Car Finance 'Secret' Commissions:

A Reality Check Amid The Frenzy - and maybe a transparent way forwards…

As we all know, the recent Court of Appeal ruling on “secret” car finance commissions has set off a crisis across our industry with a decision that is unprecedented in its potential scope.

Hats off to the teams at iVendi and others for leaping on this to help keep business flowing amid all the mayhem.

Taking a step back from the detail, I for one am concerned that the current situation may have been fuelled at least in part by recent media coverage of the FCA’s investigations, rather than factual analysis.

Media reports have repeatedly highlighted discretionary commission arrangements (DCAs) and their potential for substantial consumer harm and consequent redress, which has cast the industry in an unfairly harsh light.

- We also see the Claims Management Companies revving their engines, ready for what they perceive to be rich pickings coming round the bend.

This media narrative, perhaps unwittingly, may have even influenced the court’s perspective in their recent ruling.

Understanding the intention to hold real offenders accountable, the noise does not accurately align with the reality of the majority of dealer commission payments or finance sales practices.

The vast majority of dealer commissions in truth being far lower than media portrayals.

The Reality Behind Dealer Commissions

In practice, the majority of car finance commissions fall well below the dramatic figures that have recently dominated headlines.

Years of experience across the industry working with manufacturers, dealers and finance companies inform my estimates that over 80% of all car finance agreements have historically paid out commissions below ￡500, and within this, around 80% fell below ￡250. - This being the case even before the ban on Discretionary Commission.

That’s significantly below the media extremes currently circulating.

These are not numbers that would cause most customers to recoil if disclosed. On the contrary, they’re quite modest relative to the vehicle purchase prices, interest charges involved and later servicing costs incurred by the purchasers.

For most dealerships, these commissions represent fair compensation for the work of arranging finance without excessive padding. A straightforward disclosure like, “Our dealership receives up to ￡300 in commission and incentives per finance case,” would likely be enough to satisfy consumer expectations for transparency.

Where more work is required to help customers with poor credit histories find a lender and re-build their personal credit ratings, I for one support them receiving a larger payment for the extra work. And the customers are likely to agree.

Where Do We Go From Here?

In an industry where 80-90% of vehicles are financed in some way, it’s clear that reasonable commissions have an important role.

The reality is that most dealers have been operating fairly, with commissions aligned with the value they provide to customers. This isn’t to say there haven’t been cases of overreach—but it’s essential that regulatory and judicial perspectives be based on a clear understanding of actual commission practices, rather than a few high-profile cases or exaggerated estimates.

The legal and regulatory redress needs to be correctly targeted at cases of evident overreach, rather than tarring everyone with the same brush.

Moving forward, I think it’s worth considering how we, as an industry, can ensure that public perception aligns more closely with reality and embrace a transparent approach, but without ‘drowning in detail’.

My vote would be in line with the disclosure comment above, having a clear statement next to all representative examples, quotes and documentation which says something similar to

“Our dealership receives up to ￡300 in commission and incentives per automated approval finance case. Should you wish to know the exact amount, we will of course disclose this to you. But if alternative lenders need to be contacted to obtain finance for you, the interest charged and commission arrangements, being different, will be fully disclosed and discussed with you before proceeding”.

Whether it’s ￡200, ￡300, ￡600 or more that the dealership or broker ‘standardises’ to should be up to them.

Interestingly, I have been running a Linkedin Poll this week with a view to eliciting people’s views on what level of commission is fair for dealers to earn on a ￡20,000 agreement over 60 months, zero deposit.

The findings at time of writing this being:

Zero 6%

Below ￡250 21%

Below ￡600 42%

<￡1,000> 30%

The above results are based on just 33 votes - voting ends on Monday 4th Nov

Unfortunately Linkedin restricts to just 4 options in the poll. It would be interesting to see how the top 30% split from ￡601 to above ￡1,000.

Let me know if you’d like to contribute to a more detailed online survey and we’ll look at putting one together.

Here’s a link to the poll, please add your vote before close on Monday:

https://www.dhirubhai.net/posts/david-burton-marketing_having-spent-many-years-designing-and-promoting-activity-7257030456364142592-rE9H?utm_source=share&utm_medium=member_desktop