Zuto’s chief operating officer, Aimee Gethin, reflects on the role that car finance can play during the cost-of-living crisis and welcomes the changes being ushered through by the City regulator’s Consumer Duty.
Customers have been enquiring about car finance at record levels since Christmas, a trend that is reflected across the sector. The cost of living crisis and the high price of second-hand cars means that, for many, finance is the most affordable option for getting the car they need.
The word “need” is important here. Recent newspaper articles talk about the UK’s so-called “addiction” to finance, and our love of cars as a luxury item. But for some of our customers, the car they want to buy is often their means of getting to work or getting their family to school or hospital appointments: it’s a necessity.
This is backed up by a recent poll: We’ve seen a 7% reduction in customers telling us they want to upgrade or get a better car, and a 14% increase in people wanting to get a new car for work (January 2023 against January 2022).
Rising cost of used cars
Current issues such as the higher cost of cars, combined with less disposable income for many, are factors causing more people to apply for finance. February 2023 was the 35th month of consecutive year-on-year (YoY) price growth for used cars, according to Auto Trader. It reported the average retail value for used vehicles was £17,720, up 2.3% on a YoY and on a like-for-like basis.
This is largely down to supply and demand – the availability of secondhand models has been affected by supply chain issues in the new car market. The average cost of used EVs is, however, coming down, but they are still significantly more expensive than conventional fuel vehicles.
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A duty to customers
Financial service providers must be mindful of the struggles customers are facing, especially with the Consumer Duty coming into force in July 2023.
The Financial Conduct Authority (FCA) has set out rules and guidance that will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first and ensure good outcomes for them. The FCA is already coming down hard, with the recent high-profile censure of a lender (Amigo Loans) that failed to conduct adequate affordability checks on borrowers and guarantors.
Some providers are getting their house in order to prove that their customers’ interests are being considered through all regulated and credit-related activities. Good customer outcomes and treating customers fairly have always been at the forefront for quality finance providers. The FCA’s Consumer Duty requires companies to formalise their commitments and it is something the industry needs to get behind as a whole. Regulated companies will be using this as an opportunity to audit and review their processes, to ensure that a customer-first approach flows through every part of its business and guides all of its decision-making.
Combining technology and people
At the recent event: Countdown to Implementation of the Consumer Duty, Sheldon Mills, executive director of consumers and competition at the FCA, explained the benefits of adopting a customer-centric approach. These include the opportunity to develop new technologies and systems that target customers more accurately.
This will improve a business’s offering to the market, inspire customer loyalty and have an impact on stakeholders – and potentially on society at large. Ultimately, he says, it will increase trust in financial services.
Trust is a word that has not always been synonymous with motor finance. This is something that market-leading auto finance providers are trying to correct.
With so much business now being done online, with great benefits to convenience and speed, but to gain trust and to ensure the customer feels supported, the personal element is key.
We all want to celebrate the growth that we’re seeing in our sector, but we must continue to focus on how we are serving and benefitting our customers. As businesses in motor finance, it’s our responsibility to provide customers with the services that they need and can afford. Keeping customers at the heart of everything we do requires a responsible approach that ripples through the way a business is run. As the FCA’s Sheldon Mills says, the positive impact we can have can be felt not only by stakeholders but by society at large.