Peter Cooke says headline figures belie what is really
happening in the world of motor finance.

 

Peter Cooke‘Numbers need qualitative
analysis’ should be taught to every school child capable of passing
five good GCSEs.

Far too many numbers are published with sufficient
spin to justify inclusion in a national cricket team. But, do we
read what is behind those numbers – and ask how they might
influence our business?

Published, at the beginning of April, were three
separate sets of data that should set alarm bells ringing – even
though the numbers, on the surface, might appear quite heartening.
I take them in no particular order.

First, the number of cars on the roads in Britain
has fallen for the first time, year on year, since World War
II.

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That decline has only been in the region of 22,000
units – down to 31,035,791 cars on the road in 2009 versus
31,252,476 in 2008.

Government, too, has been tightening up on
unlicensed vehicles, so the true fall may in reality be somewhat
higher.

Second, “new car registrations rose by 26.6% in
March 2010 on a difficult March 2009” – but are still lagging well
behind the figure of 2008 and earlier years. The industry is still
running well below historic figures.

Third, UK sourced sales were up by 52.1% compared
with the previous March when, I think, various plants were on short
time.

Individually these three issues might be treated as
relatively minor issues, but do they have longer-term implications
for the car market and the car parc – and the opportunities for
motor finance business?

‘Spin’ may create a feel-good adrenalin rush, but
to mix the metaphors, needs to be taken with a pinch of salt.

The reduction in the total car parc has principally
been caused by the 400,000 unit scrappage scheme whereby the units
replaced had to be scrapped – whatever their condition.

As such, with replacement units they would have had
a neutral effect on the total car parc. Normal annual scrapping
rate is about 2m but last year with the much reduced sales, even
with scrappage, the parc has dropped.

New car registrations may have recovered somewhat
from the disastrous early 2009 figures, but are still down on what
might be considered the running rate over time.

While there is no reason to doubt further recovery,
the absolute number of units being registered will take a
considerable time to reach historic levels.

Add to that lower new car volumes, the apparently
steady downwards spiral in the mix of new cars being acquired –
particularly when one considers the ‘post-scrappage discounts’
being offered – and the potential traditional motor finance market
might begin to look a little queasy.

Certainly, manufacturers have been part-addressing
the problem during recession by some eye-popping price adjustments,
but is the motor finance industry facing, if it continues as it has
historically, a significant longer-term reduction in business
opportunities – unless the product on offer is changed?

A triple whammy and a general election certainly
might offer new challenges. What are the growth areas motor finance
players might start to consider or revisit with regard to future
sustainable and profit generating developments?

There are perhaps two to three emerging
opportunities. You may already be exploring them, but they could
justify examination.

Given we are moving into a period of an ageing
vehicle parc, and many fleet operators have been retaining cars for
longer than has been the norm, there is maybe an opportunity to
look at the age/mileage criteria for finance deals.

While best-practice may have been three-to-four
years maximum, maybe that limit needs to be reviewed.

Similarly, to expanding the age of vehicles to be
considered, what about reviewing the criteria for would-be
borrowers for both new and used cars? There may well be a pent-up
demand for retail funds; are your criteria for lending in line with
current market needs – without creating undue risk?

Thirdly, have you revisited your historically loyal
motor finance clients who may have been out of the market during
recession? Not everybody is in fear of losing their jobs, and
perhaps now could be the time to start looking towards a new or a
replacement car – do you have a ‘revisit the dormant client’
programme in place?

Quite simply, the numbers we are being fed with
regard to recovery from recession in the automotive sector need to
carry health warning, and one needs to look carefully behind them.
The market will come back, is coming back – but will it be the same
shape and magnitude as before?

Look carefully behind any numbers offered, before
you accept them at face value!

The author is professor of Automotive
Management at the University of Buckingham