Never Finance Discontinued Make/ Model

While financing auto assets, one should not finance model or make which are discontinued in the market.

There is always  a sudden drop in the value of those vehicles when discontinued for whatever reasons; the borrowers may not have interest in holding on to the vehicle and start defaulting on payments. The attitude changes with the imminent loss he may incur in holding the vehicle; he would be the first to know the discontinuance and the depressed value. Loan companies get to know the picture very late almost always.
Borrowers try to even overuse the vehicle, not maintain properly and not make installments so as to maximise his recovery of his equity/ margin in the asset quickly, before repossession.

In the market, forecasting a make or model discontinance is very difficult. When it happens, lenders must stop immediatly to avoid any further risk. The author even recommends to put on hold financing such makes/ models rumoured to be discontinued.

When loan companies come to know of the discontinuance, mark all those contracts as 'high risk' and monitor closely for early repossesion and disposal in case of 'high deliquency'.

Certainly, it is not at all advisable to consider financing used vehicles of those makes/ models even if the customer is highly rated or existing customer with good credit history.

Similarly, used imported vehicles must not be considered for financing; quality, spare avialability, value are suspect. Major frauds happen in metro cities in financing such vehicles.

Have An Economic Advisor

Finance is an important  part of Economics.

Elsewhere, I have argued that the finance business is 'interest centric'.

Please read: http://loganathan-pattabi.blogspot.in/2012/01/be-interest-centric.html

In my post-graduation in management with specialisation in two majors - marketing & finance - we had  more emphasis and many papers in economics. It had more coverage than a MA (eco.). We used to think that this was because we had a Director of the Institute who was an economist. The author did not realise the value of economics till he moved into senior positions where decisions ought to be taken.

Each decision involves capital investment, cost, return, demand, supply, etc. Suddenly, there is  economics  everywhere.

And economic growth is what drives the finance business at the macro level and economic cycles effect or affect the unit's top and bottom lines.

Being interest centric, it is important that any finance company or bank understands constantly where the economic cycle is and what company needs to tweek to optimise the resources and at least, not to get affected badly.

Another important work of an economist would be to forecast the interest rates and the length of the economic cycle so as to help negotiate the right rates and currency of the debt papers to be placed by the company and also correspondingly, subsequently and consequently decide the loan period for lending. Currently, banks and finance companies in competition, without much research and study offer as long as 7 years auto loan at fixed interest rates. If the interest rates are likely to fall in the 7 years contineously, it would be prudent to lend at higher fixed rates. It may be stupid if the interest are likely to increase. This is risky. Are banks and companies hedging? There are I believe some hedging rools available in the finance market. Are they using?

This is very important; it could help double the bottomline of any loan company/ bank.

An economist will also help discover new emerging assets for financing.

There was also a case where a company had lost huge customers and dealer finance business just because of bad attitude and lack of knowledge to understand the interest economics accurately and approprietly. A good understanding of the market, interest and economics by the country head and treasury head would have saved the business and eventually the company.

Economist apart, an MD or country head needs to have a knowledge of the economy and economics to succeed. He or she may have to have economic skill to set the right expectations  for an economist and from econmics.

A finance company used to decide the lending rates for car loans in a monthly meeting where author was present. The lending rates used to be about 10% less than the cost of Public Fixed Deposits. When questioned, the marketing ( lending) head would ask to shut up; the promoter would know better was the answer. It might not have been a case of not understanding such a simple arithemetic, if not economics. It was a fraud; company obviously went belly up.

Weighted average cost of funds and marginal cost of funds needs to be appropriatly collated and published to top management so as to reduce more discussion on lending rates. An economist would focus here to minimise constantatly both by innovative products and methods.

He or she can be even a consulting economist, if the company size does not suggest a  recruit.

A good practicing economist is something even RBI must think of prescribing to be on Board of Directors of any finance company, including MFI.

Appreciate , Liberally

Appreciate on every deserving occassion, liberally.

Greeting, thanking and appreciating geniunly would solve many HR problems in the corporate world and improve dramatically the relationship across the board and consequently the team spirit.

When I was working for a MNC finance company in India, I found myself in a utopian world and employees would not greet me; will respond to my morning greetings very relectantly. Neither they greeted each other. It was strange; I was never able to find a reason. Greeting each other must be an essential part of culture of any corporate; HR must watch out and ensure this. Or was it a problem of nepotism?; I was never sure.

Generally, mails are used for seeking approval or communicating news - both good and bad.
The author had an habbit of responding quickly; also to mails. If any mail carries any news with a semblance of goodness, the mail is read and replied quickly with one liners like :

• very good
• good progress
• excellent work here
• well done
• proactive
• Great job
• keep it up
• I appreciate your committment
• U r the best
• cheers

Most of mails are from branches and field collectors. Lot of regional managers conveyed that I was very popular among my field staff firstly for fast decision - either approval or dissapproval and secondly for 'appreciating' them on every occassion when they 'expected' - very promptly and very liberally.

Many managers feel that more and liberal appreciation would set high expectations among subordinates in terms of pay-rise, bonus and promotion. In fact, I found that employees would love to live with 'appreciation' in lieu of pay rise, etc.

Once, I had a good manager by name Mohanan to look after salvage - recovery from loss accounts. He was new to the company and started sending claims communications and legal notices in a few high value accounts. A mumbai based 'public relations' company was one of them to have received the notice. They had two accounts whose term were over and charged off and three more delinquent accounts with us. CFO of the borrower came down to chennai and negotiated for settlement of all 5 accounts together. The negotiation was cordial and ended positively; we took one full morning to do. After the successful negotiation, our MD ( an american who claimed to have had 25 years experience in debt collection in USA in the same company) had to question us as to why we were negotiating in very coordial atmosphere; he did see us through glass door. We were shocked; we were expecting 'appreciation", but we were a kind of reprimanded. To add further insult, another department head for whatever reason, had to say that the borrower was under pressure  for some foreign tie-ups to pay up and not because of any efforts by collection department. Obviously, we had lost Mohanan quickly to our competitor. Appreciate; at least do not insult or take away the credit.

“Appreciation is a wonderful thing. It makes what is excellent in others belong to us as well.” – Voltaire

Frederick Koenig once mentioned that happiness comes not from getting something we lack, but from the recognition and appreciation of what we do have.

“I would rather be able to appreciate things I can not have than to have things I am not able to appreciate.” – Elbert Hubbard

According to the Dalai Lama, the roots of goodness are in the soil of appreciation for goodness.

“Courtesies of a small and trivial character are the ones which strike deepest in the gratefully and appreciating heart.” – Henry Clay

Goethe said, “treat people as if they were what they ought to be and you help them to become what they are capable of being.”

Why not appreciate, little liberally? 

 

Listen To Disputes

Many customers or borrowers do have disputes, mostly while repaying loan.
They may not be wrong all the time.

Why disputes?

Disputes arise primarily because many applications are sourced by Direct Marketing Agents / Dealers in case of auto loans. An illustrative list of such disputes are as follow:

1. Agents and some employees make wrong promises, just to make a sale.
2. Many agents are neither knowledgeable nor reveal every fine print.
3. Customers are exited and do not read contract terms ; some may not fully understand all the jargons.
4. Many relate to monthly payments (EMIs) and/ or number of instalments.
5. Few relate to due dates.
6. A few but serious ones relate to rates, charges and penalties.
7. Also relate to the price of the vehicle, especially in case of used vehicles and the quantum of loan.

Many disputes aggrevate because

1. The customer does not know where to go
2. The loan company is not responsive
3. Collection agents just do not listen. Or insult
4. Company/ agent looks at every delinquent customer as bad / cheat.

Many disputed accounts are delinquent; because customers feel that that is the way to make the company to come over and listen.

It is important that company do have customer service departments to listen, note, investigate, explain or accept and conclude whether the dispute is genuine.

In case of delinquent customers, listening to the disputes and explaining as to how it is not / may not be disputable would solve 80% of the disputes. Subsequently and consequently, they would pay up.

Not willing to listen lead to aggrevating the problem and to a loss situation. If the dispute is allowed for a longer period and especially in case of deliquent customers, they learn not to pay and will become high risk account as the value of the vehicle will erode to be smaller than the loan receivable.

Listening attentively can also help unearth fraud situations.
Also, provide a window in the website for airing the dispute; let somebody track in head office.

Finding an honourable solutions quickly would help improve customer satisfaction and consequently customer retention.

So, listen to disputes carefully and find an amicable solution quickly.