Banking competition?

At the Finance & Leasing Association’s recent (and very
well-attended) Motor Finance conference, almost all the graphs
shown by speakers had something in common: starting in the
top-left, lines tumbled inevitably, inelegantly, down into the
bottom-right. It was a visual reminder of the challenges facing the
sector, brought home by the SMMT and RMIF’s call for government
help for the UK car industry – and domestic captives (see UA
and UK carmakers seek help for captives as turbulence
spreads
). The so-called “bailout” for carmakers has caused
great controversy on both sides of the Atlantic and the
once-unthinkable notion of a Big Three bankruptcy becomes less
unthinkable by the day. It’s clear that major changes are afoot and
manufacturers’ captives will, inevitably, be affected. 

Captives are competing for a slice of the bailout pie with banks
and other financial institutions caught up in the economic
turbulence. In much the same way, as Andrew Brameld, sales director
of Barclays Partner Finance pointed out at the FLA’s conference,
bank-owned motor finance units must compete with other units within
their parent organisation for access to funds; a bank only has so
much to lend, especially in these straitened times, and if a bank
can make a better return on investment in other areas, well… We can
see the logical outcome of this decision-making process in the
increasing risk aversion of lenders of all stripes. 

At the same time that lenders are pulling rates and becoming
ever-more conservative in their underwriting, there’s something
rotten in the state of their arrears. The UK motor finance industry
tends to reflect what happens in the US, a few months or years down
the line – and the arrears figures from the US show that financiers
could be in for a rough time. And with no further argument about
whether the UK is in recession or not – only debate about its
probable duration and depth – things can only get worse.

Finance houses and lessors will have to take a close look at
their collection procedures, and challenge existing assumptions.
With job losses hitting consumers who were previously prime or
super-prime – think investment bankers or property developers –
will your book’s future performance conform to your current
models?

Finally, the Chancellor is expected to give his pre-Budget
report shortly after this issue goes to press. There is widespread
anticipation of changes to capital allowances which will hit fleets
(and of course their total cost of ownership calculations – see
Seeing the whole picture), as well as possible changes to
VED rules; keep your browser pointed to the Motor Finance website,
http://www.motorfinanceonline.com/,
which will – by the time you read this – have been completely
overhauled, and where breaking news and views on the PBR will be
published. At the present time, no-one can afford to remain
uninformed.

Jo Tacon
jo.tacon@vrlknowledgebank.com