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Mark Lancaster

MODERN Australian car dealers, who are embracing a fresh new approach to selling car finance in the wake of the new ASIC rules introduced in November, are increasing finance penetration by 20 per cent or more, with some pockets showing early indications of finance penetrations levels exceeding 70 per cent.

The rapid improvement in selling retail paper at the dealership is in marked contrast to dealers who are still

selling finance at the end of the deal and suffering harsh consequences.

According to Mark Lancaster, CEO of DealerCell, which operates a breakthrough finance sales software platform for dealerships, finance companies and OEMs; the business model for business managers has been turned on its head.

“Selling finance at a motor dealership has always been a high-margin, low-penetration business. Now it needs to evolve into a low-margin, high-penetration business model,”he said.

“But the dealers we see who have not realised this, and have not changed, find themselves in a low-margin and low-penetration model and their income is being compressed.”


Mr Lancaster said: “There seem to be two trains of thought in the market about how they should react under the new rules on finance from November 1.

“One train of thought is that they really have to tighten up on expenses. They have to watch their headcount of the number of staff they retain because the money is not there any more.

“December was a really tough month for sales volumes and everyone felt the pinch, so there are a lot of people saying that they need to expense their way forward into the new world.

“But we have a contrasting view and believe cost control and growth should not be mutually exclusive strategies, and this view is being shared by a number of our forward-thinking partners.

“We have started a pilot group involving a very large used-car operation from November 1 last year. Rather than hiding behind interest rates, we have been embracing the model and running with a transparent financing process.

“Typically, in the past, the business manager culture was that you don’t discuss the interest rate with the customer, only providing customers the repayment. We, as an industry, have enabled the low-penetration model, and we now need to change the culture.

“We want to show the customer everything in a completely transparent process. We believe in enabling and educating the customer by providing the customer a ‘finance score’.

“Our ‘finance score’ is a personalised customer finance profile that aligns customers expectations without impacting their credit file.

“‘Finance score’ includes an Equifax credit score, determines a customer’s borrowing power (how much they can afford to borrow), gives them three different, goal-focused repayment options, shows them the interest rate and the total amount payable; all on one page.

“So rather than hiding from an interest-rate discussion, we are embracing it by showing rates and options to the customer.

“As part of the process, every day we track the top 10 banks Australia-wide and we see what the banks quote compared with what the dealers can do in the dealership. Nine out of 10 times, the dealers’ offering is better than what the banks are doing, but that is not what is represented by consumer perception.

“Our data is clearly demonstrating that we need to change the narrative in the market. The best deal is at the dealership, and we need to expose customers to our solutions as often, as loud and as soon as we can.

“So, when we actually say, ‘Here is the information you need to make a decision,’ we are able to increase finance penetration by 20 per cent or more when you own a transparent approach versus traditional methods.

“Now it is immature data, in that we have only been doing this since November 1, so we only have a few months worth, but 20 per cent is a massive, massive lift in such a short time.”

Mr Lancaster said dealers have a choice to “ either cost your way out of it or you gross your way out of it, and to gross your way out of it you have to change – it is that simple”.

“We are showing that the dealers have a really good finance story to tell but are not telling it early, or often, enough. Our competitors are beating us at our own game, despite us having home ground advantage. The obvious place to organise the finance for your car is at the place where you buy the car,” he said.

“And when you come to the captives, they offer some really competitive options that the banks cannot get anywhere near that provide a tangible and sustainable market advantage.

“Laying your cards on the table with the customer, quoting as early and as often as possible, is part of the culture shift that we are seeing because dealers now have these tools on their websites.

“So a customer can go onto a dealer’s website and go into a finance calculator and determine their own repayments without talking to anyone and it can be specific to their financier(s). This transparency and enablement are keeping the customer in the dealers’ environment and off the open market, increasing the potential for conversion.

“What we have found over a period of time, when we wait to convert business in the business manager’s office, we can only change the minds of possibly 10 per cent of customers, primarily because the majority of customers who turn up at a dealership have already determined how they are going to pay for the car.


“Studies continue to tell us the same message, that customers demand a better, more transparent process, but we continue to operate on traditional terms. Recently, Macquarie flagged that 54% of finance customers are prearranging finance through their bank or broker during the research phase, and we continue to turn our back on more than half of the market opportunity and wonder why finance penetration remains static.

“If we wait until they get all the way to the business manager’s office, it is too late. It doesn’t matter how good or how bad the dealership is, how good the training is or how good our tools are, we can only lift penetration by up to 10 per cent if we wait until the customer arrives onsite.

“What we are doing now is arming salespeople to have those discussions and making sure that every lead gets a transparent finance quote – not just asking if they are financing or not. We are even enabling customers to get their own quote using these tools online or onsite kiosks.

“But it takes a complete change of culture. Every day we still speak to dealer principals who are reluctant to share all that information with the customer due to fearing loss of control and a belief customers will just shop that against them.

“Most of the time, the customer already has comparative information and the lack of transparency is costing business not winning it. This is why the traditional conversion rate has been so low for so many decades because we have stuck to the processes we have always done.

“We are starting to see signs of genuine change of culture and process, in pockets, across the network. It is refreshing to see dealers empowering a customer focussed experience, leveraging transparency across all customer interactions.

“What we have seen so far is a very promising start.”

By John Mellor

Dealer Auction