Eurofinas & Leaseurope joint
annual conference
Antwerp 2006
David Betteley
October 2006
Point of sale motor finance-
challenges and opportunities
Toyota Financial Services in
Europe
Global Network …. Covers 90% of Total
Toyota Sales
Sweden 30 Locations Globally
Norway
Finland
Denmark (13 in Europe + 1 in South Africa)
Germany Poland
S Korea
Czech Rep. Canada
Slovakia U.S.A.
U.K. Hungary Japan
France Puerto Rico
Spain
★ China
Mexico
Taiwan
Italy
Thailand Brazil
Philippines Venezuela
Malaysia
Australia
New Zealand
S. Africa Argentina
TFS Europe & South Africa Locations
14 Countries Year Established
Germany (1988)
Finland (1995)
France (1997)
Italy (1997)
Norway (1997)
United Kingdom (1998)
Covering 75% of all
Czech Republic (2000)
Poland (2000)
Sweden (2000)
European Toyota Sales Denmark (2002) April
Hungary (2002) July
Spain (2003) May
Slovak Republic (2005) Jan
South Africa (2000)
Contents
• Industry dynamics
• Compliance
• Competitive changes
• Options to fight back
Challenging Environment in 2006
POS in decline: UK stats 1997-2005
POS new car penetration (%) POS used car penetration (%)
80
70
60
50
40
30
20
10
0
1997 1998 1999 2000 2001 2002 2003 2004 2005
Impact on Intermediaries (dealers):
•Direct impact today
•Shrinking/negative dealer new car margins
•Dealers dependent on F&I and bonus income
•Dealers need to maximise F&I profit (per customer), not
penetration
•Impact on POS
•Dealers maximising profit per finance customer at the
expense of volume
•Dealers selling at higher margins/rate spreads to fewer
customers
•Dealer finance perceived by customers as being expensive
•Declining finance penetration
Intermediaries are also under
threat from Compliance and
corporate restructuring:
Compliance
• Block Exemption
– CDA Strategy
– Larger dealer groups
– Brand
– Sales process
– Independent finance
Compliance (cont’d)
• Basel II Impacts:
– Lending linked to capital
– Banks may lose appetite for Motor Industry in general
• Credit crunch?
• Ration by price
• Increased demand for new wholesale lines
• Manufacturer finance companies (captives) lenders of last resort?
Compliance (cont’d)
• Insurance Mediation Directive (European)
– Car insurance, Creditor, GAP, Extended Warranty
– Brings dealers under the control of the FSA
– Introduce a rigid sales process
– All sales people need to be compliant
– May impact volume of sales and profits
– Ongoing training and education process required
Not embraced equally across Europe!
Compliance (cont’d)
• Consumer Credit Directive
– Export customer protection policies over Europe
– Attack on balloon products
– Introduce cooling off period
– Advertising parameters
Competitive Changes
POS in decline: UK stats 1997-2005
POS new car penetration (%) POS used car penetration (%)
80
70
60
50
40
30
20
10
0
1997 1998 1999 2000 2001 2002 2003 2004 2005
Reasons for POS decline – increasing
competition
Increase in direct marketing Convenience and Rate headlining by direct lenders POS
Growth in use of the internet speed Consumer perceptions of rates
Cost comparison with POS finance
POS finance perceived as expensive
Competitive Changes (cont’d)
• Convenience no longer the key driver:
2005 1999
Have an account 1 1
Lowest rate 2 3
Previous customer 3 4
Convenience 4 2
Source Datamonitor
Competitive Change: Average
Commission Paid by TFS per Contract
700
600
€ per Contract CY2005
500
400
300
200
100
0
Finland Germany Slovakia Poland Sweden Norway Hungary Czech Italy Denmark France Spain UK
Competitive Changes - Gross
Commission Paid by TFS CY 2005
140
120
100
80
60
40
20
0
Poland Slovakia Sweden Finland Norway Czech Spain France Denmark Germany Hungary Italy UK
€ 000's 2.766478 12.98885 33.68707 34.452 36.452 39.87979 40.1681 49.30769 52.47312 58.06028 63.62464 109.6935 130.267
Dealer departmental profit – 1994 and 2004
high volume dealerships
1994 2004
Direct profit Direct profit
£ % £ %
Vehicle sales 173,348 26.8 523,887 51.8
Of which - bonuses* (65,942) (10.2) (236,795) (23.4)
- F&I (64,635) (10.0) (289,857) (28.6)
Service & Repair (SMR) 177,015 27.4 294,143 29.1
Parts 139,486 21.6 140,612 13.9
Bodyshop 98,887 15.3 40,281 4.0
Other (rental, forecourt) 58,447 9.0 13,154 1.3
Bonuses and F&I income grows from 20% to over 52%
Total aftersales 415,388 64.2 475,036 46.9
Dealers losing money from Direct car sales in 2004 without bonus and F&I income!
Total franchise 647,184 100.0 1,012,077 100.0
* Volume and standards bonuses
Source: Dealer composites
Competitive Changes (Retention)
• Cost of ownership as dealers strive to maintain income from fewer
customers
• Leads to debt consolidation
• Loss of customer database – further erosion of retention
effectiveness
• Impact on Trade Cycle
• Negative impact on CS measures
• Inability to re-market used cars
Competitive Changes (cont’d)
In conclusion
• Declining income from F & I a
serious structural issue
• At the same time costs for
compliance are increasing
• What are the options?
What are the options?
• Give up?
• No of course not!
What are the options? (cont’d)
• Options to fight back using the sales process:
• Closer co-operation between Fin Co, dealer and distributor to fully
understand impact on TCM and CS
– Change of culture to more acceptable income levels per customer
– More use of packaged campaigns that have unique customer
advantages:
• Maintenance, insurance, extended warranty
The sales process and deciding how to pay:
At which point in the purchase process At which point in the purchase process
did you start thinking how you would did you make the final decision on how
pay for your car? you would pay for your car?
2%
3%
16% 26%
41%
55%
26%
31%
Before choosing the make / model After choosing the make / model
On the day of purchase Other/Dk/NS
The sales process and the ownership
cycle:
Purchase
Consideration Ownership
REPURCHASE
What & How Much?
What are the options? (cont’d)
• Captives can provide the Tools:
– Only have one customer
– Processes can support manufacturer campaigns
• TCM roll out
• Fleet solutions
• Used car brand and vehicle remarketing
– Retention
– Taking RV risk
– Developing e-banking
Customer Retention is the Key to
convincing the intermediary!
How do we reward our best customers?
Can we find a way to satisfy ALL our stakeholders?
TFS Europe & Africa Region
CRM – How captives can assist :
• End of contract process in most markets
• TFS needs to work with every distributor to integrate data and process
• TFS has more legitimate touchpoints :
– Pay every month
– Regular statements
– Balloon products / end of contract
• Introduce smart marketing :
• Pilot new CRM systems
• Integrated communication strategy (reduce communication fatigue)
Trade Cycle Management:
• Definition:
• TCM is much more than a finance product, it is complete purchase
solution designed to shorten the customer ownership cycle while
maximising CS
• Outputs:
• Specific SMART objectives: shorten customer buying cycle by 10% &
improve customer retention rates by 2.5%
• Boosts Brand efforts to maximize conquest customers
• Helps establish and maintain No. 1 ‘CCS’ performance
Why Complete Customer Satisfaction ?
CCS improves customer loyalty. Retention rates are significantly higher
amongst Complete Satisfied Customers (vs satisfied Customers)
70%
Satisfaction with previous car
60%
Loyalty is 1.5 times higher
50%
when customers are
40% completely satisfied
30% 40% 60%
20%
Fairly Very Completely
satisfied satisfied satisfied
Source: NCBS 2004, Toyota owners
Improved Customer Experience
> Integration of TFS and NMSC survey reduces “survey fatigue”
which can negatively influences customer satisfaction.
POS from the customers
perspective:
The sales process and deciding how to pay:
At which point in the purchase process At which point in the purchase process
did you start thinking how you would did you make the final decision on how
pay for your car? you would pay for your car?
2%
3%
16% 26%
41%
55%
26%
31%
Before choosing the make / model After choosing the make / model
On the day of purchase Other/Dk/NS
Did the dealer discuss alternative ways of
financing your purchase with you?
In a large number of cases, particularly 24% of all cash sales and over 39% of
personal loan sales, dealers failed to discuss alternative methods of finance.
Cash / savings Dealer finance Personal loan
Yes 30% 59% 47%
No 24% 38% 39%
No, but I made it clear from
33% 1% 10%
the outset I would pay cash
Yes, but I made it clear
from the outset that I would 13% 2% 3%
pay cash
Research findings summary
• Declining POS market – volume and value
• Increasing ‘low cost’ competition
• POS losing its traditional competitive advantages
• Wide variation in finance penetration among car dealers
• Influence of rates charged and effectiveness of sales process
• Retail car buyers perceive POS as expensive unless discounted
• Rising penetration of ‘cash’ and personal loans
• Method of finance generally decided upon before visiting the dealer
• Car buyers still believe they can get a discount for ‘cash’
• Overall impact – falling new and used car finance penetration
Conclusions:
• Financing decisions at the start of the process NOT the end!
• Develop dealer training programmes that work and can persuade
customers to buy POS
• Manage potential conflict with dealer income
• Develop products that provide the opportunity to sell add on products
Thank you