Each month, Motor
Finance analyses results posted by lessors and motor
financiers over the previous four weeks to discover the latest
trends. Jason T Hesse looks at those published in October
2009

In a difficult year for captive motor
finance providers, Volkswagen Financial Services
(UK) Limited (VWFS) saw the repercussions of the
financial crisis on its bottom line.

The year ending 31 December 2008 saw VWFS record a
pre-tax loss of £3.4 million, down significantly on 2007’s profit
of £19.6 million. However, turnover grew by some 41 percent
year-on-year, from £215.3 million to £302.6 million, signs that the
company was still seeing strong demand for its products.

Finance penetration, the measure of the number of
new cars funded by VWFS as a percentage of total VW Group
registrations, also increased to reach 20.3 percent – nearly five
percentage points higher than in 2007.

“2008 was a challenging year for the UK motor
industry, particularly the second six months, as the effects of the
global economic slowdown fed through into dramatically reduced new
car sales,” said the company’s directors.

VWFS nevertheless financed 123,528 retail new and
used vehicles, compared to 103,602 the previous year – a “strong”
performance, its directors said.

“[We] continued to experience high margins as a
consequence of the dislocation in global credit markets,” they
added. “Notwithstanding this market turmoil, we were able to
further diversify our funding sources.”

Liquidity was procured through three main sources,
VWFS explained: short and medium-term funding, sourced from
inter-group lenders; asset backed securitisation programmes, such
as the £500 million ‘Driver UK One’ securitisation it launched in
March 2008; and short-term bank loans, provided typically over a
three-month period.

The captive lessor added that despite the difficult
economic situation, it remains “committed to its long-term vision
of providing support to Volkswagen Group brands”.

On the independent financier side of the industry,
Zenith Vehicle Contracts Limited managed to finish
the year ending 31 March 2009 in a strong position.

Pre-tax profit for the year was £5.2 million, only
a tiny dip on 2008’s £5.3 million. Turnover at the company, part of
the Zenith Vehicle Contracts Group, was also up – by over 20
percent – to reach £103.3 million.

“During the year, the company has continued to
enhance its reputation as a high-quality service provider, which
meets, in an innovative and imaginative way, the requirements of
the market and its customers in particular,” Zenith’s directors
said.

The number of financed vehicles grew by 4 percent
during the year, which, although lower than the company’s long-term
growth rates, was delivered during a recession.

“We believe it to be an outstanding result,” the
directors said.

Additionally, Zenith said that ancillary services
grew strongly, with net income from daily rental and accident
management services growing by 72 percent and 17 percent
respectively, compared with the previous year.

“The business has a robust base from which to
build, and we have many exciting opportunities with both new and
existing customers which are being largely driven by the current
economic turmoil, which we expect to be able to exploit over the
next year,” the directors added.

Provecta Car Plan Limited, which
was acquired in May 2008 by Zenith Vehicle Contracts Limited, also
reported its results, for the 15 months ending 31 March 2009.

The company, which provides structured employee car
ownership schemes to businesses, made a pre-tax profit of £250,000
on a turnover of £18.6 million. In the 15 months ending in March
2009, turnover nearly doubled compared with 2007’s results.

Since being acquired by Zenith, Provecta undertook
a major re-organisation affecting its back office, administration
and support functions. The company also invested in new IT systems
to align it with the systems used across Zenith.

“We are already seeing the benefits of this work
flow through better productivity and customer service levels,” the
directors said.

“We have a robust base from which to build, and
recent changes in tax legislation surrounding the provision of cars
means we have many exciting opportunities with both new and
existing customers,” they added.

“Our niche market position combined with the full
service fleet offering of our enlarged group means that we can
provide market leading service offerings to our blue chip customer
base.”

Meanwhile, at The Funding Corporation
Limited – which, amongst other financial products, offers
motor finance for used cars through its ACF Car Finance dealerships
– losses were reported for the second year running.

The finance company recorded a pre-tax loss of £9.8
million in the year ending December 31 2008, improving on the
previous year’s losses of £14.7 million. Turnover fell by 10
percent year-on-year, however, to £73.2 million.

In response to the difficult economic environment,
the directors said they were focusing on improving margins on the
sale of second-hand vehicles, improving the quality of customers
that the group is willing to provide finance for, and exit
non-core, low margin, and loss-making businesses.

Indeed, last year the company ceased to write
sub-prime motor finance for cars sold outside of ACF Car Finance’s
eight dealerships.

The car dealership business remained profitable,
however, with gross profit margin increasing from 7.5 percent in
2007 to 11.3 percent in 2008, which, according to the directors,
reflected the company’s increased focus on margins, and a change in
buying strategy which resulted in lower reconditioning costs.