatrends destined to impact the fleet market over the next five to 20 years.
The key macro changes he identified were the environment, globalisation, and Millennials and urbanisation. On the topic of the environment, Waldegger explained how this was a mixture of responsibilities between drivers and organisation. Manufacturers may provide drivers with more efficient cars, but driver will also need to alter their behaviour in order to take advantage of them. For globalisation, he pointed to economies of scale, and said: "If you leverage your additional countries and play the game together, of course you’ll get more from your supplier."
One important point raised by Waldegger that’s often overlooked by companies when discussing improving efficiency is the safety of drivers. He quoted one text: "I am on my way home by car but will start up the computer immediately to come back to your request," the last text message of one driver before hitting a truck.
Waldegger said: "The US is a market that always looks at productivity of its drivers. They’re challenging you when you take two minutes too long to eat your sandwich on the side of the road. The US is also now looking at what happens to productivity if a driver is injured. Being on a conference call while driving makes you four times more at risk of having an accident than normal, and writing a text is 23 times more risky."
Smith and Waldegger were joined on stage by AKA’s Christian Ruben and Ed Paulat, executive vice-president for UK, Sweden, Germany, Austria and Switzerland at GM Financial for some final questions of the day.
Answering one question, Paulat contrasted the European and Chinese car markets. "The development of the market there [China] has been absolutely phenomenal" he said, adding: "if you’re talking about subprime, most Chinese consumers are now thinking about taking out credit for the first time in their lives. Buying a car is often a family thing, so people tend to put large sums of money down.
"We’re talking almost only new cars there because the used car market doesn’t really exist. There are very few second-hand tradesmen."
Summing up the day, Paulat concluded: "At the end of the day it’s a question of what you’re going to do when you’re back at your desks tomorrow morning. Thinking about innovation, a lot of information has been given out today.
Now it’s up to you to think for yourself how you’re going to put it into action and put it into your framework."