Richard Parkin of Glass’s examines regional differences in finance pricing
Most people operating in the automotive marketplace sense and appreciate the differences between the northern and southern regions of the UK. However, little appears to be known as fact rather than opinion based on personal experience. To this end, Glass’s has conducted a detailed study of used car purchasing behaviour which also encapsulates how consumers finance the purchase. This has been based on a sample of 12,530 finance completions over an eight-month period from March to October 2013.
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As shown in top graph on this page, the average value of used cars being purchased in the sample varies unsurprisingly between the regions, with the South of England having the highest average transacted price (£10,260) and Scotland the lowest (£7,990). More interesting though is the difference in the relationship between the last known forecourt “sticker” price and the actual transacted price. While nationally there doesn’t appear to be any material discount being offered in such transactions, the small discounts being offered in the South (approximately 1%) are offset by average price inflations from the sticker price of approximately 1.5% in Wales, rising to almost 4.5% in Scotland.
The clue to this may come from how the purchases are funded – as the bottom graph on this page shows, as a proportion of the used vehicle purchase price, Scotland has by far the highest proportion of finance and the lowest net part exchange contribution (after outstanding finance), as a consequence of poorer valuations and lower part exchange propensity, notwithstanding a cash deposit contribution less than half the national average.
Yet the discount to sticker price does not appear to be strongly influenced by the inclusion or absence of a part exchange in any region, as shown in the table.
However, the reason for this material price uplift at the point of transaction in Scotland is clear – the average 92% loan-to-value (LTV) which appears to be offered in Scotland is actually closer to 96% as a proportion of the sticker price, rising to almost 99% for those transactions without a part exchange. And this is on what is a depreciating asset. This compares to the other regions of Great Britain where LTVs are much closer to the national average of just over 80%.
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By GlobalDataDoes this mean that finance backers should be worried about this behaviour and its impact on risk in Scotland? The answer is probably not, although caution should be exercised – previous work at Glass’s has shown a clear North-South divide in forecourt pricing which highlighted more aggressive forecourt pricing in the Northern regions and Scotland, resulting in a typical 4% structural difference between North and South on common models.
Therefore it could be argued that the increase to transacted price so prevalent in Scotland only brings it into line with its southern counterparts. The same would also be true, but to a lesser extent, of Wales.
Furthermore, as the spread of retail asking values can easily be 10% across the country at any one point in time, this provides further comfort as to the true value of the asset being financed. As a consequence, finance providers should take a closer look at the region of sale in addition to existing processes when assessing whether to provide finance, and on what terms.
Richard Parkin is director, valuations & analysis at Glass’s
