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ONE of the most significant government interventions in the business of Australia’s car retailers will take effect from November giving dealers less than 10 months to adjust to new rules that are certain to hurt the unwary.

But, for astute dealers who embrace the changes, a whole new world of opportunity awaits to potentially dominate car loans sales in Australia, similar to what is seen overseas. (See main story in our Special Business Report)

The Australian Securities and Investments Commission (ASIC) has stepped in to address what it saw as potentially unfair practices in car dealerships on the sale of car finance to car buyers and has taken the setting of interest rates for car loans out of the hands of the dealer’s business managers.

ASIC’s new rules should see an end to the sale of car loans at what could be described as, in some cases, comparatively very high interest rates. ASIC anticipates these changes would also see an increase in competitiveness, transparency and improved customer experiences when arranging car loans from car dealers.

At the same time, the potential to impact the bottom line of car retailers, especially those who have relied heavily on income from finance commissions, is real.

Many dealers are adopting a wait-and-see attitude and are hoping that their finance companies will come up with strategies that will get them off the hook.

But the message to dealers is: The changes are coming and doing nothing is not an option.

So the new rules demand the full attention of dealer principals and car retail business owners, many of whom are, surprisingly, out-of-touch with the nuances of the methods business managers use to generate those vital finance contributions to revenues.

This week, GoAutoNews Premium publishes a special business report that seeks to outline the challenges ahead. But it also explores the unprecedented business opportunity these changes could bring to switched-on car retailers.

It is important for dealers to understand the changes they face and how they should be preparing their business structures and teams of business managers within dealerships, as the traditional way of doing things will no longer be allowed for the financiers.

The fact is that the way of selling finance is going to be turned on its head. The tail is no longer going to wag the dog in that the financiers, from November, will be setting the interest rates with limited room for dealership business managers to negotiate.

The mindset in dealerships will have to shift from generating commissions to finding ways to embrace the changes and increase the dealers’ share of the car finance market by writing car loans for a much higher proportion of buyers of their cars.

Importantly, dealers need to:

• Firstly, understand the new legislation
  Then, develop strategies to arrest any potential downside financial impact on the bottom line
• Having done that, dealers should then get a handle on the business opportunity that awaits switched-on dealers to capture a greater share of the car finance market

Not only dealers are affected.

All financiers that use credit service providers as loan introducers are captured under the new legislation. Dealer-specific financiers including the OEMs which operate their own finance arms directly or under white label arrangements are affected.

Indeed, car loans from banks themselves could come under increased competitive pressure. Savvy dealers will aim to win more loan business with each car they sell through more competitive pricing while leveraging the convenience of point of sale financing for customers.

Similarly potentially affected are the credit unions, finance brokers and other institutions that have traditionally done well competing against dealer-originated consumer loans.

And there may be a move away from consumers lumping the car in with the house finance as dealers find themselves increasingly able to write their retail paper with much sharper pencils for top credit quality customers.

Others who need to take notice are those businesses that support the role of the business managers in dealerships; including the providers of software systems tracking F&I performance.

Business managers will face a new way of offering loans to buyers and the bonuses dealers have become used to paying high-performing business managers are likely to be under pressure. Already business managers are leaving dealerships in search of more fertile ground in other retail sectors and dealers are making changes to how bonuses will be calculated.

Business managers will still be needed to secure the loan deal for the dealership but they will become more service-oriented processors to help buyers through a pre-set loan agreement and less like closers of loans.

Many specialists in sales training for F&I will have to tear up their working notes because much of what they teach today will be redundant in less than 10 months.

For a full run-down on the ASIC rules and how they will change the landscapes in car showrooms across the nation, see the Special Business Report here.

CLICK HERE: to download GoAutoNews Premium report which is completely free for all readers

By John Mellor