Brian Rogerson looks back over a decade in point-of-sale
finance
It was in November 1998 that Consumer Finance (the prototype of
Motor Finance) was born. It was conceived as a sister magazine to
Leasing Life, which itself had been launched some five years
previously, and which had since become the “bible” of the leasing
industry.
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As we said on the tin, Consumer Finance sought to supply the
providers of consumer finance, at a senior level, with news and
informed comment on companies, products, legislation and EU
matters. From the beginning it contained, by public demand, a large
amount of automotive content.
The first issue announced in its On the move column that John
Patrick, director-general of the Consumer Credit Trade Association
(CCTA) was retiring. This was momentous insofar as Patrick had for
years been a guru in the consumer finance industry, helping to
steer it through those changes to documentation and advertising
that were required under the 1974 Consumer Credit Act.
Patrick was a firm believer in going about your business in an
orderly manner likely to achieve the best results for most people
for the longest period of time. It was Patrick who, virtually
single-handedly, re-designed and re-formulated those CCTA finance
documents so highly utilised by CCTA members and the industry at
large – while at the same time putting them into legible
English.
From early days the decline of point-of-sale motor finance was an
active topic for discussion. At the 1998 Eurofinas conference Mike
Bannister, chairman of Ford Credit Europe (FCE), announced that,
until recently, “vehicle sales methods had not progressed since the
days of horse sales”. He added: “The automotive sales sector is the
last bastion of outdated selling, and FCE research has shown that
many customers do not like the car buying process.” And that, by
and large, was how it remained over the next decade.
It was also at this time that the seeds for today’s current
economic crisis were laid. Lenders’ good intentions following safe
emergence from the 1990-93 recession were slowly but surely
forgotten as deposits shrunk and loan terms extended. In 2001 we
(by now Credit & Car Finance) reported the fall-out from the
9/11 terrorist attacks in the US, when all three Detroit carmakers,
faced with a 35 per cent drop in car sales, introduced ongoing 0%
finance deals in an attempt to revive sales. The practice, nothing
short of distress selling in its extreme, was compounded later when
General Motors introduced “0% deals over a five-year term” in its
attempt to “keep America rolling”. Both in the US and the UK the
basic problem – that vehicle production was outstripping demand –
was ignored.
Around the same time, editorial staff became aware of
securitised asset-backed securities hitting the market, by way of
off-balance-sheet vehicles, and with occasionally startling credit
ratings. Fortunately the adoption of such methods by non-prime
mortgage lenders fell outside our remit. However, this was the
“bright new way” of lending, and was accompanied by reports of some
UK lenders offering prime rates of interest for non-prime business
in their race for turnover. It seemed as if the boring old rules of
prudent lending were no longer appropriate.
As the age of prudent lending inevitably returns in months to
come, it seems inconceivable that a significant model change will
not accompany it. As car manufacturers eventually moves from a
“push” to a “pull” production strategy, so lending is likely
to move to a borrower-specific pull model, often with a vendor
alliance and invariably via the internet.
Lenders – both car and fleet lessors – will look very different
to the way they do today. I believe that more savvy borrowers
will increasingly seek to dictate the manner and method by which
they borrow their money. And furthermore, I believe that John
Patrick would approve.
