One in four dealers have used short-term finance options, such as government-backed Covid-19 recovery loans and overdrafts, to pay for stock since reopening.
This is according to the latest dealer sentiment survey from NextGear Capital, which found that 13% of dealers have used the Bounce Back Loan Scheme or Coronavirus Business Interruption Loan Scheme to stock up their forecourts since 1 June.
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A further 22% have used an overdraft facility – representing a sharp rise since NextGear Capital’s previous poll. In October 2018, 9% of respondents cited overdrafts as a source of wholesale funding. Similarly, more dealers are currently using their own cash now versus late 2018 (78% vs 47%).
NextGear Capital has approved customer requests for an additional £27m since 1 June, while it funded some 10,000 vehicles worth £82m during lockdown itself.
Liam Quegan, NextGear Capital’s managing director, said: “I think it’s a great thing that dealers have taken advantage of government support. These loans have allowed many to weather the storm and the cash injection has no doubt helped them keep pace with demand and their forecourts stocked over the last few months.
“However, the number using their overdraft facilities is concerning. Overdrafts are a short-term solution that can be expensive as cost is incurred until the overall balance returns to black. It can be like chasing your tail to get back into a positive position. I would urge any dealers leaning heavily on their overdraft facility to review their options and consider alternative means of stock funding that better suits their longer-term requirements.
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By GlobalData“It makes sense dealers are using their own cash to fund stock where they can. With costs under scrutiny and market conditions forcing many to buy from multiple sources, cash trumps most alternatives. However, it doesn’t come without risk. Now more than ever, it’s vital to keep costs front of mind and maintain a very close eye on cash flow, remember that government schemes are unlikely to remain in place for much longer. Dealers with cash in the bank and access to funding that protects this position and affords them flexibility and choice will be best placed to navigate the challenges that lie ahead.”
The survey also revealed that since 1 June, 22% of dealers have purchased stock with captive finance, 9% via a bank loan and the same number have used non-captive finance.
Last year, NextGear Capital provided more than £1bn of vehicle funding, marking the company’s first time exceeding the milestone since launching in 2014.
At the time, Quegan said: “Delivering £1bn of funding in a single year is a fantastic achievement. It highlights the strong customer partnerships that we’ve built over the past five years, and the tremendous efforts of our team. We’ve been working closely with the Institute of Customer Service (ICS) to gather impartial feedback and worked hard to make it as easy as possible for dealers to fund stock.”
