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Maintaining e-business Partnerships: The Motor Financier Perspective

Motor finance represents one of the largest leasing sectors in the industry and is not surprisingly one of the most fiercely contested. Senior Business Manager, James Powell examines how motor finance companies can use IT to achieve commercial advantage in an increasingly competitive market-place.

Published in the World Leasing Yearbook 2005

A Competitive Market

Despite the inherent diversity of geographical markets around the globe, one common factor is the threat posed by increased competition. In mature markets such as the United States and United Kingdom, the traditional providers – the specialist independent motor finance companies and manufacturer captive finance companies – are under pressure to compete with each other and also with ever-increasing numbers of new entrants. The new entrants, including ‘high street’ banks, Internet banks and supermarket chains, are offering a wide range of products tailored to the motor finance market, sold and delivered via new and evolving channels.

This increased competition, coupled with an economic environment characterised by low interest rates, means that finance companies are forced to discriminate their products by some other means. Improved customer service via systems technology has now become one of the key drivers for competitive advantage. As a consequence, many finance suppliers are modernising the technology made available to motor dealers by providing web-based solutions as part of a wider e-business strategy; the ultimate aim being to improve service and at the same time lock-in business partners.

E-business Partners

The adoption of an e-business strategy, which encompasses the processes and systems of key business partners, will offer many advantages to the motor finance provider. Such a strategy should aim to deliver cost savings through internal process efficiency and reduced administration overhead, whilst providing customer service excellence by building and maintaining relationships with key business partners.

Implementing e-business is not just a case of designing and building a web site, nor is it just about providing the ability for customers (the dealers) to make contact via the web. E-business means utilising technology to improve internal processes, and at the same time extending the reach of the organisation to include business partners, helping to build and maintain relationships.

E-business means providing easy access for dealers to carefully chosen ‘touch points’ within the organisation. It means giving them access to finance systems via the web and at the same time streamlining and automating business processes through integration with their systems.

Systems integration – interfaces between previously unconnected systems using proven technologies such as EDI and XML – forms the platform upon which web-based applications are deployed. Without the infrastructure that systems integration provides, e-business cannot be fully implemented.

Cost Efficiency through Systems Integration

The financier can achieve quantifiable cost efficiencies through integration of internal systems. Examples include the extraction of data from core systems to a data warehouse to serve management reporting systems, or the passing of accounting data from a finance administration system to a General Ledger. Manual overhead savings are clearly achieved in both examples. However, the most dramatic benefit lies in streamlining the data flows that extend outward to the many partners in the process; particularly the dealer and manufacturer. Transmitting and receiving data relating to finance proposals, funding requests, credit decisions and agreement updates helps to reduce the administrative overhead associated with data input and manual communication.

The optimum streamlining model may be illustrated by analysing the life of a new vehicle from production, through order, distribution, sale and financing to disposal, remarketing and re-financing. In the ideal scenario, the basic vehicle details would only need to be entered into a system once; in the manufacturer’s ordering system. As the vehicle passes through each stage of the process, additional data is captured, thus building a history of location, ownership, usage, maintenance and financing. By automating the data flows, pertinent data may be retained and transmitted to the relevant parties in the process, eliminating the need for manual re-keying.

Dealer Inventory & Unit Stocking

There are many opportunities for the finance house to integrate its own systems into the process. For new vehicles, the manufacturer’s order system would typically feed directly into the financier’s wholesale finance system (WFS) or floor-planning software, to provide dealer finance for vehicles on the forecourt; a transaction which usually initiates an automated electronic payment to the manufacturer.

In a franchise operation, the manufacturer’s system will also feed the dealer’s own Dealer Management System (DMS). However, with vehicles arriving at the dealership from many different sources – for example purchased from an auction or in part exchange from a customer – the task of loading all vehicle data is a major undertaking for the dealer.

All vehicles arriving at the dealership, regardless of their source, must be fed into the DMS along with the WFS of the preferred finance provider. In the case of used funding, the vehicle needs to be valued and checked for clear finance; processes which can be automated by links to vehicle valuation data sources and electronic finance registers / credit agencies.

It is normal for the dealer to process wholesale finance requests by inputting vehicle details directly into the financier’s WFS via a web-based dealer interface, removing the need for faxed communication. If the dealer is taking the vehicle into stock, an interface to the WFS database and onwards to the finance registers is an essential tool for reducing administration and controlling risk. With automated links to the DMS for effective transfer of data, the administrative overhead involved with data re-keying can be eliminated.

Retail Proposal

Automation of the business process may be extended when the vehicle is sold by the dealer. If retail finance is arranged for the customer at the point of sale, the vehicle data is extracted from the WFS in order to populate the retail proposal system along with customer data from the DMS. The dealer creates and submits the proposal subject to credit scoring validation and his terms, conditions and commission rates.

On finance house acceptance of the proposal the sold vehicle is automatically appropriated from the WFS and the customer data fed back to the DMS for customer relationship management (CRM) purposes. Acceptance of the retail paper generates a further integration opportunity with netting of funds against the WFS to speed up payment to the dealer.

The cycle starts all over again at the end of the finance term, when the vehicle is returned via a re-marketing channel such as a stock locator.

In the scenario outlined above, the IT infrastructure of the finance company has been successfully integrated with that of the dealer community by interfacing core systems with the dealers’ and other third parties. The result is single data entry across multiple systems. Clearly, reducing the number of times the vehicle information is re-captured in manual processes has a significant impact on data accuracy and administration overhead for the financier, manufacturer / distributor and dealer.

However, this may be considered a utopia, particularly where the dealer community comprises a mix of small, non-franchise, independent outlets not necessary linked to a manufacturer and where the financier has little or no leverage to impose IT infrastructure changes on its business partners. This is the area where web-based deployment of retail proposal and finance self service systems within the dealership reap the most reward.

Customer Service Excellence

The provision of smart point-of-sale (POS) software, integrated with internal and partner systems, is fast becoming a necessity for companies that wish to win new business or remain the primary finance provider at the dealership by using such applications to offer a first class customer service. For example, lenders that can provide access to a fast, flexible, customer-focused quotation system, delivered over the web, are better placed to turnaround credit decisions in a timescale that allows the dealer to close a customer sale.

A web-based proposal system allows the dealer to capture the basic customer details, select the appropriate vehicle and model the payment profile to suit the customer’s specific financial requirements. A well designed system will present the dealer with all the information necessary to assess the customer and identify the profitability on the deal, whilst easing the customer through the transaction with relevant online content and visual aids.

Once the detail is agreed with the customer, the dealer must obtain credit acceptance as quickly as possible. The use of automated credit scoring, which references internal and external credit history data, facilitates hasty turnaround. A facility to print a copy of the agreement document locally allows the dealer to sign up the customer on the premises. Fast payment of the financed amount to the dealer completes the process.

The lender benefits from outsourcing the administration in return for a fast turnaround of credit applications and real-time information delivered direct to the dealer. This allows the dealer to transact the deal quickly and efficiently; the finance assisting rather than obstructing the vehicle sale. This is a trade-off that must be sold to the dealer as part of the financial service package and reinforced as part of a partner training initiative.

Partner Self Service

Self service is the provision of real-time information and facilities to allow the dealers to manage their business more effectively. Dealer self service over the web may be implemented in conjunction with a retail proposal application and accessed via a specialist dealer web portal. The objective from the financier’s perspective is to reduce contact with the dealer support function by exposing information from back-office systems to the dealer. Again, the selling point to the dealer is immediate real-time access to information.

For example, the dealer can view wholesale finance information to quickly identify payments relating to vehicles without needing to call the dealer support function. A web-based application also allows the dealer to view credit facilities, request finance for used vehicles, make payments for vehicles that have been sold and download monthly statements.

Access to a stock locator allows the dealer to source vehicles to match customer needs. Stock from various sources, e.g. vehicles held by other dealers on finance or ex-fleet, is loaded into a single database and presented to the dealers within the web portal. This type of stock locator will also benefit from integration with wholesale finance.

On the retail side, the dealer has an accurate view of all the business introduced, including an indication of which customers are in arrears; information which has traditionally been buried within the lender’s administration system.

A well designed self-service application – implemented with links to the lender’s administration systems and the DMS – facilitates CRM for the dealer. For example, customer retention initiatives managed in the DMS, can be triggered when existing finance agreements reach maturity, allowing the dealer to be proactive with potential re-business opportunities.

Online management information (MI) may be delivered direct to the dealer via the web for performance monitoring. Online finance and insurance (F&I) reporting tools provide real-time information to monitor finance penetration, commissions, volume bonuses and dealer subsidies. The dealer benefits from the real-time delivery of MI, which might not otherwise be available until period-end.

The dealer portal model outlined here is depicted in Figure 1. In essence, it involves presenting data from the financier’s back-office systems via the web, using carefully deployed applications, supporting retail proposal, dealer self service, stock location and F&I reporting.

Figure 1:

Clearly, all the self service opportunities outlined here can be applied to the manufacturer for provision of an overall view of dealer performance. Thinking beyond the dealer and manufacturer relationships, these methods can be used to reach other partners, such as credit agencies, auction houses, vehicle valuation agencies, compound and logistics companies, auditors and collection agencies.

And finally, services are offered direct to the customer. For example, information relating to customer accounts is delivered to the end customer via a consumer web site, supported by payment processing and electronic billing capability. The important point is that once the right technical architecture is in place, the question of what information is presented and to who becomes a business decision rather than a technical matter.

Sharing the Benefits

The benefits of e-business partnership are easily quantifiable by the lender for return on investment purposes: process efficiencies, cost reduction, data accuracy, information, improved customer service, increased switching costs / partner lock-in, customer retention etc.

However, experience has told us that the benefits are not always apparent to the dealers themselves. Dealer resistance may occur based on the perception that financiers are merely ‘farming out’ their own work to reduce administrative overhead, whilst at the same time diminishing service levels through automation. The dealers should be educated as to the benefits of e-business. Moreover, services provided in this way should complement rather than replace existing channels, such as the sales force and dealer support function in order to add value.

In its simplest form, the primary dealer benefit of participating in e-business partnerships with the finance provider lies in the potential to improve their own levels of customer service to the consumer. Quality customer service, as far as the dealer is concerned, means being able to facilitate the vehicle sale using the most suitable finance option, with minimal disruption to the sales transaction itself. In real terms, this translates to the need for access to accurate information to evaluate the deal and determine credit worthiness, fast turnaround of credit applications, and the ability to sign the customer up at the dealership quickly and efficiently.

The promise of better service must focus on the cost savings brought about by interfaces between previously unconnected systems, coupled with the improved deal management capability resulting from real-time information.

Enterprise-wide E-business Solutions

In summary, the focus of e-business strategies should be on the service provided by the finance provider to its manufacturer and dealer partners. This is the point in the value chain where most gains can be achieved through e-business. Clearly, the aim is to strengthen relationships with dealer partners, encouraging them to sell the finance company’s product alongside their own.

This may be achieved by implementing an enterprise-wide architecture, which provides seamless integration for all aspects of motor finance lending, with a common user interface for internal staff, partners and customers. The preferred option may be to install a leading edge back-office system, with carefully chosen ‘touch points’ deployed to the dealer over the web, offering relevant customer service information and proposal processing capability. Alternatively, it may be appropriate to develop individual web modules which interface with existing legacy administration systems, allowing for swift implementation, minimal disruption to back-office processes and eliminating the need for costly back-office replacement projects.

The shift from competing through better products and terms to improved customer service via e-business, has presented an important opportunity to finance companies. Those who are able to grasp the challenge by delivering better service with proven dealer benefits will be best placed to achieve competitive advantage in order to maintain and increase market share.

James Powell
Senior Business Manager
APAK Group plc

Published in the World Leasing Yearbook 2005