Adjustments
to pricing across the car finance industry this month have
highlighted the issue of competition in the months to come. While
the question of whether competition will be played out in price or
service levels is a discussion all to itself, it is first worth
asking what lenders will be competing over.
Certainly, given the flat April seen
by most retailers, it’s looking more and more likely that there
won’t be a surfeit of new business for lenders to capture – most
seem to be expecting a market very similar in size to that of
2010.
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The SMMT predicts 1.93m new car
registrations this year – 100,000 less than last – but given the
absence of scrappage this time round to incite consumers to buy
new, it wouldn’t be unreasonable to expect increases in used sales
to make up the difference.
Still, given that used car finance in
March was down 3% in value year-on-year, it doesn’t look like this
sector is performing miracles just yet.
Consumer confidence is still in a bad
state, inflation looks to have swerved back onto its drive upwards,
and consensus on rate rise timing seems to be pulling back towards
a summer shift. All in all, it looks like the strain on the
consumer pocket is only going to increase.
The silver lining to this gloomy
picture is that the penetration of finance on the forecourt
continues to climb, topping 54% in the last statistics released by
the FLA, and keeping the industry’s monthly lending total on a
course of slow growth.
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By GlobalDataThis situation stands in proud
contrast to the 7% drop noted by the FLA in overall consumer
lending, where use of store cards and credit purchases has been
curtailed by the growing mood of austerity.
If the car finance industry can keep
taking a greater share of the shrinking retail cake, the sector
should manage to top 2010’s total lend.
A large part of this will be the
continual promotion of PCP products in the captive sector.
The monthly increase in the product’s
prevalence shows that it is giving consumers a feasible, flexible
way to fund new car purchases, which is going to be vital in
upholding the SMMT’s 1.93m target for the year.
Indeed, the manufacturer-owned finance
providers have already acknowledged PCP as a large prop to their
successes in the first quarter of this year, and are planning on
rolling out new promotions as the year goes by.
Beyond the world of the big
franchises, lenders should examine where they can be gaining ground
in the world of independent and smaller dealerships.
There are a lot of retailers out there
selling maybe five or six hundred cars a year, which have maybe one
captive relationship and another link to an independent provider.
While in flusher years they would split any business that would not
fit in these categories between several funders, this is rarely the
case now.
For a start, there are less funders
around. But more importantly, with their sales energy stretched to
the limit as it is, these retailers cannot afford the time and
energy needed to liaise with multiple finance company reps.
They are looking for a single
relationship as their third string, and they are a demographic that
both large brokers and middleweight independents are targeting
heavily.
Further into the dealer market, there
are those smaller sites that may have given up on F&I provision
entirely. Through a combination of the overheads connected with
sales managers, the drying up of both GAP and PPI products, or the
complexities of CCD regulation, they have decided that the profits
to be gained through finance sales just aren’t worth the
trouble.
What’s more, they may still be dealing
with debitbacks as their only memento of the finance industry.
Of course, lenders must decide whether
these low-volume sites are worth their own energies to engage with
– margin as ever must take priority over sheer numbers of vehicles
financed.
Nevertheless, in a market which
doesn’t look to be getting any fatter in the near future, finance
providers should be looking for every opportunity to use their
products to make the difference between an uncommitted tyre-kicker
and a satisfied customer.
After all, if they don’t do it, the
personal loan providers probably will.
Happy hunting,
Fred Crawley
fred.crawley@vrlfinancialnews.com
