1Executive Summary |

.

Consumer attitudes to car financeFindings from a 2018 consumer survey commissioned by ALPHERA Financial Services

www.alphera.co.uk

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In 2018, ALPHERA Financial Services commissioned an independent consumer survey among 1,035 motorists across the UK and not specifi cally BMW Group customers.

The aim of the survey was to achieve deeper insight into consumers’ behaviours when buying car fi nance. Consumer trends and demands constantly change and are massively infl uenced by macroeconomic, social and political factors. Developing a good understanding of customer attitudes, behaviours and preferences is crucial to ensuring they have a positive experience when purchasing a car on fi nance. The results of this survey have been enlightening, and can be summarised as follows:

Two thirds of motorists are unaware of dealer obligations in the sale of car fi nance

• There’s a lack of consumer knowledge on what information to request from dealers

• Data suggests a high potential for mis-selling of F&I products• There’s a clear need to improve customer knowledge, trust

and satisfaction

Contents

Executive Summary

3 IntroductionMake a positive impact through innovative business practices

4 Survey Results and AnalysisWhat consumers think about car fi nance and what it means for lenders and retailers

10 ConclusionsAlphera supporting F&I accreditation in partnership with the IMI

11 AppendixDemographic details of the consumer survey

High-level fi ndings from a survey on consumer attitudes to car fi nance

Customers can be ambivalent towards discussing car fi nance

• 71% say discussing preferred choice of paint colour is of same or greater importance than discussing car fi nance

• Dealers need to make car fi nance as easy to understand as the more ‘exciting’ elements of a car purchase

• Dealers need to better engage buyers in transparent sale of fi nance products

4 out of 5 consumers would be more likely to buy from a salesperson accredited to sell car fi nance

• Buyers believe an industry qualifi cation could reduce risk of being mis-sold car fi nance

• Proportion increases among women and those aged between 17 and 24

Seeking to build on standards across the industry and provide visibility of the quality that already exists, Alphera is supporting a new accreditation scheme for fi nance and insurance (F&I) sales specialists from the Institute of the Motor Industry (IMI). This is a signifi cant step towards establishing consistently high standards and self-regulation of quality to support compliance. An accreditation pathway, robustly assessed and backed by the IMI, will give the customer the confi dence they need to trust our industry in everything we do.

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3Introduction |

Looking at new ways to instil the culture and expertise needed to make ‘treating customers fairly’ a core value for everyone in the business of selling cars

Make a positive impact through innovative business practicesMake a positive impact through

As automotive fi nance providers, we operate in a highly dynamic and fast-paced industry, where factors such as technology, compliance and consumer trends can present challenges and opportunities for motor retailers. Our collective aim throughout the sales and marketing process must be to provide innovative and sustainable solutions for the end customer.

Given this context, the FCA’s 2018 comments on motor fi nance have been encouraging. Speaking at the 2018 Credit Summit in London, Jonathan Davidson, Director of Supervision – Retail and Authorisations at the FCA, said that the growth of PCP contracts in the motor fi nance market is a good example of an innovation that has had a signifi cant impact, and that this type of innovation paints a really attractive picture of the motor industry.

This positive outlook is certainly consistent with our view of the industry, as I’m sure it will be for every fi nance provider that believes in the robustness of their products and puts ‘treating customers fairly’ at the heart of their operations.

However, in its 2018 Business Plan, the FCA reiterated the fact that it will be undertaking further work on responsible lending, particularly the approach taken by motor fi nance lenders to assessing creditworthiness, including affordability. It’s imperative, therefore, that we challenge ourselves to do better, helping dealers to match the right product to the right person every time. For many dealers, this will involve business model diversity – looking at new ways to innovate and secure outcomes that are positive for them and, importantly, their customers. As the survey data in this report shows, there’s a defi cit between dealers’ obligations and customers’ awareness of their rights.

Therefore, a new approach to selling is needed. We see innovation and change as two sides of the same coin. Innovation is a trendy word with which companies of all shapes and sizes often try to associate themselves. But innovation can also refer to changing existing company practices, as much as it does to inventing something completely new. This type of cultural innovation, however, can be less popular and often faces greater resistance.

By Gerry Kouris, Marketing Manager at

ALPHERA Financial Services

That’s because making impactful changes to business culture isn’t easy. If sales fi gures are on target and the business is doing reasonably well, then why rock the boat and try to do things any differently? However, complacency or simply waiting to follow the lead of others cannot be a sustainable approach for companies in a fast-paced industry like automotive. Business leaders who manage to overcome the fear of change and actively challenge the status quo have more to gain than lose.

As Jonathan Davidson at the FCA said in his speech, a successful business model also relies on having a healthy fi rm culture, where sales people are encouraged to be curious and questioning. Without this, he said, fi rms might not realise that their business models are unsustainable and can lead not only to reputational damage, but also to the kinds of costly interventions the FCA has been making.

This is why Alphera has established a partnership with the Institute of the Motor Industry to promote the

uptake of a new education and accreditation scheme for fi nance and insurance sales specialists. The scheme provides the skills and knowledge to confi dently qualify customers to present F&I products as well as a platform for self-regulation to support compliance, introducing shared core values across dealerships.

In the wake of PPI mis-selling, consumers are more alert than ever to the risk of being sold an inappropriate fi nance product. Dealer sales staff must have the skills and knowledge necessary to properly qualify a customer’s needs and deliver a clear and transparent presentation that enables informed decision-making. An accreditation pathway, backed by a publicly accessible professional register and robustly assessed by the IMI will establish a universal kitemark and give consumers the confi dence they need to trust our industry in everything we do.

This type of innovation is more than simply complying with a regulator’s demands. But rather an opportunity to instil the culture and expertise needed to make treating customers fairly a core value for everyone in the business of selling cars.

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Two-thirds of UK motorists (64%) are unaware that salespeople are required to discuss their financial needs and requirements when purchasing a vehicle on finance, according to the consumer survey.

The data highlights the low level of consumer awareness of dealer obligations when selling finance and insurance products.

The survey found that less than half of motorists (42%) were aware that dealer sales staff are responsible for discussing repayment obligations. Less than half (42%) were also aware of the responsibility to outline a finance product’s terms and conditions and details of additional charges. Only 23% of respondents knew that dealers must outline how purchasing a vehicle on finance may

Two thirds of motorists unaware of dealer obligations in sale of car finance Lack of consumer knowledge on what information to request from dealers Data suggests high potential for mis-selling of F&I products Clear need to improve customer knowledge, trust and satisfaction

affect their credit rating, while only 35% were aware of the range of financial products available to them (see graph opposite).

These numbers paint an interesting picture, as they highlight a surprisingly low level of consumer awareness of dealer obligations when selling finance and insurance products. If you were to take a pessimistic view, the data suggests a high potential for mis-selling of F&I products – especially in the wake of historic mis-selling of PPI (payment protection insurance) by many finance lenders and banks.

But looking at the results in a more positive light, Alphera believes they present an opportunity for motor retailers to build greater levels of trust between themselves and their customers.

4

| SURVEY RESULTS & ANALYSIS

64% unaware that salespeople are required to discuss their financial needs and requirements when purchasing a vehicle on finance

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Executive Summary | 5

Consumers appear unaware that dealers have a number of obligations when it comes to the sale of car fi nance. This defi cit, between a dealer’s obligations and customers’ awareness of their rights, means sales staff must clearly explain every aspect of a fi nance product, and properly assess the customers’ needs. If dealers can address this gap and offer total transparency, they can empower customers to make an informed decision, giving them confi dence that a fi nance product is truly appropriate for them. In the long term this approach will foster greater customer loyalty and more sustainable income for dealers.Spencer Halil, director of ALPHERA Financial Services

Low level of awareness among buyers of what dealers are obliged to discuss when selling car fi nance

Customer repayment obligations

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

T&Cs and any additional charges

(e.g. excess mileage, vehicle damage)

Customer fi nancial needs and

requirements

Range of fi nancial products available

Implications for customer credit fi le

42% 42%36% 35%

23%

FOSTERING GREATER CUSTOMER LOYALTY

Survey Results & Analysis |

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Data from the consumer survey also highlighted the ambivalence that dealers must combat in the sale of car F&I products. The survey asked consumers to rank the importance of different aspects of the sales process relative to a detailed discussion of available fi nance options.

71% of UK car buyers believe being able to discuss their preferred choice of paint colour is of the same or greater importance than having a detailed discussion about potential fi nance options. 53% said the same about discussing the available selection of alloy wheels. 60% said being shown how to integrate their phone with their new car was more important or as important as discussing how they will fi nance their car.

Politeness of sales staff, it seems, is also more important for customers. 82% of UK car buyers believe the manners of sales staff are of the same or greater importance compared to having a detailed discussion about their fi nance options. That fi gure is 46% when it comes to being offered refreshments by dealer staff, and 88% for being able to take a test drive (see graph opposite).

Customers ambivalent towards discussing car fi nance 71% say discussing preferred choice of paint colour is of same or greater importance than discussing car fi nance Dealers need to make car fi nance as easy to understand as the more exciting elements of a car purchase Dealers need to better engage buyers in transparent sale of fi nance products

Despite the long-term implications of making sound fi nancial decisions, consumers evidently attach the same or greater importance to a host of other factors when transacting. For many buyers, car fi nance can be hard to get their heads around, so dealers need to make the subject as attractive and easy to understand as the more exciting elements of a car purchase.

When the conversation in the dealership does turn to car fi nance, 58% of consumers said that their main consideration is the cost of monthly payments. Only 15% said that they consider the impact that car fi nance may have on their credit rating (see graph opposite).

Sales staff need to be confi dent enough to engage customers in an open discussion around fi nance, and use their expertise to explain fi nance products in a fully-compliant, transparent way. As an industry we need to ensure that dealers speak the same language as customers.

6

| SURVEY RESULTS & ANALYSIS

71% believe being able to discuss their preferred choice of paint colour is of the same or greater importance than having a detailed discussion about potential fi nance options

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Survey Results & Analysis | 7

Despite the long-term implications of making sound fi nancial decisions, consumers evidently attach the same or greater importance to a host of other factors when transacting. For many buyers, car fi nance can be hard to get their heads around, so dealers need to make the subject as attractive and easy to understand as the more exciting elements of a car purchase.

Sales staff need to be confi dent enough to engage customers in an open discussion around fi nance, and use their expertise to explain fi nance products in a fully-compliant, transparent way. Our partnership with the IMI helps dealers speak the same language as customers, with the launch of new training programmes and accreditation schemes for F&I products.Spencer Halil, director of ALPHERA Financial Services

Elements of a car purchase of greater or equal importance to customers compared to a detailed discussion about how they will fi nance their car

MAKING FINANCE EASY AND TRANSPARENT

Offer of refreshments

Car paint colour

Leather seats

Alloy wheel choice

Length of warranty

Sales staff manner

Taking a test drive

Smart phone integration

Delivery time

0% 15%

Greater or equal importance Less importance

30% 45% 60% 75% 90%

15%

25%29%

41%Size of depositCredit rating impact

Cost of monthly payments58%

Additional fi nance charges (e.g. for excess mileage,

vehicle damage)Full explanation of available

fi nance products

Motorists named their main considerationswhen buying a car on fi nance

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Introduction | Iciate optata del

Four out of five UK motorists (79%) say they would be more likely to transact a car purchase with a dealership salesperson who holds formal, industry-approved accreditation governing the sale of F&I products.

These survey findings underline heightened consumer concerns about the sale of finance products in the wake of the mis-selling of PPI (payment protection insurance) by many lenders and banks. While the concept of accreditation is widely accepted for practical disciplines across the motor trade – notably for vehicle technicians – very little has existed to ensure high standards in skills and knowledge when it comes to the sale of vehicle finance and insurance products.

4 out of 5 consumers more likely to buy from a salesperson accredited to sell car finance Buyers believe an industry qualification could reduce risk of being mis-sold car finance Proportion increases among women and those aged between 17 and 24

The survey also revealed that sales staff with accreditation would be more likely to win the trust of female customers, with 81% of women stating that a qualification in car finance sales would make them more likely to buy (see graph above).

In addition, millennial motorists – those aged between 17 and 24 – were the most likely to prefer to buy from qualified F&I sellers, with 83% saying accredited sales staff would make them more willing to buy a new car. 74% of over-55s would also be ‘more likely’ to use the dealer introduced finance offer (see graph opposite).

More than 2 in 5 (42%) UK consumers believe that car finance should only be sold by qualified or accredited individuals. This is a significant percentage of potential car buyers who could be put off from purchasing a new or used vehicle because of the lack of perceived F&I expertise within the dealership (see graph opposite).

8

| SURVEY RESULTS & ANALYSIS

83% of millennials say accredited sales staff would make them more willing to buy a new car

Female buyers are more likely to transact a finance deal on a car from an F&I accredited dealer

Customers are more likely to transact a finance deal on a car from a dealer with a formal industry-approved qualification

Male Female

100%95%90%85%80%75%70%65%60%55%50%

77%81%

Indifferent

21%

More likely

79%

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9

In the wake of PPI mis-selling, consumers are more alert than ever to the risk of being sold an inappropriate fi nance product. Dealer sales staff must have the skills and knowledge necessary to properly qualify a customer’s needs and deliver a clear and transparent presentation that enables informed decision-making. An accreditation pathway, robustly assessed and backed by the IMI will help ensure high standards and give the customer the confi dence they need to trust our industry in everything we do.

As well as safeguarding the compliant selling of F&I products across their business, those dealers that support relevant staff in securing accreditation will have the opportunity to use it as a differentiator in the sales process, helping them build trust more effectively and ultimately convert more leads.Spencer Halil, director of ALPHERA Financial Services

Proportion of UK consumers that believe certain fi nance products should only be sold by qualifi ed or accredited individuals...

...more than 2 in 5 said ‘car fi nance’

GIVING THE CUSTOMER THE CONFIDENCE TO TRUST OUR INDUSTRY

Mortgages Pensions Personal loans

Credit cards

Stocks and shares

Car fi nance Other fi nance products

60%

50%

40%

30%

20%

10%

0%

57%

49% 47% 45% 43% 42%

25%80%

Younger customers are more drawn to the idea of buying a car from a fi nance-accredited dealer

17-24 year-olds

100%

95%

90%

85%

80%

75%

70%

65%

60%

55%

50%

25-34 year-olds 35-44 year-olds 45-54 year-olds Over-55s

80% 83% 80% 77%74%

Survey Results & Analysis |

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The fi ndings from the consumer survey have underlined the need to improve standards across the industry and enhance transparency in the sale of car fi nance. To this end, Alphera has been supporting the Institute of the Motor Industry (IMI) on the introduction of its new accreditation scheme for F&I sales specialists.

This is a signifi cant step towards establishing consistently high standards in the sale of fi nance products, helping dealers to improve customer satisfaction and confi dence in the transaction process.

For Alphera, it was critical that the new accreditation scheme complemented the highly respected and established Specialist Automotive Finance (SAF) programmes from the FLA, enabling a practical application of skills and knowledge in addition to theoretical learning

ConclusionAlphera supporting F&I accreditation in partnership with the Institute of the Motor Industry

platforms. All participants will need to have passed and retain the standard SAF competence test on an annual basis before they can complete the IMI F&I Accreditation. The SAF programme developed by the FLA is a well-established and highly respected qualifi cation that everyone in the industry ought to have.

This joined up approach is a signifi cant step towards establishing consistently high standards in the sale of fi nance products, with success measured in how the industry embraces and supports the idea of accreditation.

Ultimately, F&I can be simple and clear. It is our collective role to help ensure that relevant staff have the confi dence to present products properly. This ‘common standard’ approach will demonstrate to the FCA, and our shared customers, that the motor industry is worthy of its confi dence.

The IMI’s new fi nance and insurance accreditation framework has been developed in cooperation with dealers, manufacturers and fi nance companies like Alphera Financial Services. It helps sales staff to safeguard car buyers by providing them with relevant and correct information relating to motor fi nance, and give customers greater confi dence in discussing car fi nance and insurance products.Steve Nash, CEO of the Institute of the Motor Industry (IMI)

I have no doubt that our members consistently put the interests of the customer fi rst – it simply makes good business sense. The value of training and accreditation lies in the opportunity for F&I professionals to hone skills and have their experience and expertise offi cially recognised. I would encourage everyone to strive for skills development and recognition of F&I expertise in the motor industry.Adrian Dally, Head of Motor Finance at the Finance & Leasing Association

10

STRIVING FOR SKILLS DEVELOPMENT

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Executive Summary | 11Conclusion & Appendix |

In 2018 ALPHERA Financial Services commissioned an independent consumer survey conducted among 1,035 motorists across the UK between 02.03.2018 - 05.03.2018 and not specifi cally BMW Group customers. The demographic sample is of statistical signifi cance and includes the following:

AppendixNational Customer Survey

Gender Split

Geographical Distribution

Male Female

600

500

400

300

200

100

0

545490

Age Distribution

55+

230

45-54

128

35-44

179

25-34

245

17-24

253

East of England

London

East Midlands

West Midlands

North East

North West

Northern Ireland

Scotland

South East

South West

Wales

Yorkshire and the Humber

0 10 10020 12030 13040 14050 15060 70 80 90 100

94

96

98

92

89

63

136

51

23

82

79

132

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Marketing Manager – Alphera Summit ONE, Summit Avenue FarnboroughHampshire GU14 0FB

Mobile: +44 (0)7815370158E-Mail: gerry.kouris@bmw in.com APPROVED

CENTRE

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BMW Group Financial Services Gerry Kouris BSc(Hons), MSc., MSc., FIMI