The acquisition by carsales of a controlling share in finance provider Stratton Finance will likely be ringing alarm bells in the new car dealer sector.
Carsales yesterday announced a 50.1 percent acquisition in Stratton finance for $60.1million.
The provision to car buyers of finance and insurance - or “F&I” in industry speak - is one of the more profitable activities of new car dealers.
In the case of finance, it is typically provided to customers off dealers’ ‘floorplan’ finance (from the finance provider underpinning the dealership and stock inventory).
Importantly for the business, it enables the dealership to offer a ‘one-stop-car-buying-solution’ to the customer - the car they want, with the finance to complete the purchase.
The commissions and margins on this activity contribute significantly to the bottom line of new car dealers. For some, it is at the core of their businesses and, in a tight new car market with slim margins on sales, the performance of the F&I department can be key to their profitability and viability.
For that majority of dealers who place their new and used cars on carsales online listings, they already lose a significant chunk of their margins on sales in ‘lead generation fees’. For larger dealerships, this can run into tens of thousands of dollars a month.
For its part, carsales and Stratton paint the acquisition as a positive for dealers.
Stratton managing director Rob Chaloner said that dealers will have opportunity to add a Stratton franchise to their operation for the financing of private-to-private purchases.
“This exciting new partnership means we can help more Australians purchase the vehicle of their choice, by offering best-fit solutions; not just the cheapest repayment, but the most suitable product and lowest overall cost,” Mr Chaloner said.
“We have a franchise network that we are expanding nationally, particularly in regional areas, so we see that as a great opportunity for dealerships to have a franchise as a profit centre, and gives them a conduit to funding for their customers, which again improves the consumer experience,” he said.
Given that most dealers have wholesale financing suppliers in place - like St George Bank, Macquarie, ANZ, GE Finance, among many others - the additional benefit for dealers in this are not easily seen.
But the dangers are clear.
If this acquisition is part of a broader strategy by carsales to head dealers off ‘at the pass’: to place the finance offer (and insurance) in front of the consumer at the same time as sending the lead to the dealer, then dealers will be the losers.
And, in the final analysis, consumers will lose as dealers will need to reclaim margins through the sticker price.
However, such is the dominant position of carsales in this market, and such is the reliance by dealers on the lead generation online solution carsales.com.au provides, they seem prepared to wear any indignity.
“Stratton is a technology and online business and their core focus is helping consumers with their vehicle purchase. It’s a natural fit with the carsales business,” carsales CEO and Managing Director Mr Greg Roebuck said.
“(…) We see significant potential in the provision of quality affordable finance and insurance products to our ever-growing private-to-private customer marketplace,” he said.
Insurance is also on the carsales radar.
“There is also significant potential in the provision of quality affordable finance and insurance products to our ever growing private-to-private-customer car marketplace,” Mr Roebuck said.
For car dealers, and for the services they traditionally supply to car buyers, the bells are surely ringing.
TMR Managing Editor
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