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ALLIED Credit, a provider of retail finance in the motorcycling, marine and powersports market for a decade and now expanding into car retail finance, is inviting dealers, especially dealer groups, to come inside the vehicle finance tent as joint venture partners in car finance with mutual ownership of the finance book.

The unusual business model is designed to make the finance company operate in a dealer-centric way with both sides working in each other’s interests.

Russell Bryant, the chief operating officer of Allied Credit and also a former division director at Macquarie Leasing, told GoAutoNews Premium: “Some finance companies in the past had really great relationships with their dealers and we can drive that relationship further through the joint venture arrangements with the dealership groups.

 

“We have a number of different models. The most obvious and simplest is just the standard automotive finance as one of a dealer’s brands that is effectively a second string finance offer for a dealership.

“At the other end of the spectrum is a full joint venture where the dealer actually owns and participates in the actual loan book, which is quite unusual.”

The CEO of Allied Credit and former chief of Macquarie Lending, Jon Moodie, told GoAutoNews Premium: “The beauty of the JV model is that both parties want the same thing. They want the book to perform.

Jon Moodie

“So the dealer partner is not going to put bad quality business in.

“The discussions we have with our joint venture partners are very different from the discussions we used to have with dealers in our past lives where the dealer does not have a stake in the performance of the loan book.

“There is much more trust. We are all aligned towards the same goals.

“It is fair to say the joint venture model is really built for the larger dealer groups that write reasonable amounts of business each month. It does not work for everybody. But we have the normal brand that does the normal retail business as if we were any finance company.”

Mr Bryant said that dealers could “effectively try before they get involved more deeply with us by using the standard finance offering to see what dealing with Allied is like”.

“The JV model can really work where there is a large enough volume of business and the alignment between the dealership and the financier is incredibly strong compared to the alignment between a dealership and a bank where all the risk and all the return from the loan book is taken by the bank,” he said.

“Effectively that is a situation where it is adversarial because it is the dealer versus the bank where the dealer just wants them to take as many loans on and get more commission.

“Under the JV model the dealer is still paid a commission but the dealer actually has a share in the overall value of the loan book and in the long-term position which encourages customer satisfaction and retention.”

Mr Bryant said that participation in the joint venture had the potential to be an alternative to the investments car dealers have traditionally made in their dealership properties.

“A dealer under this finance joint venture arrangement can participate in building a lending book that actually drives future value for them, in a similar way that owning land does, and create a future positive cashflow investment for them.

“Dealers historically fuelled their wealth by the land under the dealership. When they sold their dealership they would rent it to the buyer and have a return for years to come.

“But the question arises: is that really going to remain a solid investment and wealth strategy for a dealer? You would have to say probably not because the land itself may not retain its historical levels because dealerships are going to change.

“They are likely to get smaller. The building requirements are likely to change; instead of one massive building for one franchise you will need smaller segmented buildings for multiple franchises which requires investment on top of their land.”

Mr Moodie said that Allied Credit has just completed a fresh capital raising.

Jon Moodie

“We have the capital sitting there and we now just have to deploy. We certainly have the backing to become a significant player in the years to come. Finding the capital is not an issue for us. Our challenge is building our capabilities quickly enough to handle all the dealer interest we are getting,” he said.

“The advantage that Allied has is that our founder started this business in 2009 to 2010 in the middle of the GFC when everyone else was leaving the market; not starting up new finance companies.

“Because he did that we have been able over 10 years to build up a relationship with our funders, our warehouse banks and our securitisation partners and that is really valuable because it is not easy to set up a new finance company and attract lenders.

“You need to be able to borrow money at scale from somewhere. So effectively, lenders lending to lenders; if you don’t have history, then people are cautious.”

He said that Allied Credit “has had 10 years of proving the way it collects and administers the portfolio works and that gives our bankers, financiers and shareholders comfort to allow us to grow”.

By John Mellor

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