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ALLIED Credit is gearing up for major growth in the Australian auto finance market following a recent investment by Bain Capital.

The investment, the amount of which was not stated, was made through Bain Capital’s $US49 billion Bain Capital Credit arm. It secures a 20 per cent slice of Allied Credit and a place at the boardroom table.

The investment follows the purchase of the floorplan loan book operated by Macquarie’s Banking and Financial Services Group, which is in the process of winding down its exposure to the auto dealer finance business. Allied Credit agreed to purchase the Macquarie floor-plan book for around $650 million earlier this year.

The company is in the midst of absorbing the Macquarie dealers as Allied customers.  

Under the arrangement, Allied Credit has purchased the floorplan finance portfolio and operations of Macquarie. The deal includes the backend IT systems that manage the lending for dealer stock.

Macquarie will retain its retail car loan portfolio and continue to originate car loans through brokers and direct Macquarie channels. 

Under the arrangement Allied Credit has secured the rights to gain access to Macquarie’s dealers so that any fresh loans written after the changeover date will join the Allied Credit loan book.

The changeover is expected to be completed by the end of this year.

Allied Credit’s immediate focus is on bringing all the existing dealers affiliated with Macquarie across to the Allied camp.

The managing director of Allied Credit, Jon Moodie, told GoAutoNews Premium that around 100 dealer groups would be joining Allied.

Jon Moodie

Allied Credit has a unique partnership business model in the auto finance world.  It operates:

  • A true joint venture model for OEMs and big dealer groups
  • White label finance operations for OEMs
  • Retail finance operations for dealers under the brand Automotive Finance

Joint Venture model

Under the joint venture model Allied Credit establishes a separate finance entity. 

Mr Moodie told GoAutoNews Premium: “It is a separate company that is set up by Allied Credit and the other partner (which can be an OEM or big dealer group), and the partner owns that joint venture entity with Allied 50/50.  We both put in equity 50/50.

“The equity is required to fund the initial set-up cost, running expenses and the credit enhancement for the funding. Each entity has its own funding asset trust. 

“It is, for all intents and purposes, its own finance company. Allied Credit is the operator of that company and has the lending licence. The other partner, whether it’s an OEM or dealer group, is mainly about the branding and bringing in the originations (loans written).”

Mr Moodie said the relationship between the partner and Allied Credit is “very close”.

“It’s closer than a traditional white label relationship, for example, which tends to be a three year relationship. Whereas with joint ventures you need a much tighter, closer, longer-term view of a five to 10 year relationship because it’s a bigger commitment from both. 

“So, the partners are both very aligned in the thinking and the planning and the strategy,” he said. “It becomes quite a symbiotic relationship for the joint venture partner because they own 50 per cent of their own finance company. 

“It’s their brand, it’s their dealer network, there are commissions being paid into that dealer network by the joint venture company. Allied Credit is paid a fee for providing those operations and services and the licence and the credit and so on.” 

Allied Credit performs all operations including lending, collections,  repossessions for the joint venture company, as if it was its own company. 

“We have to be compliant no matter who we’re doing it for. It is the same team doing it effectively. But Allied Credit  charges the joint venture for the operations expenses. And then the flip side is that the joint venture entity pays commissions to the dealers that are originating into their joint venture.”

In July this year Inchcape signed a joint venture deal with Allied Credit for the Subaru, Peugeot and Citroen brands. The new business commenced operations in October with the launch of Subaru Financial Services.

The Inchcape partnership takes the total number of joint ventures operated by Allied Credit to six.

White label partnership

Under the white label model, Allied Credit is the 100 per cent owner of the contracts that are written and is the funder of the contracts that are bought and originated through that white label programme. 

Automotive Finance

Allied Credit also has an arm providing traditional dealer retail finance and by taking on the floorplan funding for the Macquarie dealers the company gets an entree to sign those dealers up for selling Allied Credit’s retail finance paper if they are not already exposed to Allied Credit through an OEM or dealer group joint venture or white label arrangement.

Mr Moodie said: “Most of those Macquarie dealers have multiple franchises and so via the partnerships we’re setting up with the OEMs, many of these dealers will end up being Allied Credit customers via those partnerships. 

“But either way, we also have that ability to write traditional dealer finance business under our own generic brand we have called Automotive Finance.

“So, for those dealers who are not yet writing business under one of our white labels or joint venture brands like Subaru Financial Services, for example, we can write business for them under Automotive Finance.

“We are keen to grow our book outside of our white labels and joint venture partnerships and we will bring that same partnership approach to our dealer relationships. For example, we can provide bespoke retail finance plans for dealers that suit a particular dealer’s demographic and PMA. 

“The big banks tended to have a one size fits all but we can adjust the business model to suit the constituency of the PMA. There’s all sorts of things that go into that but our system is configurable to be specifically set up for each dealer,” Mr Moodie said.

By John Mellor

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