By: David Webber, MD, Intelligent Environments
The automotive industry has been dominating headlines in the past few weeks following revelations that several of VW Group’s brands including Volkswagen, SEAT, Skoda and Audi have been cheating vehicle emissions tests in Europe and the US.
This is undoubtedly one of the biggest corporate scandals in recent times, with the carmakers potentially facing one of the biggest class-action lawsuits in the UK as a result. Not only has this taken a financial toll – for example, Volkswagen’s shares plunging 30 per cent in the first few days after the news broke – but the can of worms that appears to have been opened within the industry as a whole means the fallout may have a significant impact on its image as a whole.
One way that carmakers can improve their standing with customers is by improving the car finance process. Recent research conducted by Intelligent Environments has found that arranging car finance is one of the biggest factors preventing potential customers buying cars. Almost two thirds of UK consumers said they found buying a new car is a difficult experience, and that 61 per cent said organising the finance is one of the most challenging aspects.
WANT TO BUILD A FINANCIAL EMPIRE?
Subscribe to the Global Banking & Finance Review Newsletter for FREE Get Access to Exclusive Reports to Save Time & Money
By using this form you agree with the storage and handling of your data by this website. We Will Not Spam, Rent, or Sell Your Information.
This poses a fantastic opportunity for carmakers – to provide a solution to this issue and in doing so increase the frequency of purchases, increase customer loyalty and build brand reputation. Indeed, 39 per cent of UK consumers said they would change their car more often if organising finance was made easier to manage and 62 per cent said they would rather get car financing directly from the manufacturer rather than from their local dealership.
63 per cent said they don’t trust their dealership to manage their car finance properly, and 49 per cent said they would like to have a closer relationship with their car manufacturer after buying their car, a relationship that often ends after the point of purchase.
Ongoing engagement by car finance companies with their customers is typically limited to sending out an annual statement. Digital financial solutions may prove to be much more attractive for customers who are used to initiating their car purchase research online, and cost savings can be made by reducing paper sent out via post.
The scale of the opportunity for manufacturers is sizeable. There were 2.47 million car sales registered in the UK in 2014, and in 2015 (at the time of writing) 46.3 per cent of these have been private sales to consumers with an average price of £27,219. The total amount currently spent, assuming these figures remain consistent, is £31 billion.
However, our research suggests that making it easier to buy cars could almost double how often people make a change, from the current average of 6.3 years to 3.5 years, and 39 per cent said they would switch their car more often if car finance were easier to manage. Therefore making car finance easier to manage could grow private car sales by £9.6 billion to £40.7 billion.
The results of our study reveal a large-scale opportunity that automotive manufacturers are currently not taking full advantage of. Manufacturers should look at how financial technology companies can help them forge closer, simpler and better relationships with their customers. Currently, manufacturers’ relationship with their customers ends at the point when the car is purchased, as they then hand over the customer relationship to the local dealership. By providing the financial management directly, manufacturers can extend their relationship with customers across the entire length of ownership – a relationship which may prove to become increasingly more important given the current issues facing the industry.
While the full extent of the impact of the emissions scandal on the industry will remain to be seen exactly, manufacturers should be prepared to address other areas which could contribute financially to their industry, as well as help generate new and retain existing customers – and build on that crucial relationship.