A dying art?

The UK has long been heralded as possessing the most mature
fleet leasing and retail automotive finance market in Europe –
second only to the US, most observers would admit, and not far
behind at that. But how innovative are our motor lessors and
lenders?

Go deeper with GlobalData

• 

  Reports

  Splinternet - Thematic Research

  GlobalData

• 

  Reports

  Misinformation - Thematic Research

  GlobalData

Data Insights

The gold standard of business intelligence.

Find out more

Access deeper industry intelligence

Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.

Find out more

Where fleet leasing has been dominated by contract hire for around
40 years and retail auto finance by hire purchase, a product
developed in the 1930s, what has happened to the innovative streak
that made it a world leader?

Peter de Rousset-Hall, chairman of Woburn Consulting and previously
managing director of Ford Finance Britain has wide experience of
product innovation. Ford was the leader in establishing Red Carpet
personal leasing in the US and de Rousset-Hall was hugely involved
in launching its UK equivalent, Ford Options, in 1992. He tells
Motor Finance: “At the time Options was a dramatically new product
which balanced, as it did, a competitive monthly repayment with a
realistic residual balloon payment and the opportunity for
customers to change their cars regularly.

“Since then, however, the industry has not really come up with any
significant new finance product – and Options-type plans have
evolved into schemes concentrating principally on low monthly
repayments.”

The US in the doldrums

The US has invariably been the inspirational source of fresh
finance plans in the automotive sector. But even its innovative
resources seem to have dried up recently.

De Rousset-Hall observes: “The addition of finance and insurance at
the point-of-sale, the use of in-dealer systems and customer
relationship management skills all emanated from the US motor
industry. They were adopted successfully in the UK and subsequently
exported to continental Europe. But they have not been superceded
by new innovations.”

Inertia through consolidation

Industry consultant and long-time lessor Colin Tourick says: “The
last big innovation I recall in fleet leasing was the extension of
lease agreements from three year to four years. However, perhaps
the truth is that much innovation has been going on behind the
scenes. In a market where players have virtually no differentiation
you make your company more effective by improving your performance
internally.”

Tourick points to advances in residual value forecasting by
companies such as CAP and EurotaxGlass’s, along with epyx’s 1Link
network which he says “has significantly reduced lessors’
administration and improved their cost efficiency”.

Tourick highlights industry consolidation – amongst both motor
lessors and retail motor lenders – as a chief culprit for lack of
product innovation. “When you are able to buy your competitor’s
business and then struggle to integrate it, then much of the
impetus to ‘innovate to grow’ disappears.”

An industry that has to change

Some observers believe that the automotive finance industry is, at
its core, not truly customer centric. “Why can’t lenders just
accept that the public needs to be mobile – and structure a range
of products to fit?” says one.

He continues: “If you set Tesco as your model of ultimate
customer-centricity – which designs its products for its customers
– you will see how far other industries have progressed compared to
automotive lenders. Motor lenders and lessors have failed to
stretch themselves for innovation and have not used technology to
improve their product offering. Over the last 40 years the
automobile industry has changed beyond recognition – but not its
finance products.”
De Rousset-Hall also believes that a “move back to basics” is
likely in the short term with the threatened downturn in trade.
“Lenders that have offered low-margin direct loans to buy cars, or
even encouraged borrowers to add the cost of a car to their
mortgages, will re-think,” he points out. “The result is likely to
be a growth in tried and tested finance schemes such as personal
contract purchase and Option-type agreements. Lenders will be
seeking more security and borrowers will want finance plans that
are straightforward and uncomplicated.”