Car Financing in Australia - Dealership Opportunities in 2021

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.

Quick Stats

• 90% of all new cars are purchased under finance
• Australian car finance totals around $36 billion each year
• There are over 1,500 new car dealers in Australia

Trend movements snapshot

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.

Which channels are funneling car finance?

There are four main channels that consumers use for motor vehicle finance.

• A car dealership
• A finance broker
• Through an authorised deposit-taking institution (ADI) or non-ADI lender
• Through a lease or similar arrangement

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.

Profitability

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:

• Financial benefits from lenders, including commissions for individual loans, volume bonuses and ‘soft dollar benefits’ - benefits received other than a basic cash commission or direct client fee
• Charging the consumer a dealer origination fee for assisting in the provision of finance

Nodifi’s numbers reflect industry trends

The average car loan size is $30,000. However, the most ‘popular’ size as far as searches and scenarios go is $20,000.

Other data shows:

• The average age of a borrower is 36
• The average loan term is 5 years
• The average loan repayment is $591 per month

Dealer Opportunities

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.

* 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:

• Get more out of current staff i.e., business managers
• Employ additional business managers
• Utilise virtual business managers

Summary

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.