Shaun Harris, sales director at Codeweavers, believes that the recent findings of the FCA report into motor finance could have a potential knock-on effect on the price of cars in the market.
Harris said: “While the FCA and industry stakeholders will be consulting in the weeks ahead following the regulator’s publication of its report on motor finance, the clarity within the report suggests some of the key changes that are likely to be required. I am sure we will see the industry moving to affect changes sooner rather than later.”
Following the review of the motor finance industry, Codeweavers highlights three key areas where change is likely to occur:
- The end of the Difference in Charges (DiC) commission models in all guises
- An increased focus on transparency through the financing journey
- Greater rigour in the affordability checking process
Harris suggested that changes may have been inevitable, with single fixed interest rates expected to become the new norm. He said: “The elephant in the room here will be the impact on income; it seems inevitable that there will be some knock-on impact on metal pricing and for this reason I expect that a rapid domino effect will take place as lenders follow one another to reflect the regulators desired position well ahead of any cut-off date.”
In the current market, some dealers cross-subsidise the price of the car with finance income. Codeweavers believes this is an area of the market that will change, with dealers needing to switch their margin focus to other areas. This could result in the increase in the cost of cars, offsetting the lower earnings caused by the change to commission structures.
The findings of the FCA report were generally met with positivity from the motor finance sector, while others criticised the methodology used by the regulator.
James Fairclough, chief executive at AA Cars, said: “It is key that we simplify car finance for the general public and make it more transparent, so customers can make informed decisions. Importantly, what shouldn’t be inferred from this report is that there’s a fundamental issue with the finance products themselves – instead the issue is how they are sometimes presented to the public.”