With the completion of the Hayne Royal Commission back on February 1, it is worth noting some key take outs that hold relevance to Car and Equipment Finance.
Recommendation to abolish the Point of Sale Exemption
As it currently stands, the point of sale exemption exists to allow dealerships the ability to offer finance on vehicles they are selling without the need to hold an Australian Credit Licence. The Hayne recommendation has been put forward to essentially remove the ability for dealerships to offer finance without meeting appropriate licencing requirements. This has been supported by both sides of government and is expected to pass through unchanged.
What does this mean for Mortgage Brokers? The astute car dealers will already be in the process of obtaining the appropriate credit licence or engaging with a service provider to offer finance on their behalf. This means that with an increase of dealers obtaining ACL’s they will be looking at financing more than just the car! Think of home and investment loans, SME facilities and commercial term debt.
What actions can I take? If you have not already educated your existing database that you can offer car and equipment finance, now is the time to do so. This could be a simple EDM to your database. Let them know the run into ‘End of Financial Year’ is upon us and for any client looking at purchasing a car to get in contact with you.
Existing & Proposed Compliance
We have noted that some successful brokers have been using compliance as a way of articulating their value proposition to the end customer. This has been particularly relevant when competing against the dealerships. With the proposal of a “Customer’s Best Interest Duty,” we see this becoming a very real point of difference for Mortgage Brokers. It is likely that dealerships will not have to meet this requirement.
What can I do to? Use the added compliance that you undertake as a key selling point. You have the client’s best interest at the centre of everything you do. Can the same be said for others?
Abolishment of Flex Commissions
With the abolishment of flex commissions back in November 2018, we are now seeing a shift to dealers increasing their point of sale penetration rates. This has been a conscious decision made to combat lower average margins.
What does this mean? Dealers are trying to finance more of the cars they are selling. An observation of late has been, margin is being held back in the purchase price of the car and/ or a lower trade-in amount is being offered to consumers.
EOFY Sales, 2018 Plated Stock & Interest Rates
We find ourselves at the end of 2018 plated stock runouts and at the beginning of the EOFY sales. A common question Mortgage Brokers ask us is, “why is the dealer’s rate significantly cheaper?” Some of the time, it comes down to very specific models of cars, reduced term of loan, no residual/ balloon payments offered and a large deposit required.
What can I do as a Mortgage Broker when competing on price? Understand the transaction in its entirety. Can you obtain a copy of the competing quote? Do we have a copy of the purchase order for the car? Is a trade-in being offered? These are some of the questions we need to understand when comparing deals on rate alone.