90% of new cars in Australia are financed. Dealer finance penetration is around 30%.
The numbers aren’t adding up as they could be, or are they?
Nodifi investigates the current state of car finance in Australia and the potential opportunities for car dealers.
Over the past 10 - 15 years, there has been a growing share of finance commitments for new consumer motor vehicles, and the signs show this trend will continue for the near future.
There are four main channels that consumers use for motor vehicle finance.
Despite their relatively low penetration of 30%, there are over 1,500 new car dealers in Australia, responsible for more than 2,600 outlets. In other words, around 1 new car outlet per 9800 people.
The motor vehicle finance industry by no means solely relies on car sales. Ancillary services, which include things like sale of spare parts, after-sale services (such as ongoing servicing) and the sale of insurance, make up a large portion of the industry's profitability.
According to ASIC, car dealers have two main sources of finance-related income from a sale:
The average car loan size is $30,000. However, the most ‘popular’ size as far as searches and scenarios go is $20,000.
Most car dealers offer finance with competitive rates, however are limited to a small portion of the overall car financiers in Australia.
Dealerships with arrangements with asset finance aggregators naturally have a higher finance penetration in contrast to those that simply have floorplan financiers. The results to a dealer’s bottom line can be drastic, as the following shows.
|Finance Penetration Increase||Additional Revenue per Month|
* Figures based on 100 dealership sales per month and an average of finance commissions (excludes service, aftercare, insurances)
In other words, by financing 5 extra cars per month, this could deliver an additional $14,000 and up to an extra $42,000 on the basis of an additional 15 sales per month.
To cater for any increase, dealers can either:
Needless to say, the car finance industry in Australia is incredibly lucrative. With the right mindset and approach, dealerships can stand to capitalise on this market, with simple tweaks to current business operations.
Luckily, the team at Nodifi are all too happy to provide assistance on how to scale finance operations, in a bid to increase finance penetration and ultimately, generate additional revenue.
The bottom line is, most dealers talk about increasing their finance penetration, yet the difference between current penetration and the 90% opportunity is vast. So take that first step and talk to Nodifi today.