Jo Tacon talks to
Close Motor Finance about finding a comfortable – and profitable –


The Close Motor Finance A-TeamLast year, as far as Close Motor Finance (CMF) is
concerned, was one of near-normal trading – against the background
of the worst recession for several decades.

Janet Wilson, managing director of the
Doncaster-headquartered lender, says that 2009 was “a good year in
terms of volumes” with growth boosted by the withdrawal of several
competitors. CMF is in the lucky position of having its liquidity
needs fulfilled by parent Close Brothers Bank Ltd, which stayed
“strong and stable” throughout the recession. CMF’s half-year
results to the end of January 2010 show new business volumes up
“across the board” by some 35 percent – certainly not a figure to
be sniffed at.

This is not to say that CMF has grown more rapidly
than is sensible; Wilson qualifies her previous remark by
emphasising that CMF’s risk appetite “has always been conservative”
and that the lender “has always looked at managed growth”.

She notes: “We could have taken on more new
business than we actually did, but we like to grow at our own

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With a comprehensive portfolio including a niche
market in used car finance, the lender and its customers are
acutely aware of fluctuations in used car, motorcycle and van
prices, although Stuart Whittle, finance director, says that the
fundamentals of CMF’s business remained solid last year. Customers
showed great resilience, he says, with the majority lucky enough to
stay in employment.

James Broadhead, deputy managing director, says
that CMF’s insistence pre-recession on strict underwriting
standards had shielded it from the worst of the shockwaves caused
by the grim economic outlook. This past and continuing prudence
has, he says, served CMF well – “arrears levels now are lower than
they have ever been, while acceptance rates have remained

Sticking to what it does

As competitors fled motor finance, the
level of applications (apps) CMF received grew massively – which
brought its own problems, including extra workloads for the
lender’s underwriters. Dealers with subprime customers had nowhere
else to turn, and sent apps to CMF – although Wilson is clear that
the lender has not and will not in the foreseeable future look to
service the subprime end of the market.

Working with large dealer groups and manufacturers,
however, is an area that CMF is looking to expand its activities
in. This interest came to fruition in CMF’s newly-launched Key
Accounts division, which looks to set up business relationships
with larger retail groups and manufacturers.

Chris Reid, who heads up the new division,
explains: “We were approached by several dealers, and as a result
decided to set up our own division. Key Accounts is a dedicated
unit that will operate much like one of our branches, with its own
P&L [profit and loss] responsibility.”

There will be a number of field-based Key Accounts
managers targeting larger groups and manufacturers, with sales
support and underwriting handled by a dedicated unit in Doncaster.
Thanks to a general finance gap in the market, there is an
opportunity there to be filled, Reid believes.

“It’s started well already and we expect it to grow
even more – Key Accounts is a vital part of our growth strategy for
the company. We’ll put ourselves out there as an alternative,” he

As well as its car finance offering, CMF has
well-established and growing divisions providing finance to buyers
of motorbikes and LCVs – an area where CMF has 30 percent of the
independent market.

Alongside its other motorcycle sector clients, CMF
arranged a tie-up with Suzuki last July to offer finance to buyers
of its bikes, and has two sector specialists who work exclusively
on bike business. With LCVs, meanwhile, last year saw a dramatic
drop in registrations, according to the SMMT. However, CMF did not
experience a corresponding fall in finance volumes, which were
especially strong in the second half of the year, Whittle

Branch logic

CMF has 10 branches countrywide, with
another due to open in Swindon in March – covering Gloucestershire,
Wiltshire and Oxfordshire. Branches are semi-autonomous entities,
Wilson says, and each has responsibility for its own P&L –
which encourages healthy competition between branches, as well as
fostering a sense of ownership among branch staff. Each branch has
around a dozen staff, split evenly between account manager and
sales support roles, along with a branch manager.

Each outlet underwrites and collects on its own
business, while functions such as HR and IT are managed centrally
from the Doncaster headquarters.

“This means branches are able to benefit from the
latest technology, while maintaining a strong local presence,”
Wilson says.

Branch managers report to regional directors, who
in turn report to Broadhead, while he, Whittle, and Terry Fletcher,
the sales and operations director, report to Wilson.

“The branch structure is really core to our
strategy, as it proves to dealers that we are customer-driven and
responsive to their needs,” Wilson says. “By keeping close to our
dealer network we are able to understand what they want, and vice
versa. Dealers also value the fact that they can phone up their
local branch and speak to the same person every time. It really
personalises the service for them.”

Having a branch-based structure where outlets have
considerable autonomy helps to speed up the decision-making
process, which Wilson cites as another major benefit.

Reid believes that the “personal touch” offered by
CMF will be the differentiator for its Key Accounts division, too,
as larger dealers – no less than smaller operators – appreciate
rapid decisions along with strong dealer-funder relationships.

“Up until now, the service dealers get from lenders
has all been the same, but we think that our personal service and
efficiency levels will set us apart,” Reid opines. “Coupled with
the latest technology, we think this will allow us to offer dealers
the best of both worlds.”

Broadhead adds: “There was a time when it was the
cheapest deal which always won out, but thankfully this has changed
– although competitive pricing is still important, of course. It’s
not just down to price any more, which helps everyone in the point
of sale finance equation.”

The Finance & Leasing Association’s Specialist
Automotive Finance (SAF) programme was praised by Reid, who says:
“It’s a very important part of what we’re all about. CMF will be up
and running as regards SAF by the end of February, and we will
recommend to the groups we deal with that they take it on board, as
well. The industry has to come across as there to assist customers,
and to improve the professionalism and knowledge of the people
selling finance and insurance – which is what SAF is all

Deal ‘flexing’

Wilson points out another advantage of
CMF’s relationship-based transactions with dealers: if a deal is
rejected, but only by a narrow margin, CMF can work with the dealer
to ‘flex’ the terms of the deal in order to get it accepted,
perhaps by adding more to the deposit, or changing the term of the
finance contract.

“We’re not credit-score driven – if there’s a deal
to do, we’ll do it, which the dealers already in contact with our
Key Accounts division say they like,” Reid says.

Each application that CMF receives is looked at
carefully, and evaluated using an internal credit scoring

“Every single prop is looked at by a physical
underwriter,” Reid says, although he adds that the process makes
more use of automation than it did five years ago.

Decisions are turned around speedily – in under
half an hour in the vast majority of cases, and even more rapidly
in many instances.

“As time goes by, we’d like to give more automatic
yes/no answers so that we can devote our time to the cases which
require more consideration,” Wilson says, “as it helps improve
productivity for us and for our dealer partners, allowing us both
to do more business with the same infrastructure.”

CCD: An opportunity and a

The forthcoming Consumer Credit Directive
(CCD) will present the industry with numerous challenges,
particularly as the schedule for implementation is so tight – with
a final draft due on March 10 and the compliance deadline in

“We will have to put in new processes and
procedures,” Wilson says, “and we will have to rely on dealers to
pass on adequate explanations to customers. If they are already
SAF-accredited, this will help.”

Her opinion on the CCD “does not differ greatly”
from that of anyone else in the finance industry, Wilson says: she
is cautious, mainly about the tight scheduling and the costly
retraining and systems changes which the new directive will
necessitate, but also cautiously welcoming, as regulation “can be
looked on as best practice”.

On the credit protection insurance issue,
meanwhile, CMF has developed a way of selling directly to the
customer – but only if the dealer is happy for CMF to contact the
customer in question.

“After the Financial Services Authority launched
its report into credit protection insurance, we launched our own
fully-compliant product, in response to demand from customers,”
Wilson explains. “Over the past 18 months, we have had a lot of
customers asking for the cover – which backs up our opinion that
this type of cover is a necessary part of the market, and should be
available to those who request it.”

Recessionary effects

The number of dealers who partner with CMF has not
massively decreased as a result of the recession, says Broadhead:
“We haven’t seen large numbers of dealers go under; the dealers we
work with tend to be the stronger performers. Dealers are often
very creative people, which is why they have gone into business for
themselves, and this means they tend to adapt very quickly to
changed market circumstances.”

One area where dealers have adapted swiftly is the
level of stocking finance they require. At CMF, which provides
stocking finance to a number of its dealer partners, Broadhead says
the requirement for funding at a typical outlet might have fallen
from “£1 million two years ago to £500,000 today, as dealers adapt
to the changed market circumstances.”.

The scrappage scheme itself has not made much of an
impact on CMF’s levels of new business, says Wilson. The increased
volume of apps experienced by CMF – caused by a reduction of supply
of finance in the marketplace – meant that the tendency of
scrappage customers to use savings to buy new vehicles had “no
discernable effect” on CMF, she says.

The outlook

While noting that some industry pundits
have predicted a rise in overall arrears levels later this year,
Wilson is optimistic about the future.

“We’ve created a good niche for the business and
are happy with it,” she says.

While not averse to growing through acquisition –
although noting that there do not seem to be any suitable targets
out there at the moment – Wilson believes that CMF is well-placed
to capitalise on its operational base in order to fuel further
organic growth this year.

The launch of the Key Accounts division will play
an important part in CMF’s continuing growth and profitability,
while dealer funding will remain a crucial part of the lender’s

Like other lenders in this space, CMF is well aware
that it faces certain potential threats: a potential rise in
interest rates, new entrants to the market, and overly onerous
regulation, for example. Meanwhile, Wilson says, there is one
certain cloud on the horizon: some sporting event or other, which
is apparently taking place this summer.

“The last World Cup was very difficult for motor
dealers, as people stayed home to watch matches, and we saw a
corresponding drop in volumes on game days. I expect this year to
be no different – and maybe even worse, as South Africa is in a
similar timezone,” sighs Wilson. “Still, if dealers are planning to
set up TVs in showrooms showing the games, at least this is a sign
that they’ll still come in to work on match days!”

And with its stable funding base alongside the
prospect of greater new business volumes in 2010, there are
definitely worse concerns that CMF could have about what the future
holds than a temporary dip in business caused by the UK’s football