Motor finance: A strong brand means loyal customers

In the second of three blogs supporting our recent white paper on how financial providers can find success in the motor finance industry, I’m looking at how they could leverage their scale and brand value to become the consumer’s all-encompassing mobility solution provider.

Financial institutions, the providers of financial solutions for car ownership and usage, must make their products and services available directly to the end-user in the digital space.

By offering a compelling combination of car and financing solution in a fair and transparent fashion, the motor finance and leasing providers are arguably a more natural and direct source than established retail/dealer environments (even if they might actually be the provider to both), due to more transparent (and fixed) pricing and the absence of dealer commissions.

Dealers can still play a crucial role

Many original equipment manufacturers (OEMs) are currently moving their dealers to an agency model where the RRP is fixed, often to enable their own digital and direct-to-consumer offerings. On top of this, the switch to alternative fuel sources, especially electric vehicles, will reduce dealer and OEM revenues from traditional aftersales activities such as service and maintenance.

This double-whammy could be seen as an existential threat to dealers in the long term, but the change will not come overnight and there is likely to remain a role for dealers for the foreseeable future, especially outside of urban conurbations.

Dealers have always been better at selling cars than manufacturers. And dealers have an established position in many communities as the go-to representatives of mobility solution providers. If the motor finance and leasing industry proactively takes on the development of servitisation and the dealers willingly take on the delivery thereof, both may find themselves in a much stronger bargaining position with the OEMs, whose main objective remains finding customers for their output – at a time when their traditional customers are experiencing increasing pressure on disposable income and decreasing propensity to buy and own cars.

Tackling the logistical challenge

One of the greatest cost challenges in delivering MaaS (mobility as a service) products, such as subscription services and car-sharing, is logistics. A car remains a costly and substantial physical asset, one that must be in the right place at the right time for the consumer at their point of need, which requires another human being to move the vehicle to that place (if not the consumer themselves). That requires a new level of sophistication in the coordination between the solution provider – the financier – and the service delivery agent(s), as well as a physical network with some local proximity to the consumer.

Dealers would appear to be ideally placed to take on that challenge, making them indispensable to the financier, but less well disposed to car-brand exclusivity. The OEMs might find that the move to agency agreements has the unintended consequence of further accelerating the dilution of brand loyalty, as dealers become less reliant on retail sales revenues and more invested in being the local delivery agent for the providers of service-based products.

Meeting each driver’s needs

The trick for the finance provider – and now asset-owner – will be to become the consumer’s solution-provider of choice by offering the appropriate financial product to suit their changing needs and mobility requirements, independent of their choice of vehicle. Indeed, as customers’ car brand loyalty reduces, especially among newer and younger drivers, the finance providers have the opportunity to capitalise on that diminishing loyalty and retain the customer for themselves. The motor finance and leasing industry has the advantage of scale over both dealer and disruptors, many of whom limit themselves to offering just one product.

Maintaining such a diversity of product offerings comes of course with its own cost, but that same diversity increases cross-selling and upselling opportunities, as well as the likelihood of successful customer retention. Offering a service as part of a MaaS product does not mean the finance provider is delivering the service, rather it takes on the role of aggregator, utilising its scale to optimise purchase of both the services, as well as constructing the technology-architecture to enable effective delivery.