How to beat rising values and help get more finance approvals

Semiconductor shortage, pah! I’m all about used cars me, mate.

It is funny how a little thing like a chip can have such a huge impact on everything we do as an industry.

Typically we cleave into three sets of business, we have those that do new cars only (lots of fleet and B2B, B2C, and broker stuff in here) then there’s the combined new and used car posse (lots of franchised retailers sit in this category) and of course the used car only gang, from small cuddly family friendly independents to large but obviously still cuddly family friendly used car leviathans.

For years it has been a simple bit of banter between the three, the argument for new versus used versus hybrid (did we even call it hybrid back in the day?) and then Boom! the semiconductor shortage hit the new car job.

Pretty much straight away all the used car girls and boys jumped up and down and got all excited about the ‘advantage’ they had and how things were so much easier and slicker on used. You know – spontaneous buy-it-now customer types, quick decisions, prepped stock and a rapid finance proposal with e-signatures and away we go.

Inter-departmental harmony

But the last few months has taught us a salient and significant lesson based on interdependency and the harmony that exists between new and used car sales.

We all know how difficult it has been for the new car job in the last few months. Retailers fighting to get stock, dominant fleet buyers groaning they can’t get the right cars for their user-chooser company car drivers, large corporates struggling with an ever-ageing fleet that needs replacing, traditional discount structures under huge pressures, fleet and contract hire companies screaming for supply and Joe Retail wondering what the hell happened that turned this long-established supply chain upside down so easily and so fast.

Attention naturally turned to used. I should refer to this as pre-owned, or pre-loved, or nearly new or, well, you get the picture, let’s just say used for now.

So the supply and demand model kicked in, and as I’m sure you know as well as I do every block in the country started to report a price surge on pretty much everything clean getting knocked through – and even a large chunk of the not-so-clean stuff started pulling extraordinary prices – to the point recently that even gritty stock was floating past the gavel way in excess of traditional book retail, and by some hefty margin too.

Blend all that with the added ingredients of the likes of Cazoo, Carzam, Cinch and a whole host of other players starting with the letter C hoovering up quantities of stock, and you have the perfect storm of ever diminishing supply driving rapidly rising prices that the guides struggle to keep pace with – similar in many ways to the great loo roll debacle of March 2020.

Financial challenges

Spare a thought for your finance providers and colleagues in all of this.

Their role is to support your sales, they want to say yes to as many proposals as possible – but they are in a risk business and employ teams of underwriters to assess the risk of each and every proposal based on three key criteria. CAN the customer repay, then WILL the customer repay, and finally does the deal make any PROFIT?

There are many other factors involved here but one extra critical one is exposure – most lenders would cap any lend to a value limit based on a spread between trade and retail value, and right now that is a massively broken scale.

Couple that with the dominant proportion of most finance provider offerings being based on residual value products such as PCP, Lease Purchase or HP and Balloon and you might start to get an insight into why finance proposals are slowing down, why auto acceptances are less frequent and why your friendly neighbourhood finance rep is on new blood pressure medication and their laptop search history is all about CBD oil and meditation classes.

The FCA, our financial regulator, is very strict with lenders – it insists that they not only run an affordability algorithm for each client proposal to prove the ‘CAN they pay’ argument but it also forces a strict injunction on the lenders that they do not lend more than the car is worth – and right now the guides simply aren’t in sync with the real world and every deal represents a huge exposure to risk based on asset value.

All this is stressing your finance companies’ ability to lend, so here are some ideas that may make things a little simpler and easier for us all:

• Be prepared for fewer auto acceptances, and a slower finance proposal process
• Ensure your customer proposal has integrity, no embellishments
• Ensure accuracy, don’t round up critical data such as how long a customer has been at an address or work. A mismatch makes for bounced proposals and avoidable delays
• Don’t guess at any requests for additional information, ask the customer and go back with facts
• Manage your customers’ expectations, tell them a slow yes is better than a quick no
• Work with your local finance team, not against them.

These are difficult and challenging times for all of us, not just as retailers but our funding partners. Remember your finance providers only earn when the deal pays out so they are looking for ways to say yes – help them to find that.

YOUR ACTION PLAN

• Manage expectations of finance
• Prepare for applications to take longer
• Make accuracy paramount in applications
• Don’t guess, check

By Andy Tong