Picture of Gary JennisonWhen will the lending market return to normal? A
common question – but perhaps it’s best to ask just what we should
expect ‘normal’ to mean?

Maybe the current situation will
prevail for a few more years.

We first heard about the credit
crunch in August 2007 – more than three years have now passed, and
funding has become even tighter rather than starting to loosen up a
bit.

The shortage of lenders has really
hurt the used car market, not to mention dealers’ income from
F&I. And there are no signs of things getting easier.

It wouldn’t surprise me if we
eventually saw this phase of restricted credit last for six or
seven years.

Nevertheless, because of the
general shortage of liquidity, those few lenders which do have the
courage, the capital and the access to funding have never had it so
good.

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Indeed, it’s fair to say that the
sort of returns being generated at the moment haven’t been seen for
25 years or more, since the days when the profit cake was shared
out much more fairly between lenders and dealers.

Since then, the pendulum has
gradually tipped towards dealers taking far too much commission
from finance deals, leading to lenders beating themselves up so as
not to lose market share.

In fact, the current shortage of
lenders is partly due to the fact that few reserves were put away
in the good times to see lenders through the bad.

As an industry, it’s when things go
too far and people get greedy that we lose all sense of
perspective. Just look at what happened with PPI. A great product –
if it had been sold at the right price.

How did we ever allow things to go
so far that the regulators were forced to step in and effectively
outlaw the product?

And now, with high unemployment
(and possibly another 500,000 public sector employees set to lose
their jobs by the end of 2011), the protection that customers
desperately need can’t be bought at the point of sale.

This leads me to the biggest
concern of all – the way customers are being treated as a result of
current funding shortages. Many good credit risks just can’t get
hold of the money to buy the car they want and need.

Why not? After all, motor finance
has always been very attractive for lenders – even if some of them
only did it in order to get hold of a customer that they could
subsequently re-market to (often without the introducing dealer
knowing about it).

Let’s get some balance back in the
sector. Honest deals, charging the customer a fair rate for risk
and paying the dealer a small commission for introducing the
customer. That would be a kind of normality worth returning to.

Gary Jennison is an auto
finance professional. He was formally chief executive of Moneyway,
and MD for Barclays’ UK branch network