Treating Customers Fairly?

Last year the UK saw a record New Car market. Up over 6% on the previous year, which had already shown a significant growth, and this year looks no different as growth continues into 2016. February’s like for like year to date registrations were up nearly 5% which demonstrated a further forward movement ahead of the peak registration period in March and with that came a continued absolute number growth in new car PCP sales. Surely that’s a positive thing for us all but is it?


Just for a moment let’s take a very simplistic view of how new car PCP deals are being done and ask the question are we setting ourselves up for a fall?

Survey the market or, in isolation, consider your own manufacturer partners strategy. How many PCP deals are on the table today that have a finance deposit allowance linked to them? At Elements we’ve been working with a number of small and medium size dealer groups and see, in part, what drives people to take on a finance agreement that they might not actually want or need. The appeal of getting large cash sums off of a car in return for signing up to an often low rate PCP agreement is difficult to resist for a customer but how does this work in the respect of Treating Customers Fairly?


Firstly you may say that it’s a low rate deal so there is very little interest to pay and may even be a 0% APR offer so what’s the problem but consider this. Tying someone into a finance agreement regardless of the interest bearing aspect of it, brings its own challenges. Only this week I saw on a social media channel one of these irritating MEME’s. It had a picture of a couple in a car showroom talking to a sales adviser with the words underneath “6 months into a 36 months PCP deal? Even the Fire Brigade won’t be able to get you out of that sir!” yes I laughed too but it’s true. You are tying someone into an agreement that they will struggle to get out of early without a financial penalty and of course the rules of halves and thirds (a benefit of an asset based car finance loan) are less favourable on a PCP as the “third” and the “half” are such a long way into the duration agreement because of the GFV.

Secondly what about the poor (we jest) old so and so who wants to pay cash for his car because they do exist! They are immediately disadvantaged as they don’t qualify for the FDA so what do we do? We try and cash convert them into a finance agreement they either don’t want or don’t need to facilitate the FDA and then they settle early normally resulting in your funder asking why you have so many early settlements even with threat of a debit back on the document fee.

Consider further the push to these subsidised PCP deals with attractive FDA’s on your own bottom line. I was working with a manufacturer recently that offered an FDA that was a combination of a dealer sacrifice of margin in addition to the manufacturer’s contribution to get to the advertised headline monthly payment. The requirement, in this case, was to sacrifice over £1,500 worth of margin to get a £200 fixed document fee. You wouldn’t do it would you but low and behold dealer finance penetration then became a KPI on the brand partners balanced scorecard and so they found themselves cash converting people to save a grilling from their manufacturer partner.

Is any of this in the spirit of Treating Customers Fairly let alone Treating Dealers Fairly? I wonder if someone at the FCA will one day take a look at this and actually challenge the whole context of manufacturer finance deposit allowance incentives. If they do what is the consequence for the growth in the UK market. We’re a million miles away from needing to panic about things like this but is something to consider because at the end of the day it will be the dealer or dealer group that will find itself having to explain its actions to the regulator.


Summary Focus Points

  • Does your statement of demands and needs match the actual outcome of a vehicle sale?
  • Do you incentivise staff on finance penetration to a level that isn’t in keeping with your market/client profile?
  • How well do your teams understand the rights of termination and I mean “understand” not just capable of reading them off of an agreement?


Written by Darren Williams MIMI MIoD - Director at Elements 

Article reproduced from Auto Retail Network

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