Motor Finance reviews the highs and lows of the past year, and speaks to Chris Sutton from Black Horse, Lee Streets from Evolution Funding, and automotive charity BEN to see how the year will be remembered, and what to look forward to in 2015
The past year has been a year of two halves. On the one hand, the industry has grappled with new Financial Conduct Authority (FCA) regulations and the challenges it has caused. On the other hand, growing new and used car sales combined with improving finance levels have helped the industry to explode, with new entrants coming into the market and others reporting high levels of growth.
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Chris Sutton, managing director of Black Horse, is typical in that sense. He says: "At our half-year this year Black Horse reported net lending growth of 33% year-on-year and a net lending increase of 28% since 31 December 2013 to £6bn, which included strong new business growth.
"The continued strong performance of new and used car sales has been welcome by the industry as a whole and is testament to the hard work of both manufacturers and dealers alike, offering a good range of new models, introducing new technology to entice consumers through the door, alongside affordable finance."
Lee Streets, director at broker Evolution Funding, says the brokerage has increased in size exponentially since 2013.
Finance volumes at the company increased from £86m in 2013 to £146m in 2014. Over the same period, cases paid out increased from 10,000 to 16,500. While Evolution is definitely growing at beyond the market rate, the general broker market is also growing rapidly.
Record year
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By GlobalDataFigures released by the Finance & Leasing Association (FLA) concur with this assessment of the market.
Although at the time of writing the most recent figures released by the FLA are from October, the association suggests the industry is heading for a ‘record year’.
For the 12 months to October 2014, the total value of the finance was up 18% year-on-year for new cars and 23% for used cars.
It’s little surprise then that companies such as Blue Motor Finance and Paragon, both of which left the industry during the recession, have rejoined over the past 12 months.
At the same time, companies such as Provident, Solera and Cabot Square have each spent millions of pounds buying established companies (in these cases Moneybarn, CAP and Blue Motor Finance, respectively) in the industry, suggesting confidence in the market from the outside as well as in.
However, there have been problems. Automotive charity BEN tells Motor Finance that in the past year is has seen a 17% increase in the number of people turning to it for help, with an increase of 34% in dedicated helpline calls. This means there were more people from within the motoring industry in need of charity.
Over the past 12 months, the FCA has been one of the most spoken about and controversial issues in the world of motor finance.
By 1 April, the regulator had issued 49,505 interim permissions, of which approximately a fifth had come from the motor finance industry.
In July, Martin Wheatley, FCA chief executive, said companies were starting to rise to the challenge, and in October the FLA said its members were on track for full authorisation.
Inconsistencies
However, Streets says there have been inconsistencies in terms of how funders have interpreted FCA rules: He says: "There are so many different inconsistencies between what each funder and everyone else says, so I don’t think that any of the dealers are certain about what they should be doing, because every finance company is telling them something different. And they’re certainly telling us something different as well."
In early December, consultancy company, Compliancy Services argued that the FCA was going to cost consumer finance firms £100m by 2020 in compliance expenses. Around the same time, an inquiry into the FCA’s actions in the insurance market earlier in the year was highly critical, and senior executives resigned as a result.
Sutton describes the changes to regulation by the FCA as a ‘major challenge’ to the industry. Overall though, he’s positive about the potential impact of the regulations as he feels it has provided the industry with an opportunity to become more transparent, and in turn more trusted, by consumers.
He admits being "disappointed" however, that the industry generally has not moved more quickly to react to the regulatory changes.
Sutton says: "In particular, several of our competitors don’t appear to have made enhancements to their assessment as
to whether customers can afford to repay their loan both at the point the lending is agreed and throughout the period of the agreement."
Looking ahead, Sutton suggests that the market will continue to grow, albeit at a slower pace than previously. Among these car sales, he foresees a continued high uptake of finance as a result of low interest rates.
Continued growth
From a Black Horse perspective he says: "Our aim is to continue to build on the strong momentum from 2014 and ensure we continue to meet our customer’s needs."
Streets has a similar opinion, saying the market will grow at a slower rate.
Looking at brokers in general he says: "I don’t think it will be as easy for brokers to replicate perhaps the increases in volumes without putting significant extra resources into their businesses, like we’ve done in terms of growing the sales teams. It’s not going to be natural market growth that comes next year. You’re going to have to work for it and earn it."
This could potentially lead to some consolidation in the mainstream broker market as the industry goes through unprecedented change. Two of the key reasons for this will be the industry adapting to the FCA, and an increasing use of technology, which smaller brokers may struggle to afford.
