AUSTRALIA’S finance industry is facing headwinds greater than the Global Financial Crisis and it is leading to many people leaving the business and more companies contemplating automated finance options.
Although the outlook appears grim, Stratton Finance managing director Rob Chaloner said the shake-up caused by tighter lending rules may be over within six months.
“We are going through a period now where lenders are nervous and they are verifying every loan much more stringently,” he told GoAutoNews Premium.
“The industry has had headwinds for the past two years and I think these have been more severe than the GFC. If you were a Ford Credit dealer or at GMAC you may disagree but in most cases it just really wasn’t a problem.
“While there were liquidity issues in the GFC it was all business as usual in Australia and there wasn’t a big change in legislation.
“The headwinds now, where lenders have become far more aware of their regulatory requirements, makes it harder to get a deal done.”
Mr Chaloner said lenders in the current environment were “certainly more cautious”.
“They want to grow and they want to lend but they want to be sure they are lending to the right people who aren’t creating hardship,” he said.
“They want to be sure that the information the borrower gives is true and correct. It’s a deeper level of due diligence.”
He said that the current market had some over-reaction to the new rules.
“The lenders are leaning too far to the left or right at the moment. They scrambling with legacy systems, with trying to upgrade technology and use more verification points.
“But I think there will be a balance and then they’ll swing back to centre. We probably have six months more of settling in the market.”
In the meantime, he predicts there will be some shuffling of employees and some company changes.
“We are getting five or six applications a week from people in dealerships looking for a job.
“They are mainly from some of the bigger car groups who are saying that the flex rate goes from November 1 so the only way they can earn more income is to do more deals.
“If you’re in a dealership with 100 cars sales a month, it is very hard to suddenly go to 50 finance contracts a month. We are seeing a lot of people looking at other opportunities or leave the industry completely.”
Mr Chaloner said there has also been a reduction in available lenders.
“The ANZ sold out and got out of the business, BMW’s Alphera had massive constraints on what they could do and now they really only do their dealerships and nothing else,” he said.
“All of the Alphera non-brand dealers have gone after going through a tough patch.
“Then you have Macquarie that has has stepped up and is doing a fabulous job in the market with its consistency.
“There are some rumblings around St George and if they’re staying in or getting out.
“On top of that there are new entrants coming into the market like RateSetter – in which we have an interest.”
The other main change is the moves to automate the loan application process.
“We (Stratton) see a terrific opportunity to automate a lot more,” Mr Chaloner said.
“While we have had high controls on what we did, there was always the human element that could produce mistakes. With automation, there won’t be any.
“The more you can automate, the better the user experience for the consumer. That creates better opportunities for everybody but it requires a lot of investment and technology. That’s hard for a single dealership or a small broker to do.”
Automation is the online or in-showroom platform that allows the consumer to fill in the loan application. It is seen as becoming more prevalent because the onus is on the consumer to fill in details correctly.
Mr Chaloner said Stratton, which uses the automated platform, has had approaches from dealers to provide the platform for customers to self service.
“These are queries from companies that don’t have finance people. So they put customers in front of a self-service screen which can take away a lot of the human error risks.”
The program works by asking the customer to fill in the basic details of the finance request and then the algorithm will give a credit score.
“But it won’t leave a stamp that shows that some lender has requested the customer’s credit score,” he said.
“Then we can make an accurate estimation of the pricing and then we’ll adjust to suit the credit score.
“A lot of dealers are either wanting more details of the platform and in some cases, they want it to replace a finance manager that they believe they can’t afford anymore.”
The legislation starts officially on November 1 but Mr Chaloner said he doubts if everyone is ready.
“I think there will be a settling period where dealers will consider what they do next, including lowering costs or using different platforms – including automated self-service platforms that take away the risk,” he said.
“The other issue is the market has tanked on the effects of the tightening of the mortgage market and the fact that people are thinking the house is worth a bit less and that they are not feeling as confident in getting a loan as they were six months ago.
“That will take a few months to sort itself out as well.
“What ASIC is doing is very logical and will drive the right behaviour to the industry. The rules are fair on the consumer and also fair on the lender.”
By Neil Dowling