Why asset finance institutions need to foster excellent dealer relationships
The poor economic outlook is currently putting pressure on the South African vehicle market, with new vehicle sales for 2016 expected to be down 12% year-on-year.
Asset finance companies are competing with each other for a shrinking pool of customers, in a market that is largely undifferentiated for the consumer. Hence they are focussing on dealers, the gatekeepers between the customer and financing, who have significant influence over the customer’s finance provider decision.
During the first half of 2016, South Africa experienced slowing global growth on the back of softer activity in developed economies. Over the next five years, the recovery in the South African economy is expected to be modest with a 1.8% average forecast GDP1. The current economic state is expected to continue in the short term with the International Monterey Fund (IMF) forecasting 0.8% real GDP in 20172.
Factors such as increasing fuel prices, new vehicle inflation and high interest rates are putting pressure on consumers looking to purchase a vehicle, with the used car market becoming increasingly attractive. October new car sales figures are indicative of this, showing a decline of 10.1% year-on-year and sales through the dealer channel declining 18.3% year-on-year3.
To date, the value of new cars financed have typically made up the majority of the book for asset finance houses. As consumers turn more and more to used vehicles, asset finances houses need to rethink their strategies and retool their operations to compete in this changing market.
At the same time, customers are financing vehicles over a longer period (often over 70 months) and the number of deals is remaining flat. With a limited pool of customers, growth in market share for one asset finance house will come at the expense of market share of another. What strategic options does an asset finance company have to differentiate itself in this context?
Changing consumer mobility behaviour is further impacting the motor vehicle industry, through ride-sharing and pay-per-use, as well as the more futuristic impact of autonomous and electric vehicles. In the short term however, asset finance companies need to successfully compete in the current economic environment if they are going to be ready to finance the future.
The first consideration for asset finance companies is to decide to focus on new or existing markets. In terms of existing markets, the key determinant of success is the ability to attract the right quality of business. While the costs of repossessing and disposing of an asset erode profit, those customers that pay off loans ahead of schedule are also sub optimal value generators. Driving retention of existing customers is key in maintaining existing markets, while dealer incentives and rewards aim to drive additional customer numbers.
The second consideration is innovation in the products that are being sold. Asset finance companies are already complementing the finance offering with complementary products such as vehicle insurance, maintenance plans, warranty extensions, vehicle tracking and life cover to maximise the revenue per deal.
Even if asset finance companies can create a product mix that the target markets find attractive, the gatekeeper to the customer in the current ecosystem remains the dealer. Ensuring a great dealer relationship is key if asset finance companies want to be the first choice of dealers, thereby increasing deal volumes and quality of customers. The experience is enabled through simplified processes and tools, reducing turnaround times for responses and approvals, providing transparency into the process and empowering the dealer with a simple view of information that can drive their business success.
Great customer experience is not enough for vehicle asset finance companies – the “dealer experience” is the key to the customer
While designing these components of the dealer experience could be undertaken based on the institutional knowledge within the asset finance house, a better approach is to conduct an in-depth discussion with a wide range of dealers to understand their drivers and motivations, thereby tailoring the experience to meet different pools of dealers and practically test the incremental improvements to the dealer experience.
While it may seem reasonable to base a strategy for the business on the product and market changes needed, success will only be possible if this is undertaken on the back of a great dealer experience; which comes from an in-depth understanding of the dealer’s day-to-day business motivations and challenges.
As an asset finance company, to drive volume and quality of business you need to be the dealers first point of call, but this is only possible if the dealer’s experience of dealing with you is superior to anywhere else.
- Bureau for Economic Research. (2016, October). Economic Outlook. Retrieved from https://www.ber.ac.za/BER%20Documents/Economic-Outlook/?doctypeid=1058
- International Monetary Fund. (2016, October). World Economic Outlook: Subdued Demand: Symptoms and Remedies
- BizCommunity. (2016, November 2). New car sales continue downward spiral. Retrieved from http://www.bizcommunity.com/Article/196/486/153146.html
About the author
Derek Martin is a principal consultant at BSG, where his passion for technology enables him to strategically guide organisations to solve their most pressing challenges. For more than a decade he has worked with leading organisations, across multiple industries, to understand the challenges in shifting business environments to shape technology-driven solutions.