Advantages/Disadvantages

Question 1

What are the advantages for Direct?

Answer 1

Lessor controls entire relationship
Lessor can sell other products to the customer either asset finance or other parent bank products
Strategic changes in new business policy are easy to implement (pricing, market sector)
Reduced risk of fraud

Question 2

What are the disadvantages of Direct?

Answer 2

Running a direct sales team is expensive

Competitive market pressures means conceding rate compared to intermediate (vendor & broker) routes

Question 3

What are the advantages for Vendor?

Answer 3

Market efficiency as vendor responsible for deal origination - as vendor sales team become the sales team
Lessor margins are generally higher
Vendor has superior knowledge of residual, may allow them to price higher as the higher residual lowers the rental - means increased margin for op lease
Vendor can offer financial support to enable the lessor to accept deals with higher risk
Vendor can offer re marketing support in the event of repossession following customer default
In economic downturn - can offer better attractive finance deals to boost sales 0% interest deals

Question 4

What are the disadvantages for Vendor?

Answer 4

Lessor does not control the relationship with the customer
Higher risk of fraud
Relationship with the vendor could mean greater pressure for the lessor to accept higher risk deals
Competitive pressure for lessor to maintain lucrative relationship
Change of vendor ownership can lead to risk of losing relationship
Concentration of risk in captive can mean a portfolio that is not diversified

Question 5

What are the advantages of a Broker Route

Answer 5

Market efficiency as sales team is expensive
Brokers understand lessors asset policy and credit appetite - high probability of acceptance
Higher conversion rate as more customers use brokers than other channels
Lessor margins are higher but have to take into account the commission to the broker

Question 6

What are the disadvantages for a broker?

Answer 6

Competitive pressure as there are several brokers
Higher risk of fraud
FCA regulatory regime meaning lessors at risk if they sanction deals
Risk of losing relationship if broker changes ownership or has new investors/private equity firms involved

Question 7

Benefits of vendor having a captive?

Answer 7

Improved sales
Higher margin
Customer retention
Additional income 
Sales promotion
Secondary market