The Australian Securities and Investments Commission (ASIC) is conducting an enquiry into how interest rates are set for consumers in Australian dealerships at point of sale.
The enquiry will focus particularly on the mechanics of finance arrangements that are set in place across dealerships around the country.
The outcomes of this enquiry and any resulting changes to the structure of dealership wholesale and retail finance arrangements could result in major damage to dealership profitability. Unbeknown to most industry outsiders, the profit margins from new car sales today are often very thin. In most cases, dealership profitability rests on the ability to provide products and services including finance, service, parts and accessories.
Without these other profit-generating components of the dealership business, most dealers could not cover the operating costs associated with the new car sales department. It is a fragile system, and one that must be handled carefully when enacting change.
AADA has expressed it’s interest to ASIC in contributing to this enquiry, but has not been invited to participate. Michael Deed, AADA Policy Director, contacted ASIC directly to obtain details of the enquiry, but only limited information was offered and the Commission was adamant that AADA input is not required.
‘Australia’s automotive dealers operate in one of the most competitive industries in the world, with the world’s most complex vehicle fleet’ said AADA Chairman, Ian Field. ‘Any misguided attempt to restrict one aspect of dealership finance arrangements not only adds more pressure on dealers, but will undermine the 13 billion dollars they’ve invested in specific facilities. These facilities primarily represent OEMs, but also other organisations whose products and services are sold at the point of vehicle sale. Banks and financers are just some of the businesses who benefit from dealership activities.’
Indeed, in a highly competitive market, with savvier consumers, there is a greater need than ever for dealers to get more competitive wholesale funding arrangements from the banks. The banks/financiers need better access to the dealership customers and as a consequence, mix up the two sorts of funding (retail and wholesale) for their own commercial purposes. ASIC appears to be focusing on the issue of commission, which is just one aspect within this complex set of arrangements between OEMs, Dealers, banks/financiers and the retail customers.
The dealer makes the least amount from the vehicle sale transaction, but pays for the $13 billion worth of retail facilities, which makes all transactions possible and the holding costs of the floor plan, which based on $72b of annual sales, is at least $20b at any point
Even more challenging, dealers are not only competing against other dealerships when negotiating finance, but banks and independent brokers as well. Any presumption that dealers can simply ‘charge whatever they like’ is highly misguided.
The Australian Finance Conference (AFC) has participated in the ASIC enquiry, providing specific details on how the dealer finance agreements work.
AFC members have been listening to their dealer clients’ concerns about the lack of transparency in the scope of the enquiry. They are nervous about the impact changes could have on their operations, especially if new policies are formed without reasonable consultation with the provider of point of sale facilities, who are members of AADA.
It is feared that any idealistic interference to ‘protect’ consumers from the automotive industry by ASIC will lead to no measurable difference in the experience of the customers. It may also have the consequence of far tougher conditions for dealers, whilst putting more money into the pockets of banks and finance companies.
As such, in the interest of dealers and consumers, AADA believes that its participation in the ASIC enquiry is of utmost importance.
AADA has a deep understanding of the industry and the consumers it serves, making us an ideal voice in this important matter. We will continue to pursue the matter with ASIC until that voice is heard.