The car finance scandal will be the death of dealerships like mine – we’re stuffed
When I’m at a dinner party, and someone asks what I do, they often look at me like I’m a piece of dirt on their shoe. It’s fair to say car salesmen have – unfairly I would say – a rather unscrupulous reputation. So I’m not surprised there’s been little outpouring of sympathy after a landmark court ruling on October 25 banning us from taking commission without telling the customer when you buy one of our cars on finance.
However, the judgment at the Court of Appeal – implemented immediately rather than letting the industry prepare for it – will have dramatic consequences not only for us car dealers but customers too. Several major motor finance lenders have had to temporarily close off their books to new business as a result, while some car manufacturers temporarily halted deliveries to showrooms. In short, if you want a car on finance right now, you may well struggle.
We have already seen reports in the press of customers having to redo their paperwork, pause deals midway through or even pull offers after they’ve been signed. I’ve certainly had a few cases like this, in particular last weekend when we had to let people down when Honda put a temporary pause on deliveries. That doesn’t sit well with us – buying a car is meant to be a happy experience, not a disappointing one. But while it is frustrating for customers, the threat is existential for car dealerships.
Ordinary Britons probably don’t know, but we need these finance commissions to survive. Without it, the fact of the matter is every dealer group in this country – both large and small – does not have a viable business. We’re stuffed. The motor trade has incredibly tight margins when it comes to selling cars – and finance deals make up a huge percentage of that. Without the commission, many will likely go under.
Take my own firm, Swansway Motor Group. We’re a family-owned business based in Crewe, Cheshire, employing more than 1,130 staff across 26 dealerships. We have a billion-pound turnover, but we’ll probably only make around £8 million in profit – less than 1 per cent. In fact, we generate more in finance commission every year – taking around £520 per car on average – than the amount of money on our bottom line. Around 90 per cent of our new cars are taken out on finance. For used cars, around 50 per cent go out using the finance we offer, and a further 30 to 40 per cent go through alternative funders.
The thing is, we are more than happy to tell our customers if we are making a commission. I can’t really see it having a particularly big effect – and I think customers almost expect it. Take the property market. For years, mortgage brokers have had to declare how much they’re getting for setting up a loan with the bank – and that hasn’t stopped people buying a house. It’s the same with cars. There are nearly 70 million people in this country and they all need to get from A to B somehow, so there will always be a demand.
I’m a great believer in transparency. And when you’ve had a family business like us for 60 years, you’re not fly-by-night characters. Every industry has unscrupulous people, but you’ll find the main players in the motor trade – like us, Vertu Motors, JCT600 and others – have been playing with a straight bat for a long, long time. What’s really sent us into a tailspin is the ruling was implemented with immediate effect, rather than giving us time to put in place the right processes.
Lending institutions have been scrambling around like billiards to try to catch up, and several have temporarily put all commissions on hold as a result. Usually, we make around £1 million a month gross. While this goes on, we’re expecting this figure to drop by around £350,000 a month. When you factor in Labour’s Budget, lumping us with an extra £1.3 million a year to pay due to the increase in minimum wage and national insurance, it’s looking like we may have to cut at least 5 per cent of our workforce.
Hopefully, for the sake of both us and our customers, the lenders will get themselves in order in the next few weeks and we can return to normal. But my biggest fear right now is that lenders will use this opportunity to say, well, actually, we’re not going to pay you as much commission as we did before. I hope not, but if they do significantly reduce it, then I’ll tell you now: some car dealerships will go out of business. We’ve been reliant on this commission for the past 45 years, and that’s not going to change now.
As told to Jim Norton