EDM Group – Automotive Market Insight 2016

The digital transformation of the car finance and buying process December 2016

The digital transformation of the car finance and buying process White Paper

EDM Group – Automotive Market Insight 2016

2

Introduction The UK car market continues to enjoy strong growth – the past decade has, arguably, been a golden period for the industry as domestic and international demand drives investment, record sales and success. A recent review of data from The Society of Motor Manufacturers and Traders (SMMT) paints a picture of a market in rude health: the UK new car market grew by 3.2% in the first six months of the year1; 1,420,636 new cars were registered in H1 2016 – the best half-year performance ever recorded. Other recent SMMT data releases include: •

A record number of used cars were bought in the first half of the year as 4 million cars changed owners

•

Alternatively fuelled vehicles (AFVs) continued the significant gains seen over previous months, up 21.3% compared with the first six months of 2015. AFVs now account for 3.2% of the overall new car market

•

UK car production hit a 16-year high – the best half year performance since 2000, with 897,157 cars produced, up 13% on 2015

The take-up technologies

and

implementation

of

digital

While the various industry data points paint an overall picture of strong health, one of the less discussed aspects of the UK car market is the take-up and implementation of digital technologies that focus on helping car dealers and their finance partners provide a better sales and service process: stronger, more compliant data capture, better customer service and faster car financing. While the industry has begun to embrace these new tools, it is clear that the implementation of best-practice solutions is not widespread. Significant numbers of dealers and their customers continue to deal with ineffective systems and inefficient processes. This is particularly acute given the new regulatory demands being placed on car dealers with regards to car financing. This short market insight report goes into the findings of EDM Group’s recent market survey in more detail – and finds that there is a significant opportunity for the digital transformation of the car buying process.

Figures released by the Finance & Leasing Association (FLA) in August showed that the point-of-sale market saw new car business grow 10% by value and 5% by volume in June, compared with the same month last year. In the first half of 2016 overall, new business was up 16% by value and 11% by volume. And a recent survey2 by EDM Group among car dealers found 78% expect car sales to increase or stay at the same pace over the next 12 months. Around two thirds (63%) expect the numbers of vehicles being sold on finance to also increase over the next 12 months.

The digital transformation of the car finance and buying process White Paper

EDM Group – Automotive Market Insight 2016

3

Key findings from EDM Group market research EDM Group believes that the use of smarter, digital technologies and effective information management solutions have the ability to transform the car sales and financing processes. Car dealers and leading marques understand that, in this highly competitive market, service has become a key differentiator – helping drive both sales and future customer loyalty. Our latest market survey, conducted in September 2016, found that 78% of car dealers expect car sales to increase or stay at the same pace over the next 12 months. Around two thirds (63%) expect the numbers of vehicles being sold on finance to increase over the next 12 months. And around two-thirds (63%) also think that record low interest rates will be significant in driving the sale of new and used cars over the next 12 months (12% think it will be very significant). As such, EDM Group believes that the demands and pressures on dealers and their partners will continue to grow – and getting the right systems and processes in place to best manage this will be fundamental. Innovation in car finance products Just under half (45%) think further innovation in car finance products will be key in driving sales of new and used cars over the next 12 months (only 11% think insignificant). EDM Group believes that this point is significant: the success of the UK car market has in part been fuelled by innovative, cost-effective car financing products that have made buying a car more affordable and opened up the market to more people. The onus on car dealers to manage this growth has been profound, particularly from a regulatory and administrative point of view.

How significant are digital solutions in driving better customer service and loyalty for car dealerships?

36% 53%

3%

8%

Very significant Fairly significant Neither significant nor insignificant Dont know

The good news is that technology is seen as a central part of the market growth story by a significant number of respondents. Only 16% said that they did not think that car dealers and the finance companies that work with them will invest in technology to cater for the increases in car sales over the next 12 months. Overall, the top reasons why car dealerships and finance companies will invest in new technologies and digital solutions are, as cited by respondents: to improve customer service (54%); reduce the administration and process behind buying a car (51%); better meet regulatory requirements on affordability (41%); and improve data capture and customer information (35%).

The digital transformation of the car finance and buying process White Paper

EDM Group – Automotive Market Insight 2016

4

CONTINUED

Key findings from EDM Group market research Customer service The focus on customer service is key – a previous survey3 by EDM Group found that only a third (34%) of people rated the service levels and efficiency of the car dealer they last dealt with as ‘very good’ or ‘excellent’. Nearly one in 10 (8%) described it as ‘very poor’ or ‘poor’ (for those who were disappointed with service levels, 45% said it was because they were given incorrect data and information).

One of the most stark findings from this latest research by EDM Group was that almost nine out of 10 car dealers (89%) said that digital solutions are significant in driving better customer service and loyalty (36% said they are very significant). No one believed that such solutions are insignificant – underscoring the demand and need for cutting-edge digital tools to transform the car buying and financing process. The automation and digitisation of the sales process

EDM Group believes that the focus on issues such as better customer service and loyalty, the need to reduce administration, and the need to capture better information and data reinforce the opportunity for digital technologies to transform the car buying and financing market. The market is poised for the profound systemic benefits that new solutions can provide.

The primary improvements respondents said they expect car dealerships to introduce over the next 12 months to improve customer service are more customer loyalty benefits (64%); the automation or digitisation of the sales process (64%); the automation or digitisation of the after-care service (58%); and a wider range of finance products (58%).

If you think that car dealerships and the finance companies that work with them will invest heavily in technology to cater for increases in car sales over the next 12 months, what will be the main reasons for this?

In addition to the above, half of respondents also think that if more customer data was digitised it would reduce fraud – 16% think this would be dramatic. This is no new revelation but while fraud remains a key issue for the car industry, EDM Group believes that the power of digital solutions to cut fraud and other criminal activities remains profound.

I don’t think that car dealerships / finance companies will invest heavily in technology

16.2%

27%

Reduce costs

35.1%

Improve data capture and customer information

35.1%

Reduce the time it takes to pay out approved car financing

40.5%

Better meet regulatory requirements / compliance on affordability

51.4% 54.1%

Reduce administration and process behind buying a car Improve customer service

The digital transformation of the car finance and buying process White Paper

EDM Group – Automotive Market Insight 2016

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Summary The topics highlighted and discussed in this short paper from EDM Group share a common theme: the role that digital technologies will – and should – increasingly play in the transformation of the car buying process and the benefits that car dealers and car finance partners can get from their implementation. These benefits are not just in the shape of better customer service and less administration but also with regards to challenges such as fraud. What sort of improvements do you expect the car dealership industry to introduce over the next 12 months to improve customer service?

9.1%

Automate / digitise the sales process more

63.6%

Introduce more customer loyalty benefits

57.6%

Automate / digitise the after-care service more

57.6%

Offer wider range of finance products and services

48.5% 36.4%

63.6%

EDM Group: driving the growth of the UK car market As a leading provider of digital solutions to UK car dealerships , marques and their finance partners, EDM solutions enable car market growth in the UK. Through the implementation of our digital technologies, EDM’s UK-based automotive clients have been able to transform their processes. Significantly enhanced processing speeds not only free up time, it also enhances the customer experience and their relationship with the brand, as the purchasing process is faster and far less cumbersome. Ultimately, car dealers and finance partners experience increased sales and stronger customer relationships. EDM currently generates around 10% of its UK revenue from the automotive sector and due to the current challenges facing the industry, the firm is forecasting continued growth from the automotive sector over the next few years. EDM already partners with three of the top seven car marques in the UK and, in total, the firm now processes nearly 2 million items of customer correspondence per year.

Greater use of data analytics to identify better opportunities

Offer wider range of after sale products and services

Don’t know

This digital transformation agenda is increasingly relevant given the growing levels of competition in the UK car market and the increasing demand for car finance solutions. In terms of finance, effective data management will also play a significant role given the focus by regulators and other stakeholders in the way people buy cars and the finance packages they are using.

Using EDM’s technology, car dealers and finance companies can transform their automotive business with cutting-edge information management technology. EDM combines extensive automotive and technological expertise and specialise in developing customised solutions to transform business processes. Dealers and finance companies can use this targeted approach to gain a genuine competitive advantage.

The digital transformation of the car finance and buying process White Paper

EDM Group – Automotive Market Insight 2016

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EDM Group EDM is a leading provider of information and business process management services and a specialist in digital transformation technologies. The group operates digital mailrooms for a number of private and public sector organisations – the firm pioneered the market back in 2004 and now processes in excess of 3 million mail items and 100 million digital images per month.

Paper may never truly disappear, but using the right technologies it can be easily absorbed into digitised processes alongside email, web forms and other communications formats – enabling organisations to reduce the risk of non-compliance through lost or misplaced documents.

In EDM’s view organisations can achieve enormous cost-savings and business process improvements by digitising paper documents and incorporating them into a single, smart platform that can automate routing and decision-making.

Let us show you how to digitally transform your business.

Contact Matt Collinge Associate Director, Automotive at EDM Group Mobile: 07896 597 348 Email: [email protected] Visit: www.edmgroup.com/sectors/automotive

1

www.smmt.co.uk/2016/07/record-six-months-for-new-car-market-but-demand-stabilises-over-second-quarter

2

41 car dealers surveyed via an online methodology across September 2016

3

Consumer Intelligence interviewed 1,063 people 24th and 26th March 2015

The digital transformation of the car finance and buying process White Paper