Businesswoman using laptop at desk in office

The automotive industry is evolving

Consumers are the ones in the driving seat – but don’t panic, what’s good for them is, ultimately, good for everyone. Especially those in car finance.

Triangles of plastic bunting flap in the wind. Rows and rows of cars crouch before you, each windscreen loudly proclaiming its worth in brightly coloured vinyl. A hundred metres away, a man emerges from a grubby-carpeted office and strides towards you, his eyes glinting. Your mind begins hastily backtracking. You start to wonder what’s so wrong with your current car anyway.

Hopefully nobody spends Saturday mornings quite like this anymore. Winning consumer confidence is key, as dealers now recognise. And transparency pays off too. You only have to look at the success of – which removes the uncomfortable business of haggling and distills the transaction into, in some cases an easy three-step process – to see that people just want to know where they stand. These companies are also passing money into the consumers account or settling finance directly with the lender.

Trust, or lack of it, is far from the only factor shaping the industry. Consumers feel more empowered with the information available but are time poor. The way modern consumers act is changing, with increased use of technology bringing greater control. Aggregators now play a much bigger role in industries like insurance, lending and travel. For property, we have Zoopla and Rightmove. What we’re starting to see now is that model being replicated for cars.

What customers want

Thanks to increased confidence in online shopping, consumers are doing the bulk of their research online. They decide on the make and model they want, as well as find out how much they can borrow to finance it. So now, instead of visiting the dealership for information, they go there to validate their choices and conclude the sale. Figures support the shift: consumers used to visit a dealer an average 4 times before a purchase, now it’s just 1.4*. Giving dealerships less than one chance to make a good impression.

In an interview with Hyundai UK boss Tony Whitehorn he gives a revealing account** of how the industry is changing. The Hyundai Rockar dealerships in Bluewater and Westfield shopping centres sit alongside high-street retailers. They offer test drives and servicing but also let customers order cars online, with a no-haggle policy. It’s been an astonishing success. Last year the Bluewater dealership sold 700 cars with an average customer age of 39, compared to the industry average of 51.

We are, the market seems to agree, moving ever closer to online sales: a recent Frost & Sullivan study suggests that about 5% of all cars will be sold online by 2020***. Whitehorn claims that Hyundai’s high-street model is ‘a halfway house to a new extreme’ and that

buying a car from your living room must become a reality because it is what customers want.

And yet, most people still want to see, touch and sit in a car in real life before committing. Says Whitehorn, ‘They want interaction with a human being, and the reassurance of a physical place to go to if something goes wrong.’

It all means dealers could be paid to help rather than sell – fulfilling orders (the equivalent of click and collect) and providing servicing and maintenance. This shift will create more trust: Hyundai Rockar stores pay staff a flat salary rather than incentivising sales, and the result is a better, more transparent relationship between dealer and customer.

The rise of finance

In many cases customers visiting a dealership have already explored their finance options, used price-comparison sites to see how much they’ll pay and even used pre-qualification software to know what they can afford.

Pre-qualification allows consumers to find the best finance deals that they are likely to be accepted for and confirms this in seconds, with no impact on their credit file. Drawing on various data feeds, the decision engine helps streamline the customer journey and tells them which cars are within their reach before they visit the showroom. As well as boosting consumer confidence it’s a big win-win for finance providers too, leading to better applications and higher conversion rates.

Finance has become the new norm, with shifting attitudes to borrowing meaning consumers are less bothered about owning cars outright. Fuelled by affordable finance deals and personal contract plans, the market is more buoyant than ever in terms of new registrations. Furthermore, although most deals are for three or four years, the average point people decide to upgrade their car is closer to 24 months.

The effect on credit and compliance

Moving more of the car-buying journey online allows greater insight – meaning more opportunities for engaging with consumers. Traditionally it’s the dealer or vehicle manufacturer that’s closer to the consumer. But the shift towards finance as opposed to outright ownership means it’s the finance provider who has the more in-depth interaction and maintains the dialogue, which in turn makes for better customer retention.

Then there’s the regulatory side. When they visit a dealership in person, inevitably some people will receive different treatment or deals. Moving the process of applying for finance online brings greater consistency. Plus there’s the reassurance of a complete audit trail, too.

So will customers soon be ordering new cars from the comfort of their sofa? Right now, regulations in the UK mean we can’t fully move to electronic signatures. But many lenders are already on the case, and a solution would see the rise of concierge buying services, where customers order a car online and have it delivered to their driveway.

Let’s remember that this isn’t disruption for the sake of it – it’s change driven by the consumer, in an industry we all acknowledge needs to hit the refresh button. It’s up to us to empower customers, embrace the changes and make the most of the many opportunities they present.

‘The shift towards PCP and PCH finance as opposed to outright ownership means it’s the finance provider who maintains the dialogue, which in turn makes for better customer retention.’

***Frost and Sullivan 2014