Why fresh thinking is needed to drive PCP

New products are needed to maximise the potential of PCP in the used car sector, believes Startline Motor Finance.

The company points out that the penetration of PCP in the used sector still trails new cars by some distance, so that there remains potential for very worthwhile growth.

CEO Paul Burgess said: “There has been rapid expansion of used car PCP in the last few years and probably something like 40% of used car motor finance is now PCP-based. This is a high level but is still some way behind the new car sector – a fact which probably, in itself, is an indication that there is potential for even more used car PCP.”

“However, the variety of used PCP products available is quite limited and, to maximise that potential, we need to see a greater level of innovation with more PCP products that are based on the particular needs of certain groups of used car buyers.”

Paul said that new approaches could be created based on everything from how used car PCP products were sold to the people at which they are targeted.

He said: “So far, almost all used PCP has been based on a one-size-fits-all approach but, arguably, the diversity of buyers and needs in the used sector is even wider than new. Really, the motor finance sector needs to look at how to meet these needs, especially given the speed with which the macroeconomic picture could change over the next year or two, depending on the outcome of Brexit and other factors.”

Startline recently launched its own PCP product that is designed to be offered by dealers alongside products from traditional prime lenders and suggested as an alternative source of funding when applicants are declined. However, like the company’s other flexible motor finance products, it offers APRs and terms similar to those offered by prime lenders rather than resembling a sub-prime product.

Paul said: “For some of the dealers with which we work, more than half of the business we now write with them is based on our PCP product, so it clearly illustrates the value of innovation.

The Startline PCP product has been part of the success story seen at the company in recent years. It ended 2018 with business volumes up by around 20% on the previous year while turnover rose by around 25%.

Paul said: “We have been going through a period of expansion with a number of significant new customers, ranging from major dealer groups to specialist online providers, and have also created much higher levels of business through existing relationships.”

About the PCP

The Startline PCP product is designed to be offered by dealers alongside products from traditional prime lenders and suggested as an alternative source of funding when applicants are declined. However, like the company’s other flexible prime products, it offers APRs and terms similar to those provided by prime lenders rather than resembling a sub-prime product.

CEO Paul Burgess explained: “Our view is that around one-third of the people rejected by prime lenders remain good credit risks. They have often been turned down because they do not meet requirements based on their work patterns or other socio-economic factors.

“However, we live in a changing world and just because someone rents their home or works on a series of temporary contracts should not exclude them from a fair approach to motor finance.

“With PCP, we take a closer look at the circumstances of the person making the finance application. The thinking is that if we can gain an understanding of that person’s overall financial position, then we can work to arrive at a solution that meets their needs. It’s a more holistic process.

“Crucially, we provide a third option for dealers who currently only offer prime and sub-prime lending. Too many customers who do not meet prime criteria are passed straight to sub-prime lenders when they remain good credit risks, we believe. Our flexible motor finance products have very much been created for these people and their particular circumstances.”

Headquartered in Glasgow, Startline Motor Finance is led by a highly experienced motor finance team and has a sales presence throughout the whole of the UK.