Navigating Economic Turbulence in Motor Finance - Q&A with Alan Carson

This week, we sat down with Alan Carson, Head of Strategic Partnerships at DSG Finance Group to discuss the impact of the current economic climate on the motor finance sector and how dealers can reduce their exposure to market volatility.

Q: Firstly, can you tell us a bit about yourself and your role at DSG?

A: Yes sure, I’ve been working in the motor finance industry for almost 40 years, originally within retail motor sales, but most of that time was with the lender, Northridge Bank of Ireland Group, before my move in 2021 to DSG Group.

On a day-to-day basis, I’m responsible for managing the lender relationships on the DSG Finance Group panel and negotiating the commercial terms of the various products they offer.?I’m also involved in growing our lender portfolio, we currently have over 28 lenders on our panel and we’re looking to have around 35 by the end of the year.

?I suppose it’s ultimately my job to ensure that we have the appropriate packages available to give our dealers and their customers the best possible outcomes.

Q: What are the implications of the current economic climate for the motor finance sector and dealers?

A:??Whilst we’re seeing a lot of positive signs of recovery in the industry in general, with new car registrations up around 18%, the motor sector isn’t immune from the current economic challenges.

Persistent inflation has increased operational costs for most dealerships and the recent 14th consecutive base rate rise continues to increase the cost of funds, so inevitably there’s a knock-on impact for dealers and their customers. ?We’ve witnessed a 5% fall in point-of-sale finance this year, which again increases pressure on F&I income.

Increasing rates and market volatility often leads to changes in the finance landscape and the motor sector is no different.?In times of turbulence, lenders may adjust their criteria or potentially consider an exit from the market entirely, which can leave dealers and brokers exposed.??An area of positivity within the market at the moment is the number of new lenders that are on offer. They’re commercially motivated to do business and can offer slicker, more streamlined application processes and most importantly, they soft search - which means the customer can go to another lender without a detrimental impact on their credit ratings.

So, whilst the current economy presents challenges for the industry, there are also opportunities for dealers, offering enhanced solutions and lending options for their customers.

Q: How can dealers reduce their exposure to volatility in the current economic climate?

A: It’s difficult to ever fully insulate a dealership from economic pressures, so what most will be focusing on now are the areas that they can control.?For example, periodically price checking their current lending providers to ensure it’s not costing them vital margin. Another example might be to increase the number of lender options available to give their customers greater choice, potentially better APRs and ultimately help to sell more cars. ?Essentially providing more stability in an ever-changing market.

One key differentiator within DSG is the Auto R8 product, our fixed commission product on prime business, reducing exposure to market volatility.?This enables dealers to set their own guaranteed level of finance income per transaction, giving them more predictable income levels, which improves forecasting, regardless of rate changes or reductions in commission.

Q: What are the key trends you’re seeing in the motor finance sector at the moment?

Outside of the super important Consumer Duty initiative, speed is probably one of the key drivers in the industry right now.?Technological advancements in the finance sector in general have played an important role in continuously raising customer expectations. For example, you can use an app to apply for a new credit card with perhaps a ￡20,000 limit and have it ready to use on your phone within minutes - so from a customer point of view, why should motor finance be any different from that?

Consumers and dealers want faster decisions, so it’s down to the likes of DSG group and lenders to improve our processes and technologies to make sure we’re delivering on that.