Arab Today, arab today honda adopts bold strategy for new financing rules
Last Updated : GMT 02:42:12
Arab Today, arab today
Arab Today, arab today

Honda adopts bold strategy for new financing rules

Arab Today, arab today

Arab Today, arab today Honda adopts bold strategy for new financing rules

Dubai - Arabstoday

It\'s just a month and some since the new Central Bank directives on automobile financing came into effect. But even in this short timeframe its full impact has been such that the industry now talks about the pre- and post-Central Bank phases to timeline what they are up against. Since May 1, there is a precipitous drop in new car sales even as local dealerships work on counter measures. It is in this light that the new wave of auto financing initiatives from some dealerships is thrown into sharp focus. However, Mark James Kass, managing director of Al Futtaim Honda, comes in with a contrarian viewpoint. According to him, there was need for a radical overhaul in the way automobiles are financed in the UAE and in line with accepted practices elsewhere. In that light, the Central Bank guidelines were just what the market needed, irrespective of the short-term consequences. Kass explains why. Article continues below Gulf News: Al Futtaim Honda introduced the Advantage financing programme in the first week of June. How has the initial response been? Mark James Kass: We have removed the recommended selling prices and replaced them with monthly payments. It\'s a bold move. The difference between this and conventional hire purchase is we get customers to come in and talk about the cars. Typically, in this part of the world people look at the retail selling price and then haggle on the net selling price. What I wanted to introduce was fixed price selling. This market here has a trading mentality and discounts were common. What we introduced as an interim solution was wherever you go within Honda showrooms in the UAE, the price you see will be transparent. Our showroom on Airport Road will not undersell the one on Shaikh Zayed Road. But wasn\'t that the case earlier? Within Honda, it was not. A customer by shopping around Honda showrooms in the UAE could come with a difference of Dh2,000 or more. It was competition within our own business and that was not helping. What we cannot do is not be transparent. So, even without the Central Bank directives on auto financing not to exceed 80 per cent, Al Futtaim Honda would have come up with the Advantage financing programme? In October last year, I said the private contract purchase (PCP) scheme needed to come in. But the problem was education. Because finance solutions were typically available on a 60-month tenor, what we wanted to do was halve it. Also, our units in operations (UIO) were beginning to see a drop as we went into 2009, the volumes halved and the UIO did the same. In the new way, not only can people buy new cars more regularly we can supply them at a higher frequency. It was an idea in October and reality in January. I could have launched it in the first of April but I wanted to sit back and wait. I did not want to be the first off the blocks. Was it easy to get all stakeholders to agree to see things from your viewpoint? The problem is to talk to the banks and make them understand the concept. There were lots of formalities to go through. For the banks it\'s a learning process as this market was coming a little later into it. It has been there for 18 years in the UK and 20 years or so in the US, and has become a way of life. In the UK conventional hire purchase is not talked about that much any more and anything outside of that is a personal loan. We broadly finance 72 per cent of what we sell to retail customers. We hope 70 per cent of that 72 per cent will be on Advantage. We are confident we can do that. The bits I think we got right was we went through an extensive training of our team since April. Every single front-line member had to train for a full day with an exam at the end of it. The other thing I insisted on the branch managers or business managers second-faced the customers if the salesman hadn\'t got it right. The intention was to talk to the customer one more time. The initial signs are good. How many banks have signed up with the programme? Do you plan to bring on more? We got three strategic partners — HSBC, Dubai Islamic Bank and Emirates NBD. We are talking to more, but it\'s clear that we will not be offering it to everyone. But how long do you think before new car buyers are willing to accept Advantage and what it stands for? It will probably take three months, even more to know the real success. What\'s happening is that plenty of people are coming in and are interested. We show them the Advantage programme and if we cannot overcome the objections — and there should not be any — then we look at conventional financing. But it\'s not the preferred way. It\'s in the delivery and how you articulate it. Any private contract purchase scheme is transparent, but you still need to articulate it to the consumer. If that\'s not done or not subscribed to fully, then ultimately you fail. Does any of this mean changing the way margins are decided? It depends on how you package the deal. What we don\'t want to do is confuse the two or dilute one or the other. Just throwing more money at private contract purchases is not the way. It\'s all in the delivery and I am quite adamant about that. Regardless of the Central Bank directive, we would have gone ahead. You had some banks offering 72 months which just not was right. With private contract purchase, the trick is to get the residual value right; and we do not have the huge swings in retail and net selling prices. It\'s so much easier to price a product when in the cycle. What about getting the concept accepted in the other emirates? Doing so in the northern emirates — Fujairah and Ras Al Khaimah — and in Al Ain is part of the challenge. Our customers there are 75 per cent nationals, it\'s a unique demographic. Over here it\'s not more than 20 per cent. The key there is to make sure conversant Arabic speakers and to have the presentation and materials in Arabic. Would you say you are in favour of the recent Central Bank requirements and what it would mean for the auto industry in the long run? Most definitely. The car market can sell more profitably and there will not be the need that much of distress selling. It will bring sanity to the market and that\'s critical. What has happened is that with the CB directive, they also equalised or consolidated a lot of the charges such as on reference letters, early settlement charges, etc. Before there were a lot of hidden charges. Everybody now has got on to a level playing field. All that is needs is more explaining; there are questions that will come particularly for someone who has not bought a car this way. We probably need more time. Supplies from US, Turkey Al Futtaim Honda is shifting the sourcing of a majority of its shipments from Honda\'s manufacturing facilities in Japan to those in the US and Turkey. It assumes significance following the disruptions caused to the global automobile industry by the recent earthquake in Japan. \"By the middle of 2012, everything except for the Jazz will not come out of Japan; they will come out of the US and Turkey,\" said Mark James Kass of Al Futtaim Honda. \"In fact, we have already received the first shipments to come out of the US. Until now, as high as 75 per cent of the shipments were from Japan. \"That hasn\'t been easy as we got a very strong yen against the dollar and that\'s appreciated to 81. It made our cars more expensive overnight.\"

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Arab Today, arab today honda adopts bold strategy for new financing rules Arab Today, arab today honda adopts bold strategy for new financing rules


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