In late October, a group of dealers and finance professionals gathered at the Grosvenor House Hotel London for a Motor Trader roundtable in association with Oodle Car Finance.
Representing dealers were David Johnson, group F&I director at Perrys, and David Wilson, managing director, Henson Group. From finance, Dan Horner, commercial director, Octane Finance, Farhad Tailor, managing director V12 Vehicle Finance, and Martin Morgan, director, New Look Loans. We were also joined by Phil Williams, founder and chief commercial director, and Harry Hussain, national field sales manager, both of Oodle Car Finance.
Chaired by Motor Trader editor John Kirwan, the roundtable set out to cover the current state of play for dealers, consumer trends and the finance market.
David Wilson, managing director, Henson Group, began by highlighting the slowing down of the market in recent months and the lack of stock. He predicted that this would continue, but there may be some stabilisation and improvement as we move into 2023.
The market has not been so kind to dealers of late, with Wilson commenting on the tailing off of volumes from early summer, resulting in a disappointing September to complete a “painful” six months. However, he did highlight that October saw some improvement.
On the finance end, Oodle Car Finance CCO Phil Williams said :”We have started to slowly see a drop off in funding rates over the past six months from their previous highs earlier in the year.”
He also spoke on the uncertain economy, with five interest rate rises so far this year, which he said had not been factored into people’s budgets yet. There is confusion in the market, and he feels a recession is on the horizon.
But “people will always want cars”, he said, and despite cost of living concerns the consumer will adjust their budget to allow them to continue owning and buying new vehicles.
“It’s a very volatile market,” added Farhad Tailor, managing director V12 Vehicle Finance. He said that you can plan for a normal recession where unemployment is quite high, but in this case unemployment is low.
He explained: “We should be looking at budgets, cutting back and taking the fat out of the business, but we dare not do that just in case the market picks back up and we need to recruit staff, which in this climate would be difficult. The biggest challenge that we’re facing is just knowing what to do next.”
Also on recession, Harry Hussain, national field sales manager at Oodle Car Finance said that this would be a different recession than the last in 2008. The consumer will be more effected, he said, as they will have no or little disposable income and credit card buying will begin to increase.
Part of this economic uncertainty stems from rising energy prices, which are affecting dealers as well as the public. Wilson spoke on how Henson has seen its costs soar in recent months, with one preparation site now costing six times more in utilities to run.
Although it has taken the leap and installed solar panels, that comes with a large upfront cost. Henson has also adjusted its pay structure to pay sales staff a higher basic rate of pay, rather than the traditional commission focused model. This, Wilson said, is to help employees take home a stable income in such volatile climates. But this also puts further financial strain on the business.
Handling disruptors
The conversation moved on to the disruptors in the market, such as Cazoo and cinch. Both have pushed hard over the past few years with big advertising campaigns and sponsorship deals to bolster their online first approach to used car retail. But what is the value of the traditional dealer against these disruptors?
“We can do what the disruptors do,” Wilson stated. Many dealers have adopted a hybrid model, with both an online sales function and physical showrooms around the country. He pointed out that dealers give customers the flexibility to engage with the sales process in a way that best suits them, be that all online, all in person, or a combination.
Williams added that the disruptors did not invent the automotive online marketplace; it was there beforehand with the dealers.“It’s an omnichannel market,” he added, reinforcing that he does not see dealerships in the UK disappearing on mass.
David Johnson, Group F&I director at Perrys highlighted that the COVID pandemic forced dealers to embrace online. Perrys began by allowing customers to reserve a vehicle online and is now at a point at which it can offer the whole journey without a showroom visit. But, he said, 90% of customers still want time in the dealership, but do a lot of research at home. Perrys looks to “knit together” online and physical, and the addition of video has been a big part of that goal.
The panel also talked on how customers can be put off by dealerships. Martin Morgan, director, New Look Loans, said that dealerships, particularly new franchise sites, can be intimidating places for customers, and that used dealerships often do a better job of putting the customers at ease. He said that it is important to address these issues and aim to make customers feel comfortable and to allow the purchase journey to be enjoyable.
Johnson said that this can be helped by adding “softening features” to dealerships, such as comfortable waiting areas, coffee, and Wi-Fi. It is about making a dealership visit an experience, he said. The use of tools such as video can help “break the ice” with salespeople and build a rapport even before the customer visits the showroom. He spoke on a new Perry’s showroom that features a children’s play area, a coffee shop and an area in which customers can browse vehicles on tablets.
Finding the finance
And finally, the conversation moved to what dealers are looking for in a finance partner.
Simply, “consistency” said Johnson. This has been lacking consistency in 2022, he said, and the experience of the past six months has been unique. Interest rates have been volatile between companies according to Johnson, which has added to the confusion. He also said that a finance facility for older cars is now a more pressing matter, because cars can now perform well for longer periods of time. Johnson said that PCP should be able to go beyond five years, and maybe even up to twelve.
In response, Williams said the biggest challenge for a finance provider is pricing these vehicles when the market will change in the next two to three years or when new cars come back online again.
He added: “Pricing residual values or taking on residual value risk will be really challenging for a finance company over the next couple of years, with all the changes that are likely to happen with supply/demand and new EV’s entering the UK car park. I think that there is a model perhaps where we are taking some residual value risk along with the dealer. I think it would be interesting.”
For Dan Horner, commercial director, Octane Finance, it is important for lenders to provide support on regulation and legislation. He said there is currently good communication from lenders, but it is important that this continues and that lenders are active in helping navigate any regulatory changes that may come along.
