As the economic downturn hits the UK automotive sector
ever more severely, Brian Rogerson investigates whether technology
can lead the inevitable upturn
Inherent inertia
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In the automotive leasing and retail finance sectors there are a
relatively small number of lenders – and a relatively large number
of system providers. “As a result,” says Paul Biggs, director of
Millbrook Technology, “since lenders and dealers don’t purchase new
systems very often, the systems providers tend to survive by
supporting existing systems – providing incremental improvements
and the odd system sale.”
He adds: “Consequently, there has not been a huge push to
re-engineer completely these systems or to update the user
interfaces simply because the cost has been considered prohibitive.
Thus for the main part the systems currently available are based on
designs that are at least a decade old and which have been tweaked
and amended to provide new functionality as and when customers
demand it.”
Biggs believes that, as a consequence, the sector is ripe for a
revolution in the way it uses technology.
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By GlobalDataMichael Breach, managing director of Oyster Bay Systems argues that
the way that cars are sold through dealerships has scarcely changed
in the last ten years. “Yes, there have been improvements to speed
of acceptance and suchlike,” he says, “but electronic links between
dealers and lenders have been slow to develop. This is likely to
improve dramatically in the upturn.”
Andrew Denton, director of sales and marketing at CHP Consulting
contends that during the time of economic boom, demand for
technology tended to be at the new-business-focused front-end of
each business operation.
“This is changing,” he observes. “Already we are witnessing a move
of emphasis towards back-end systems with the urgent need to
process bad debt and arrears, and increase operational efficiency
and customer retention.”
To face the current challenges CHP Consulting has recently
developed its Business Rules Engine (BRE) – a score-card engine
that plugs into the company’s ALFA system and provides “tree” or
“table top” decisions to lenders. Two lenders which are household
names – one in the UK and one in the US – have already adopted BRE
within their lending operations and further implementation is more
than likely as the economic downturn lifts.
Denton explains: “It makes available a credit analysis, including
search criteria, for evaluating a potential customer at the
point-of-sale (PoS) – and also later on when that customer’s
retention is being considered by the lender. It can be updated and
amended as the initial loan proceeds and the lender’s profile
evolves and changes.”
Point-of-sale benefits from downturn
This August the Finance & Leasing Association (FLA) reported
that, in the year to date, some 50 per cent of all new-car
purchases were bought using PoS (dealer) motor finance. This
represents an 8 per cent increase over the previous year, when the
comparable figure was 46.2 per cent.
The inference is that this increase is partly due to direct lenders
reining in their lending in the current economic downturn and
declining many loan applications. Those declined buyers then
proceed to their dealer showrooms and are successfully sold PoS
finance in the time-honoured way.
Andy Wilson, sales director at Ebbon-Dacs believes that, while the
second part may be correct, he doubts the veracity of the first.
“It is more likely,” he says, “that car buyers have turned, of
their own accord, to traditional PoS finance at this time of
economic downturn. It is highly unlikely that the direct lenders
are unwilling to lend at the present time and their threat is
hardly likely to disappear in the near future.”
Given that dealers now have more receptive buyers in front of them,
Wilson believes that business managers must capitalise on the event
and fully utilise dealer management systems (DMS). He says: “Sound
automotive sales principles and practices have often slipped during
the recent years of almost effortless sales. These must be
re-employed. DMS, for example, contribute to customer retention
which will become crucial as we move out of the economic
downturn.”
He adds: “A motor dealer with several sales and servicing sites can
no longer manually integrate data throughout the sites. A DMS will
compare performance indicators throughout the showrooms, measure
them accurately and efficiently and deliver figures which stand up
against the competition.”
Bridging the divide between car and F&I
sales
Recently White Clarke Group (WCG) carried out a dealer survey, over
a four-month period, to learn from dealer principals how technology
could help them grow their businesses. The end result revealed that
although technology has developed significantly over recent years,
integration of the sales process has hardly become more effective
over the last 25 years.
John Waring, business development director at WCG explains that
dealerships representing some 80 per cent of all UK franchises were
visited. Dealer sizes ranged from small independently owned
businesses to large dealer groups. He says: “One main finding was
the significant divide that exists between the car sales process
and the finance and insurance [F&I] sales process. The former
invariably utilises a DMS system while the latter consists of a
standard finance quotation system. The two systems do not fit
together and fracture the overall sales process and diminish the
effectiveness at the PoS.”
Waring confirms that WCG is working to develop an integrated sales
process with a common sales platform. He believes that the end
result will be a system that will help the automotive sector ride
out the economic downturn. “Technology used to integrate the sales
and finance systems will be a prime method of lifting dealers out
of the economic downturn by making them far more effective,” he
says.
Lower staff costs
The economic downturn, like its predecessors, will inevitably lead
to lenders and dealers thinning their staff levels. Come the
upturn, Andy Wilson of Ebbon-Dacs believes that the industry will
have “a great opportunity” to operate with lower overheads and
thereby increase productivity: “Technology will be available to
create a new dynamic in the sector and to allow employers to run
successfully with lower staff costs.”
He adds that, given the desire to minimise costs and operate in a
“lean” fashion as the economy upturns, dealers will increasingly
wish to aggregate their proposals to a panel of lenders using
criteria such as maximising commission or selecting the most
appropriate funder.
“The key to new-business proposals,” he says, “is configurability
and flexibility. Business managers will need technology on hand to
stream the proposal in the correct direction as quickly as
possible.”
As the economy turns upward again, it is inevitable that funders
will have a new zest to lend and customers will once more want to
buy. A new series of relationships will be sought between lenders
and motor dealers. New sophisticated finance packages will be
introduced and dealers will face the challenge of comparing
packages that will include a range of facilities including retail,
wholesale, demonstrator, and rental and volume bonus terms.
Wilson stresses that DMS technology will be required to evaluate
the best and most appropriate financial packages available to
dealers.
Why wait for the upturn?
Martin Hill, sales and marketing director at Codeweavers believes
that the time to redesign the automotive finance model is now –
when the economic downturn is at its most acute.
He says: “It is at such times as these that car buyers doubt their
ability to afford such a major purchase as a car. Dealers and
lenders should be encouraged to allow buyers to tailor their own
car loan to suit their own pocket.”
With Codeweavers’ Yourcarloan system, manufacturers and dealers can
improve the creativity of their websites so that potential buyers
can not only research their choice of vehicle – but also their
choice of finance product.
“Some 80 per cent of car buyers are now researching their car
purchase on the internet,” Hill says. “We are recommending that by
getting to the customer before they have decided on a specific
purchase there is far more chance of securing the finance – and
ultimately the car sale.”
Hill predicts that personal contract hire and Option-type finance
plans are set to skyrocket in the future. “When the cost of
motoring is rising and the outlay for running a car is increasingly
uncertain then all-inclusive repayment schemes will increase in
popularity.”
Fiat and Alfa dealers are to use Codeweavers’ system from this
October and car buyers at TC Harrison, John Clark Motor Group,
Pentagon Motor Group and AutoWorld are already able to structure
their own finance deals – and set their own residual values – to
fit their budgets.
While technology may be more necessary than ever for dealers
looking to retain customers and boost F&I profits during the
credit crunch, whether budgets will allow for investment in new
systems is another matter. What is for certain is that dealers and
financiers who do not keep abreast of trends in IT will, sooner or
later, find themselves at a competitive disadvantage – which could
be fatal in current conditions.
Getting to the customer early
Several studies of PoS finance over recent years have shown that
dealers and their supporting lenders are not getting to the
customer early enough in the buy-cycle.
CHP’s Denton makes the point that, come the upturn, both indirect
and direct lenders will be seeking to build new business – and
quickly. He says: “It will be crucial for dealers and indirect
lenders to get to the customer earlier on in the buy-cycle than
they have previously. To do this a greater web presence will be
required and that is where technology will play its part.”
Denton predicts that manufacturer subvented deals are likely to
diminish as the economy upturns, which will offer dealers far more
opportunities to win and retain customers – as well as adding
profit to each deal. “Technology in dealerships has mainly
consisted of processing the customer quickly – fast order taking if
you like – but for the future it will attach far more importance to
obtaining the customer in the first place and subsequently
retaining them,” he says.
The dangerous break that occurs when the car sales staff-member
passes the customer over to the business manager can be mediated by
technology. Ian Charik, sales and marketing director at Copernicus
points out that BlackBerry wireless handheld devices can be
programmed with a system that provides finance quotations while the
car salesman is still with the customer and while the
customer/salesman relationship is at its most productive.
Fraud set to increase – as is stock finance
The UK government recently forecast an increase in criminality as a
result of the economic downturn. Oyster Bay MD Breach warns that
this will develop into a greater threat of increased fraud at the
automotive PoS.
“It will be important,” he says, “that technology is used to
tighten up fraud prevention and systems built up to protect vital
data. Stocking finance has always been an area in which fraud has
traditionally been a high risk. There have been some cases recently
of brokers and retailers selling vehicles out of trust. At a time
of increased risk of fraud it may be prudent for stock-finance
funders to pool knowledge relating to vehicles they are
financing.”
The current restriction on credit and consequent shortage of
liquidity is having a positive impact on the demand for stocking
finance. Mark Johnson, marketing manager at Sword Apak said:
“Technology has an important role to play in helping stock finance
providers in reducing the overhead and operational costs associated
with running wholesale finance operations.
“Efficiency savings from the successful implementation of a
sophisticated and automated stocking application allows the lender
to offer improved customer service and support. These are crucial
in assisting dealers’ cash-flow requirements during the period of
slowdown.”
Brokers to invest in technology
Oyster Bay Systems has recently been approached by an increasing
number of brokers seeking to improve their technology. “Brokers
have undoubtedly been hit particularly badly by the economic
downturn,” says MD Michael Breach, “especially since many non-prime
lenders have exited the market and other funders have tightened
their lending criteria. As a result several broking companies have
closed down.
“Those that survive, and perhaps consolidate, will be stronger and
more able to invest in systems that make them more efficient by
getting rid of phone and fax transmissions. In the upturn there
will be no room for paperwork any more.”
Bynx Europe, meanwhile, has recently expanded its presence into
Italy, Romania, Japan and Spain. Mark Binks, managing director
believes that all lenders, brokers and dealers will adopt “service
oriented architecture”, which aims to cut manual intervention in
new deals. He observes: “Far more improvements can be made in
speeding and streamlining the process from deal acquisition through
to implementation.”
Implementation costs of technology have always been a gripe for
dealers and brokers. Mark Johnson of Apak says: “Providing software
on a transactional-based pricing, or pay-as-you-go, basis can also
help the finance provider in the current climate. The reduced
capital outlay is attractive to users who will benefit from:
removal of risk to software and hardware obsolescence, the aligning
of costs with revenues, constant access to skilled resources and
concentration by the lender on his core business competencies.”
