fretwell mark

A car dealer reliance on trying to offer the lowest monthly finance rates is an unsustainable ‘addiction’ that undermines loyalty and profits, industry experts have warned.

Dealers should be focusing instead on maintaining loyalty through shorter change cycles and qualifying customers more carefully, according to finance retention specialists Chrysalis Loyalty.

It says dealers are using extended personal contract purchase (PCP) terms to lower monthly payments and offer a quick fix to generating demand in an increasingly competitive market.

But if dealers fail to challenge the industry mantra that ‘it’s all about the monthly payment’, they only pursue a “race to the bottom”, warns Mark Fretwell, product and marketing director of Chrysalis Loyalty.

He said: “Some dealers are addicted to the lowest possible monthly payment as a way of signing the customer immediately, while sacrificing future loyalty and profitability.”

Fretwell argues that reducing the length of payment terms, for example from 48 months to 36, benefits both the dealer and the customer.

He contrasts a four-year PCP, with zero advance payment, against a three-year term with a deposit of two monthly payments.

The shorter term adds 10% to costs for the customer but they will be able to renew the vehicle earlier at minimal cost to change, he argues.

Fretwell said: “If this approach were implemented at scale it would result in a 33% increase in sales volumes from renewing customers over the longer term.”

This approach involves more rigorous qualification of customers, but Fretwell argues that the increase in overall sales volumes over time – and the customer goodwill that stems from being able to change cars sooner – will bring substantial rewards.

He added: “Instead of taking the path of least resistance with the lowest possible monthly payment, conversations should focus on the bigger picture, which must include how often the customer likes to change their car.

“This is about giving the customer all the information they need to make the best decision for them as well as for the dealer.

“The benefit of a relatively small increase in payment and the addition of a deposit makes for a more sustainable long-term strategy.”

He said that if customers are in four-year finance deals, it can lead to them wanting to change sooner and finding that they can’t, which can undermine satisfaction and loyalty.

Fretwell said: “As we face a more challenging market today than for several years it surely makes sense to work a little harder now to maintain the quality of customer relationships and preserve the opportunities to renew.”

Fretwell, whose automotive data and technology background includes senior positions at CAP and KeeResources, was appointed to the new role of product and marketing director this year as part of expansion plans at the business.

Chrysalis Loyalty is independently owned and UK-based, with a client base in 12 countries. It supports more than 2,500 motor retailers with services to generate repeat business.

The company partners with nine major automotive brands and finance providers through their franchise networks and its expansion plans range from deeper and wider British market penetration to launching into new geographical territories worldwide.

Generating loyalty through swifter replacement

(Monthly payments highlighted in bold)

PCP length (months) 24 36 48
On the road price £29,050      
Brand deposit contribution £1,000      

GFV (95% of CAP Gold Book)

February 2018

£13,870  £12,136 £10,188
With £0 customer deposit   £525 £452.13
With £992 customer deposit   £496.10  
With £4,000 customer deposit £502.79    

Source: Chrysalis Loyalty