AADA sub-committee was formed following release of ASIC’s 1st consultation paper in late 2015. Sub-committee consists of specialists in F&I including AP Eagers, AHG, Dealers, BDO and HWLE Lawyers.
Confidential submission prepared and lodged with ASIC on 11 March 2016 including reference to modelling by BDO on financial impact on dealer network.
ASIC released a 2nd second consultation paper on 3 June 2016.
ASIC Regional Commissioner asked for a copy of the financial model. A meeting took place in Sydney with ASIC on 8 June 2016 led by Deputy Chairman, Anthony Altomonte and a range of issues including the financial model was discussed.
ASIC subsequently asked AADA to address three questions: provide a model with no prohibitions up to 300 basis points; noting that car sales May 2016 to May 2015 has gone up by about 3.6 per cent do you consider profitability will also go up by 3.6 per cent; noting that the average loan term is 32 months, would the majority of consumers trade-up to new cars (so that longer terms could be expected to result in slightly fewer car sales).
AADA’s response to ASIC’s three questions was submitted on 22 July 2016 and included detailed modelling by BDO with the assistance of Andrew Bunce, AP Eagers. The modelling included “impacted” commissions based on volume (known as VBI which is a volume based incentive (VBI) based on net amount financed (NAF). This indicated that that any decline in NAF will result in a decline in VBI.
AADA’s response to ASIC’s 2nd consultation paper was submitted on 22 July 2016. It included an independent paper by Dr Rhonda Smith, Senior Lecturer in Economics at the University of Melbourne. In her opinion, “so long as information about the terms on which credit is available is accessible and transparent and consumers undertake some research, competition between credit suppliers will constrain the interest rate that car dealers can charge. This means that flex-commissions influence the relative return to dealers versus finance companies but has little, if any, impact on consumers.”
A second meeting with ASIC was held in Canberra on 17 August 2016 and was attended by CEO David Blackhall, Deputy Chairman Anthony Altomonte, Andrew Bunce AP Eagers, Mark Ward BDO and Policy Director Michael Deed.
AADA indicated a willingness to work with ASIC to address “outliers”, assist in the implementation of a positive credit reporting system, outlined an alternate arrangement using a “base rate” reference model and drew their attention to dealership agreement incentives based on achieving customer satisfaction ratings and “penalties” for not utilising OEM finance facilities.
ASIC indicated it had arrived at a position on origination fees paid by financiers.
ASIC indicated a position paper would be prepared in due course.
Regards,
David Blackhall
Chief Executive Officer
