Anglia UK Anglia UK

Risky business – taking a fresh look at wholesale stocking

Nathan Keegan, Business Development Manager for credit management specialist, Anglia UK, offers tips on how lenders can manage risk when it comes to dealership funding.

It’s that time of year again when we make plans for the upcoming 12 months while hanging on to our well-intentioned, but ever so difficult to keep, new year’s resolutions. Those ambitions to critically review what we have done in the past apply equally to the workplace and now is as good a time as any to shine a light on some of our routine but important operations.

For lenders in the automotive trade, re-visiting the risk management strategy for wholesale stocking (dealership funding), is an area worth spending some time on. The motor retail sector is battling on a number of fronts: receding foot fall and sales; manufacturers who are carefully considering their own approach to a less than certain outlook; and - despite what remains a fundamentally sound economy - a major loss of confidence by both consumers and businesses to invest whilst the spectre of Brexit plays out.

Drawing upon the knowledge and capability of an audit provider is a great way for funders to refresh their risk management activity; keeping it current and effective while making sure they get good value for their ongoing investment. Here are 10 suggestions for getting the most out of this type of review:

1.Get the frequency right

If this hasn’t happened in a while, consider if the planning cycles used to determine when audits take place continue to match your risk appetite. Over time, it is easy to allow historically agreed rules to remain in place past their useful sell by date, resulting in some dealerships being over audited and others not being audited as often as they should.

2. Don’t get complacent

Plan with your provider the inclusion of ad hoc (not in line with previous calling cycles) and short audits. These will add real value and provide added evidence of compliance especially if it is possible to conduct these on an unannounced basis. It’s important not to allow your audit activity to become predictive and routine.

3. Improve your ability of identifying the highest probability of default

Make sure the information you receive from your audit provider allows you to manage your risks proactively. Good quality data will allow you to monitor trends over time, helping to identify high risk areas and predict potential defaults. Could the data you get from your audits help you to become more informed and could it be accessed more easily and be presented in a more usable format?

4. Are you as secure as you think?

Have a deep dive into documentation (paper) from time to time so you get greater reassurance on effective title, vehicles on hire, loan and demonstration etc.

5. What else does the auditor see?

Make sure you are getting the right level of feedback on what the auditor is seeing when visiting dealership sites.

6. Improve internal oversight of audit reports

Consider the ongoing effective internal oversight of audit reports. Are the right people receiving the right reports at the right time? Is the approval of all relevant parties achieved in the most time efficient and economical way? Can current practices be simplified to save time and costs?

7. Test your distress management plan

Go back to basics. Ensure that you have a tried and tested stress management plan in place to quickly and effectively recover assets in the event of a multi-sited dealership failure. Plan for this to happen late one Friday leading up to a long bank holiday (as this is when they tend to happen!) and make sure your provider has a proven track record in distress and urgent recovery. Ideally this should be the same firm that undertakes your audits so that you benefit from the greater knowledge, continuity of service and foresight that the audit firm should possess.

8. Leverage your audit firm’s knowledge

Learn from what your audit firm is seeing in the market place. They may be able to impart first-hand knowledge not available to you (ensuring that they remain compliant with all confidentiality considerations).

9. Keep pace with your customer’s business model

Make sure that you keep up to date with the current performance of your customers - as some dealers move more into the used market, their average stock turn performance will change. These sorts of changes in strategy need to be reflected in your monitoring KPIs.

10. Audit is only part of your consideration

Check that the outputs from your audit activity fully integrate with all other information available to you so you have one composite view of risk for each customer.