THE Australian auto finance market has remained strong during the first half of this year with online enquiries for car loans in May at an all-time record on the DealerCell loan approvals platform.

But the retail auto loans industry remains in a state of alert as it adjusts to new unknowns in the ability of buyers to service their loans into next year.

Mark Lancaster, CEO of DealerCell, a sales enablement platform for an auto finance approvals system for dealers, told GoAutoNews Premium: “There is no doubt things have tightened up in terms of competition for loans but we are still settling a lot of finance deals.  Enquiry is strong.”

He was commenting on the state of retail finance following a record enquiry for car loans on the DealerCell online platform in May – even higher than in June.

But he said that while the retail finance industry has spent the past 18 months absorbing the new commission rules and responsible lending loan oversight, it was also seeing the changing imperatives from some big lenders and now new question marks over loan serviceability with the backwash on jobs from the COVID-19 pandemic.

“So there have been multiple things happening and the timing of COVID on top of that has not been that great,” he said.

“Serviceability of loans is always a big issue but when you have all these people on reduced hours and on JobKeeper allowances, then all of a sudden the serviceability of loans is harder to meet so then approvals are harder to obtain.

“If you think about it, in March, a financier was only just learning what JobKeeper was. So, in turn, they had no lending policy to apply to someone in that position.

“So there has been disruption to the business from all angles.

“Overall I think serviceability is the biggest challenge that we face at the moment and it will be that way until we know what is going to happen after September.  So there are still a lot of unknowns out there.”

Mr Lancaster said that the finance penetration for buyers using DealerCell to get a finance quote for a dealer was running consistently at 62 per cent.

“That penetration is achieved because the finance quote is put to the customer early in the process. It is entirely customer self-driven on our platform. No dealership staff involved.

“They go to our site, our dealer’s site or a classified website, they click on our tool and that tool integrates with the dealer’s financier and returns a personalised repayment quote. We show them online exactly the quote they would get in the dealership.

“So, on all our leads, one-in-three buy a car and two-in-three (of them) buy finance. Those numbers are very encouraging and are holding strong,” he said.

DealerCell encourages dealer sales staff to use its system to generate finance quotes first thing in the sales process for walk-ins, or immediately after they receive an online lead.

Mr Lancaster said the buyers can get finance quotes from the DealerCell platform via the dealer’s website, via Carsales, for example, or from an SMS response to a lead sent from the dealer where the customer can do the quote themselves.

He said: “We have found that if we get in early and put finance options in front of customers, we find that any of those avenues mentioned (above) comes out at a penetration rate of 62 per cent.

“We find if they miss those steps, and the customer gets into the dealership and buys a car the traditional way, and they go through a business manager in the traditional way towards the end of the sales process, then the finance penetration is 35 per cent. It is, and has been for some time, consistently 35 per cent. It never changes.

“The data shows the buyers want an indication of what their trade-in is worth, if they have one, and they want an indication of what their actual finance repayment will be before they decide to invest the time to come and see a dealer.”

Mr Lancaster said that, these days, the bank-based financiers do not have as strong an appetite for car loans as before and this was because they are seeing that they can make more on cost of money in markets like housing than in cars. Or, where there was an imperative to improve the balance sheet of a lender, for example.

“This was reflected by the tendency by these financiers to only take the really good loans. However, we have newer players coming into the market and because they are still growing their finance books they are still buying business .

“So there are ebbs and flows. But with Esanda going into Macquarie and Capital going into St George we are probably missing another mainstream player and the market is less competitive than it was; although lately the captive financiers have been growing their white label businesses.”

Mr Lancaster said that he has seen an increased interest in subscription plans.

“But even there it comes down to your ability to meet serviceability; although you do have the flexibility to step back with a month’s notice if the payments cannot be met.

“We get asked about subscriptions by dealers all the time. We say is it part of the arsenal they need to have. It is another bullet in the gun and is another payment option; you have your first string, your second string and your subscription string.”

Mr Lancaster said that DealerCell is in the process of integrating a number of subscription platforms onto its site.

“We would like to be able change a finance quote into a subscription quote if the need arises,” he said.

DealerCell is also in the process of integration with the three leading online classified sites so that buyers can get a finance quote in the early stages of their searches so these customers can know what they can afford.

In addition DealerCell is currently trialing a pre-approval process.

Mr Lancaster said a consumer can complete DealerCell’s personalised repayment calculator and receive a conditional pre-approval instantly because the system has direct integration with the credit bureaus and financiers.

“This will be a game changer for dealers and consumers alike,” Mr Lancaster said.

By John Mellor