As automotive finance providers, we operate in a dynamic and fast-paced industry where factors such as technology, compliance and consumer trends present a host of significant challenges and opportunities for motor retailers. Our collective aim throughout the sales and marketing process must be to provide innovative and sustainable finance solutions for the end customer.
In this context, the FCA’s comments in 2018 on motor finance have been encouraging. Jonathan Davidson, Director of Supervision – Retail and Authorisations at the FCA, has said that the growth of PCP contracts in the motor finance market is a ‘good example of an innovation that has had a significant impact’, and that this type of innovation ‘paints a really attractive picture’ of the motor industry.
This positive outlook is certainly consistent with our view of the industry, as I’m sure it will be for every finance provider that believes in the robustness of their products and puts ‘treating customers fairly’ at the heart of their operations.
However, in its 2018 Business Plan, the FCA reiterated the fact that it will be undertaking further work on responsible lending, particularly the approach taken by motor finance lenders to assessing creditworthiness, including affordability. It’s imperative that we challenge ourselves to do better, helping dealers to match the right product to the right person every time. For many dealers, this will involve business model diversity – looking at new ways to ‘innovate’ and secure outcomes that are positive for them and, importantly, their customers.
We see innovation and change as two sides of the same coin. ‘Innovation’ is a trendy word with which companies of all shapes and sizes often try to associate themselves. But innovation can also refer to changing existing company practices, as much as it does to inventing something completely new. This type of cultural innovation, however, can be less popular and often faces greater resistance.
That’s because making impactful changes to business culture often isn’t easy. If sales figures are on target and the business is doing reasonably well, then why rock the boat and try to do things any differently? However, complacency or simply waiting to follow the lead of others cannot be a sustainable approach for companies in a fast-paced industry like automotive. Business leaders who manage to overcome the fear of change and actively challenge the status quo have more to gain than lose.
As Jonathan Davidson at the FCA said: “a successful business model also relies on having a healthy firm culture,” where sales people are “encouraged to be curious and questioning.”
Without this, he adds: “firms might not realise that their business models are unsustainable and can lead not only to reputational damage, but also to the kinds of costly interventions [the FCA has] been making.”
This is why Alphera has established a partnership with the Institute of the Motor Industry (IMI) to promote the uptake of a new education and accreditation scheme for finance and insurance sales specialists. The scheme provides a platform for self-regulation to support compliance, introducing shared core values across dealerships.
The IMI is a government-endorsed industry body that plays a vital role in developing and maintaining a skilled and competent professional workforce in the automotive industry. It delivers accreditation across all aspects of the motor trade, including technical disciplines and engineering. However, until recently no IMI framework existed to ensure a consistent standard in the sale of car finance. The IMI’s innovative new F&I accreditation programme, launched in partnership with Alphera, addresses this need.
Matching the right person to the right product, every time
In the wake of PPI mis-selling, consumers are more alert than ever to the risk of being sold an inappropriate finance product. However, while cars buyers are more aware of the risks of buying the wrong product, research shows that they are not aware of their basic, legally-enforced rights when it comes to discussing finance options.
ALPHERA Financial Services recently commissioned an independent consumer survey among over 1,000 UK motorists, highlighting a low level of consumer awareness of dealer obligations when selling car finance and insurance products.
The findings from Alphera’s survey suggest that two-thirds of UK motorists (64%) are unaware that salespeople are required to discuss their financial needs and requirements when purchasing a vehicle on finance. Furthermore, more than half of motorists (58%) were unaware that dealer sales staff are responsible for discussing repayment obligations. The same proportion of respondents were unaware of the responsibility to outline a finance product’s terms and conditions and details of additional charges. 77% of respondents didn’t know that dealers must outline how purchasing a vehicle on finance may affect their credit rating.
The low consumer awareness of dealer obligations suggests a high potential for the mis-selling of financial products, leaving the door open to unwanted scrutiny from regulators. When selling motor finance, car retailers can address this gap in customer knowledge with accreditation and training, ensuring they match the right product to the right person every time.
Dealer sales staff must have the skills and knowledge necessary to properly qualify a customer’s needs and deliver a clear and transparent presentation that enables informed decision-making. An accreditation pathway, robustly assessed and backed by the IMI, will establish a universal kitemark and give consumers the confidence they need to trust our industry in everything we do.
Away from the car finance sector, mortgage lenders have moved towards an industry model which supports formal, recognised accreditation. More transparent than ever, this change has fostered greater consumer confidence in the mortgage sector and its products. Results from Alphera’s UK consumer survey suggest car retailers could enjoy similar benefits. We have found that almost four in five UK motorists – 79% – say they are more likely to transact a car purchase with a salesperson who holds a formal, industry-approved accreditation governing the sale of finance and insurance products.
This type of innovation is more than simply complying with a regulator’s demands. Rather, it is an opportunity to instil the culture and expertise needed to make ‘treating customers fairly’ a core value for everyone in the business of selling cars.