In Focus Consumer Credit
It is time to reinvent dealer finance
Last month, the Financial Conduct Authority published its Consultation on Motor Finance Discretionary Commission Models
Mark Standish Chief executive, MotoNovo Finance
The Financial Conduct Authority’s (FCA) announcement on dealer finance points to fundamental changes in the commission model, with a dealer’s capacity to set customer interest rates to be banned.
As predicted It is exactly what we predicted back in March, where we thought that significant change was likely, and we now see this as a unique opportunity for the dealer sales and financing model to reinvent itself, making it both trusted by, and relevant to, today’s highly informed and protected car buyer. Rather than achieving used-car finance
penetration of as low as 20%, let us use the opportunity to aim higher and ensure the dealer, both physically and digitally, is vital to the used car buying and financing journey.
Remove discretion The FCA has confirmed its intention to remove dealer discretion to set customer interest rates as a way of increasing the commission they can earn. This is a major shift from what has been a long-established model and will see the need for the sector to re-examine pricing strategies to ensure good customer outcomes are central to dealer’s cultural model and are delivered. Following the FCA’s Final Findings
report in March, we noted: “Addressing the issues (highlighted in the in the Final Findings report) can help create lower interest rates in dealer marketing and enable appropriate rate-for-risk pricing to be developed, vital when finance and car buying are so connected today and when increasing finance competition and online pricing transparency are prevalent.”
November 2019 The FCA’s consultation reflects strikingly
similar conclusions, which is why we are so positive about the direction in which the FCA’s update points the industry.
anticipation of significant regulatory change. We are well placed to support the changes that lie ahead.
This is a significant shift from what has been a long-established model and will see the need for the sector to re-examine pricing strategies to ensure good customer outcomes are central to dealer’s cultural model and are delivered
Side-step There is no place for trying to side-step the FCA’s stated intention to address consumer harm and drive savings for customers, and our response needs to be a bold one. Dealer finance has to reinvent itself
and become an accessible, transparent, affordable, fair, and trusted by today’s car buyers. Removing dealers’ ability to set interest
rates, which has come in for so much scrutiny, does this at a stroke. As an industry, we need to embrace positive change and move on confidently, building new partnerships with its customers. Since the FCA released its Motor
Finance review in March, we have made substantial investment in new financing models, technologies, and dealer support, in
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Risk-based pricing Central to our approach has now been a move to embrace risk-based pricing, a development it believes the FCA will welcome. In the fourth quarter, we will be increasing our pilot of risk-based pricing models across dealerships. Additionally, dealers and car buyers
alike will be able to benefit from our new investment in our dealer finance-led marketplace; a service that was conceived as a way of helping dealers to use finance in a compliant manner to promote car sales. Finally, additional development in
customer self-serve finance access, will assist dealers in developing an omni-channel car financing capability.
Re-boot Used vehicle dealer finance can become far more important for dealers. To realise this ambition, the industry must re-boot. At the heart of our approach to support dealers in doing the right thing, we are already rolling out our ‘triple win’ approach. This champions a financing philosophy
that works for car buyers, dealers, and ourselves. It is designed to drive used-car finance up and place used-car financing and sales together. By delivering change effectively, dealers
will be able to improve finance penetrations through a more customer-focused culture, where lower customer interest rates are achievable. It is timed perfectly for the FCA announcement. CCR
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