With finance penetration achieved in auto dealerships currently running at between 30 per cent and 35 per cent,  a panel discussion at the recent AADA Convention heard that finance penetration rates of more than 80 per cent in Australia were possible. 

The panel heard that dealers needed to be achieving a penetration rate of 50 per cent just to make up for the lost income from the ASIC crackdown on finance commissions which came into force in 2018.

The panel also heard that industry numbers suggesting that the dealers’ share of the auto finance revenue, said to be $5 billion dollars out of a total of $16 billion a year, was more likely to be $20 billion out of a total of $69m billion.

The panel included Bernie Campbell, executive chairman of Angle Auto Finance; Paul Warburton, executive general manager of financial services at Eagers Automotive; Ahmed Mahmood, director at Deloitte; Sean Bolding, CEO of Eric Insurance and Michael Higgins founder of Loopit Subscriptions.

Bernie Campbell, executive chairman of Angle Auto Finance

Mr Warburton said that he thought the “pie opportunity” was much bigger than the numbers circulating within the industry and that it was more like $69 billion.

“We underwrite at Eagers about $2 billion worth of new business every year. We represent about 11 per cent of the new car market. So I’d say the dealer space is worth about 20 billion.” 

Mr Warburton said Eagers was probably achieving 10 percentage points more than industry penetration benchmarks.

“So Eagers has been testing, learning, adapting around our digital execution with our JV partner. I think we’ve been making tremendous strides.

“So overall, I’d be saying our $2 billion needs to be something more than that.” 

Paul Warburton, executive general manager of financial services at Eagers Automotive

Referring to the industry  target of 50 per cent penetration, Mr Warburton said: “We believe that 80 per cent as an ambition is something that’s achievable for this country from an F&I perspective. 

“But I can tell you, looking at the US and the UK trends in the dealer finance space, they are tracking upwards of 60 per cent to 70 per cent. So I’d say there is a lot more to do here.” 

He added that the $250 billion in cash in consumers’ bank accounts right now is “a headwind that we need to deal with today”. 

Mr Campbell told the panel audience that the biggest opportunity in the auto finance space was taking on the banks.

 “While we are duking it out with Allied and VW and everyone else for that five per cent, I think our biggest opportunity is the 20 per cent that’s been done directly through the bank. 

“The stats we see are 72 per cent of people expect before they go to buy a car that they’ll finance through their bank, and then around 38 per cent actually financed with the dealer.

“But it should be 50 plus per cent and I think that’s where we need to collaborate with dealers to make sure that the trust of the customer, the transparency of the transaction, and the ease of use, means it’s actually impossible for them to go somewhere else. 

“Customers think it’s cheaper through the bank. But when they go to the bank with the friction in the process and the time delays, it’s not actually that much cheaper. They get a quoted rate, but when they come up with a structured process it doesn’t end up actually being that much cheaper. I think we need to get into that 20 per cent that we’re not getting now,” Mr Campbell said.

Mr Mahmood said that the Deloitte figure of 50 per cent penetration “was just to get back up to those finance income levels that we had prior to the regulatory changes. So absolutely, if we can get to 60,70 or 80 per cent. Why not?” 

But he added: “When we consider that more than 90 per cent of customers take out some sort of finance, and only 30 odd percent goes through our dealerships, we’ve got a long way to go.”

Referring to the rash of new entrants to the auto finance space, Mr Campbell said there had been many benefits

“First, any new entrant into an industry lifts the bar. So I think those people have brought new technology, new ways of thinking and new ways of operating. And I reckon that’s a positive for the industry as the incumbents will need to move to keep up. 

“The second thing is, every one of those is an independent, unless they’re tied up closely with manufacturers, so all the new ones are independent. 

“I think that’s important for dealers because as manufacturers move more and more to an agency model, more and more about using finance and data to own the customer, potentially there’s an opportunity for that to disempower dealers.” 

Ahmed Mahmood, director at Deloitte

However Mr Campbell said that independent financiers operating closely with dealers and collaborating with dealers would be able to gather crucial data on dealers’ customers for the dealers.

“There is a huge amount of information you can gain about a customer that allows you to give them a much better experience and make them a part of the dealership community,” he said.. 

“And the other thing about independents, I would be very surprised if all the dealers here are not multi-franchise, so when a captive runs a program they are just interested in selling the next car. 

“I think this independent financiers allows dealers to be much more customer-centric because not every model in that particular manufacturer’s chain is going to suit that customer next time they come up for another car. 

“The last thing is the new frontiers in technology and data analytics for finance in the dealership that are about increasing penetration and customer retention. 

“The new entrants will bring a whole new raft of technology and investment. That is not just the stuff they’ve done to date, but the things they’re going to do that will ensure that we increase finance penetration in collaboration with dealers,” Mr Campbell said.

By John Mellor