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Craig Smith has some 30 plus years of knowledge and experience in front line Banking and Finance. As a specialist in Credit Risk and Wholesale Funding he is working with lending businesses to help shape and define their wholesale funding portfolios, allowing sustainable growth whilst maintaining strong control over operational and credit risk processes.

Prior to setting up Wholesale Consultants in 2018 he spent 17 years in the Motor Division of Close Brothers where he headed up the Dealer Funding operation with oversight for 500+ wholesale dealer partnerships in the UK and Ireland.

Craig Smith, Wholesale Funding Specialist at Wholesale Consultants Ltd

The UK motor trade is a good barometer generally for both macro economic confidence and micro market optimism and currently there is concern leading to prolonged reduced motor manufacturing output. At dealer level, sales are hard earned across both new and used vehicles and there is some evidence of fragility in trading for both large scale and smaller dealer operations. At such times, lenders, whilst retaining their appetite for stock funding have to balance this with enhanced monitoring to mitigate any potential for losses.

Effective monitoring of dealer finance portfolios is enhanced considerably by automation of processes, including credit risk, audit and payment systems. The ability to automatically screen out such areas as clean stock audits, thereby allowing valuable time to be spent evaluating the output of perceived bad audit practice drives efficiencies. Similar automation at Credit Risk profiling during the underwriting and monitoring stages add additional, valuable benefit in terms of decision consistency and process efficiency.

Used car prices have been more volatile in 2019 and there’s somewhat of a return to seasonal trends rather than the sustained increases seen in 2018. Nearly new vehicles are still hard to find and it’s these prices that have held and increased with continued scarcity of quality stock prevailing. Dealers are keen to source stock that’s ready to retail and that can be sold quickly and it’s these cars that are proving hard to buy which is pushing prices up. In terms of stock finance the biggest issue is the ability of system valuation tools keeping up with real time purchases.

In a word, and without being too simplistic it’s down to vigilance. Effective risk mitigation is key to maintain a robust used vehicle stocking portfolio. Disciplines to Asset Registration monitoring are vital in tracking finance interests of both fresh stock being funded and also in ensuring that sold units aren’t being funded elsewhere without prior settlement.  In addition to this the ability to track real time changes to dealer Credit Risk profiles through use of business monitoring tools for both the dealer’s business and it’s principals give powerful insight into changes in the financial health of a dealer partner.

I think the question here is probably better phrased in how digital channels are transforming the car buying experience. Dealers need to be firmly ahead of the game in terms of their digital presence in tandem with their traditional showroom presence. Customers are now increasingly researching, sourcing, choosing and purchasing long before they make their first visit to a dealer’s showroom. To make sure that dealers are engaging at all stages in this process their digital marketing presence is vital at every touch point whether it be third party websites or social media generally both at local and national levels.

Similar to the digital transformation in retail car buying then dealers are equally keen to research, source and purchase stock through digital channels. Stock funders need to be aligned with this thereby allowing their dealers’ purchases, irrespective of how these happen to be quickly and effectively added to their stocking plan with corresponding payments to third parties happening in real time and accessible through multiple platforms.

New market pressures drive opportunity and we are at the beginning of what is perceived to be a revolutionary shift in car purchase versus usage. The growing incidence of ride/car sharing, and the shift from traditional car ownership means that motor manufacturers and dealers need to rethink their sales models. The customer of the (not too distant) future no longer wants to buy a car and keep it for a defined period measured in years but have access to a vehicle that best suits their needs today with the ability to access alternatives as their situation changes. In terms of stock financing the days of fixed stocking periods will likely be surpassed into the need to fund much longer term, akin to fleet funding where vehicles remain on a stocking plan for much longer and have lifetime mark to market revaluations as usage drives asset depreciation whilst on plan.

Building models to automate all monitoring tools is key to future efficiencies and there are good examples already of dynamic risk profiling using AI and machine learning. Credit Risk profiling that uses both dealer and portfolio data in assessing and scoring stock finance applications at day one and thereafter allow for greater control of decision consistency. In addition, building modelling tools that use portfolio and industry data in creating ‘neural’ decisioning will deliver platforms for robust dealer stock financing relationships.

A robust Credit Risk model is vital in delivering consistent and effective decisioning, not only at the start of a wholesale relationship but throughout the partnership lifecycle. Dynamic and continual dealer risk profiling using both internal process and third party data ensures you stay in touch with real time dealer performance in financial and performance terms and this coupled with stock audit output and payment performance data ensure that on-going monitoring is effective. It’s an obvious thing to say but the day one decision merely defines and delivers the framework of the future relationship but it’s the on-going monitoring in a funding relationship that keeps both parties true to their contractual commitment.

Now the industry has a much better handle on how to approach the financing of batteries in relation to the vehicle itself there’s no over-riding reason why electric vehicles need separate plans. Stock turn is broadly similar so they are quite easily handled on existing stocking plans and associated maturity periods.

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