You wouldn’t expect someone with a degree in neurophysiology to find his way into finance.
Yet that’s exactly what Grant Simons did – though he added in an MBA from the Richard Ivey School of Business for good measure. As head of RBC Automotive Finance, Simons leads the bank’s charge on its national automotive, RV and marine finance business.
Currently the largest bank in Canada, RBC’s automotive division is equally vast with a dealership base of roughly 1,000 rooftops and lending agreements with a number of automakers.
Canadian AutoWorld recently caught up with Simons for a discussion on the state of automotive finance, the role of long-term loans and how banks factor in the digital retailing revolution.
Canadian AutoWorld: How would you characterize the current health of Canada’s auto finance market?
Grant Simons: We are very bullish on the automotive finance sector right now. We’re seeing strong top line sales numbers and we anticipate a strong market over the rest of this year.
There are many experts predicting a shift towards used vehicles, but overall, we’re still seeing lots of activity on new. With still very low rates in the market, we’re also seeing a very resilient Canadian consumer. Vehicle quality is very high, and combined with a strong Canadian economy and low unemployment rates, we expect another great year.
Canadian household debt levels have hit record levels in recent years. Non-mortgage debt balances averaged $22,154 last quarter. How concerned are you about current debt levels and the impact on automotive?
It is something that, as an organization, we keep a close eye on. Our belief is that prudent lending will prevail. When we look at auto financing, we look at many aspects of a customer’s ability to repay and debt levels at the same time. In a balanced and prudent way, we don’t see a lot of risk in the type of lending we’re involved in today.
Speaking of RBC lending, where is the bank active in automotive now?
We operate a fully integrated suite of products for both the consumer – the indirect auto lending space – as well as a very significant commercial and corporate lending business that supports both independent and large dealership groups.
We also work with manufacturers to provide bespoke and very specific services for those OEMS. We operate the automotive business as a separate business within RBC. All of the members of our team – retail account managers, commercial bankers, V-Ps in the field, corporate finance team, products, marketing, dealer events – all work exclusively for the auto finance business and we operate it as a suite of solutions for the end user whether they be retail or commercial.
Evidence of your work with automakers came recently when RBC was added to Hyundai Canada’s financing network in July.
We have essentially doubled the number of manufacturer relationships in the last couple of years. The most recent one being the Hyundai announcement where we started providing subverted financing as of July 1.
How have the early results been?
We’ve been very pleased with the results so far. We had a relationship with Hyundai previously but hadn’t for a couple of years. This has reinvigorated the relationship and we are looking forward to building what we have started.
J.D. Power numbers suggest more than 50 per cent of the new vehicle market has loan terms at 84 months and greater. What are your thoughts on this growing trend of lengthy loans?
There is obviously a limit that it makes sense to fund auto purchases. At the current amortization level, in balance with all the other amortizations in the market, we find it to be a relatively balanced view. If you are prudently providing financing to consumers who have demonstrated they can afford the transaction and, with car quality as strong as it is today coupled with the ability to provide extended warranty coverage’s and other products, there is a definite need for these in the market. It can be a great alternative to leasing as these longer loans provide the opportunity for consumers to get into the vehicles they want to.
What do you say to opponents of that view who feel long-term finance deals are upsetting normal buying cycles and resulting in higher amounts of negative equity given that many consumers don’t want to drive the same vehicle for seven years?
It really comes down to a per consumer basis. If an individual has the capacity and they are knowledgeable to the implications of that type of lending, then I think it’s very reasonable. Negative equity exists in these transactions, but again, that’s not unlike leasing. There are many times that a customer will return a car and have to pay to make whole or roll that into another lease. It’s really not that different.
If the customer is knowledgeable, the dealership has done its job.
The vehicle still has value, which is something we have seen improve over time. A seven-year old vehicle that is well maintained will still have value at the end of that term.
We are hearing more and more about the digital retailing revolution. How can a bank help the factory or a dealer in this changing retail model?
Digital retailing is something we are very interested in working with our manufacturer and dealership group-clients on. We want to help them create an experience for their customers that make sense for both the retailer and the consumer.
There is also an opportunity for us to help the manufacturers and dealers that we deal earn a lion’s share of the business from our 12 million retail customers. How do we help create benefit for our dealer and OEM partners through our own retailing activities? How do we leverage our relationships on both sides of the spectrum? These are things we are exploring now.