Is Buy Now Pay Later the solution to stalling aftermarket growth?
Rising inflation, spiralling prices and higher servicing costs are all combining to pose a challenge to the aftermarket sector. With a recent McKinsey report forecasting stagnating revenue growth across European Auto aftermarkets of around 1.5% annual growth until 2030, retailers and distributors must adapt their businesses to better support their consumers’ needs. This is according to Deko, the multi-lender Buy Now Pay Later (BNPL) platform.
Mike Dawson, CEO, Deko, stated: “The UK automotive aftermarket ranks as the fourth largest industry in Europe and ninth in the world, and contributes over £12bn annually to the economy, supporting 345,600 jobs. So, the fact that the outlook for the sector is weakening is extremely concerning. Furthermore, research consultancy IBIS World is forecasting that the average age of UK motor vehicles will start to fall this year, suggesting a dip in second-hand car sales, which typically need more aftermarket support.
“Car owners are already cutting back on spending, reviewing budgets and delaying non-essential repairs. One route retailers and distributors should consider is improving the flexible payment options they offer at checkout, such as Buy Now Pay Later (BNPL), which would help ease the financial burden on their customers.”
Compounding this backdrop is rising prices. In a survey conducted by the Motor Ombudsman earlier this year, some 63% of independent garages and dealerships said that because of delayed deliveries and global supply chain problems they would be raising prices over the next six months. They also noted evidence of drivers cutting back on spending on their cars as part of their efforts to limit spending.
“The impact of all these trends is likely to see a rise in buyer hesitation. Cart abandonment, across all industries, already sits at nearly 70%. The cost-of-living crisis will inevitably increase this figure further,” continued Dawson. “To stem the resulting revenue loss from increased cart abandonment rates and falling consumer demand, retailers should consider and evaluate flexible payment options.”
Finance options such as hire purchase and personal contract purchase (PCP), which allow a buyer to spread payment over a longer time period, are largely confined to purchasing new or used cars, rather than vehicle parts and accessories. But, implementing a more flexible payment option at checkout for these products and services, such as Buy Now Pay Later (BNPL), will help alleviate the financial strain of such purchases for consumers. This is because BNPL splits large payments into smaller manageable instalments, so customers do not feel the full financial impact in one go.
However, traditional BNPL products often present a one size fits all approach that fails to comprehensively meet the needs of aftermarket businesses.
Dawson continued: “Checkout finance solutions that are supported by multiple lenders are the next step in the evolution of BNPL. This is because a combination of lenders provides a broader range of risk appetite, which means that the right lender will be matched with the right consumer. For retailers, this innovative matching of lenders to customers will boost acceptance and conversion rates, and consequently, sales. Whilst customers will benefit from having greater access to finance and more freedom to pay the way they want.”
As the Society of Motor Manufacturers and Traders put it in a recent report: “The automotive aftermarket is a vital part of the UK economy … By keeping the country moving, the aftermarket delivers significant direct and indirect financial benefits to the country.”
Retailers should adopt BNPL, not only because they want to boost their revenues, but also to help and support their customers. Seeing BNPL being used more broadly across the sector would help it mitigate the impact of the emerging slowdown and allow the auto aftermarket industry to continue to make a significant contribution to the UK’s economic recovery.
