Peter
Cooke examines the current drivers of change likely to have the
most impact on UK motor finance.
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Memories of the World Cup and the delights
of Kylie at Glastonbury are fading; vuvu-zelas are destined for the
skip.
Now is the time for a reality check. Economists are
muttering ever louder about the risk of a double-dip recession,
while George Osborne’s Emergency Budget included a proposed 25%
reduction in public expenditure.
Maybe now, indeed, is the time to revisit the
organisation’s budget for the year.
Given the changes we have seen in the economy and
the political scene since it was written, is the current company
budget realistic?
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By GlobalDataOr is it dynamic and up to date and capable of
taking us through the remainder of the financial year – with an
underlying strategy suitable for the next financial planning
period?
In the June issue of Motor Finance, I
asked some basic high level questions about the impending ‘Age of
Austerity’ – but that was written before we had the Emergency
Budget and various disquieting reports regarding the global
economy.
Does your organisation need an ‘emergency budget’
of its own – aka a mid-year review – or are you broadly working to
plan and likely to make it in one piece to the end of the financial
year?
Rapid changes
Even since the last issue of Motor
Finance came out, there have been a number of strategic
drivers of change which may impact on the motor finance
industry.
Consider just some of the highest level
issues:
- The Emergency Budget: it includes a range of
belt-tightening issues to be introduced in the shorter term. It
also pointed to further changes once the Comprehensive Spending
Review (CSR) is completed in the autumn. Perhaps the most important
from a dealer point of view is the hike in VAT, due to come into
force during the first few days of January 2011. This begs the
question of just how many ‘late private buyers’ will make purchases
prior to the new VAT change. More importantly, what might be their
funding requirements, and what can you put in place between now and
then to assist that almost certain rush to beat the
Chancellor? - Comprehensive Spending Review (CSR): This has been
promised for the autumn, although it will take time to impact on
business. The speed and depth of response linked to the Emergency
Budget is surprising. What steps might you be able to take to
protect your business? While the CSR will impact principally on the
public sector, do you know how much business you do with that
sector? Equally, you have, or may be able to glean, a fairly good
idea over the next few months of which of your more important
clients undertake significant business with government and local
authorities. Do not look to second-guess in terms of detail. Also,
make an educated estimate as to how much that might impact on
business you would have expected. - Market segmentation: pragmatic research suggests
there are changes in the pipeline; again, what might be your
educated expectations as a result of enforced austerity? Equally
important – look at the changes in demographic and your own current
and potential customer base. There will certainly be a continued
growth in the number of over-65s, who are becoming an increasingly
important buyer group. Also, consider whether this age group needs
finance, and what sort of vehicles they tend to buy.
Business plans, and associated finance
plans and budgets, have always been treated with a degree of
flexibility. They are, after all, simply plans, and need to respond
to market and economic situations.
Consider all sides
Whatever might be thought of the planned
period of economic austerity, the key word is ‘planned’.
Government plans have started to be announced and
it is possible to bring them down to microeconomic areas – the
territory in which an organisation operates.
From that simple analysis it should be possible to
help develop scenarios and a degree of business expectation and
forecasts. For example, are there large numbers of people on
Disability Living Allowances, or other specific allowances which
might be reduced, in your territory? Are there government agencies
or offices which might be expected to be closed? How might those
changes impact on your business?
While one does not need to take a pre-emptive
strike, it may well be beneficial to develop some alternative
scenarios and remedial actions in the relative calm of summer and
early autumn so the basis of action plans have been developed to
respond to actions if judged necessary.
The Scouting motto ‘Be prepared’, it seems, is as
relevant today as it was when it was first coined more than a
century ago.
The author is professor of
Automotive Management at the University of Buckingham
