Latest government aid package has
nothing for motor finance companies, reports
Jo Tacon.
 
The UK government has announced a £2.3 billion
(€2.56 billion) package of financial support to UK-based car
manufacturers. However, the state aid plan – in the form of loan
guarantees, including £1.3 billion from the European Investment
Bank – does not set out any help for motor finance companies.

Instead, it is targeted at manufacturers’ efforts
to develop low-carbon technology, as EU competition laws allow
state subsidies for green industries.

The figure is dwarfed by the €6 billion in state
aid recently unveiled by France, with Germany also having offered a
financial lifeline to its manufacturers – along with loan
guarantees for captive finance arms.

But relief for car finance providers could yet be
in the offing as the new trade and investment minister, Mervyn
Davies, is to put together a scheme to help captives to access
much-needed liquidity.

State help will boost
retailers

It is thought that the government
initially shied away from offering outright support to motor
financiers, as any money provided by the state could be used by
consumers to acquire vehicles which were not manufactured in the
UK.

However, any injection of funds to car finance
providers would be a shot in the arm for the UK motor retail
industry, with its many thousands of employees. The UK motor retail
sector employs some 600,000 people, the Retail Motor Industry
Federation said; by contrast, motor manufacturing (along with its
associated industries) supports 194,000 jobs, or around a third of
that number, according to the Society of Motor Manufacturers and
Traders.

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It is clear that consumers are finding it harder
and harder to find finance for new or used vehicle purchases,
thanks to tightened underwriting standards at finance companies and
the withdrawal of several players from the market.

Research by price comparison site MoneyExpert.com
found that an estimated 300,000 applications had been turned down
in the past six months, “equivalent to more than 1,600 motorists
being rejected every day,” it said.

MoneyExpert.com director Sean Gardner said: “With
new car and used car prices falling there are plenty of good deals
out there. But drivers need finance if they are going to cash in on
the deals and that is becoming harder to get.

“The banks have been bailed out twice already so
taxpayers are entitled to wonder why they won’t lend, particularly
when they are literally being driven off the road.”

Guarded welcome

Representatives of the motor finance
industry have expressed a guarded welcome for the manufacturer
bailout news – with the proviso that more help for motor finance
must be forthcoming.

Stephen Sklaroff, director-general of the Finance
& Leasing Association (FLA), said: “We are encouraged that in
his statement Lord Mandelson acknowledged the importance of motor
finance in helping to kick-start the economy. We look forward to
early discussions with Mervyn Davies on how best to support all
types of lenders to free up credit for new and used cars.”

The FLA is currently involved in “high-profile”
meetings with the Department for Business, Enterprise and
Regulatory Reform, the Bank of England and HM Treasury to try and
secure the “funding and liquidity support needed to help the
industry through the economic downturn”, said the FLA’s head of
motor finance, Paul Harrison.

The discussions are at an “advanced” stage, he
added, although it is not yet known when the government will
announce its final decision on support.

“We believe the facilities offered to the banks by
the government should be extended to all lenders, in order to level
the playing field,” Harrison said. “This would include captives,
independents and leasing companies.”

Action is needed immediately to help improve the
availability of wholesale funding, he added.

But government help for funders is only half of the
picture: car-buyers also need improved access to funds. And it is
not just consumers who need a boost; corporate buyers account for
the majority of new car sales, with fleet registrations making up
58 per cent of new car registrations in 2008, and business
registrations another 6 per cent.

The CEO of fleet leasing association the BVRLA,
John Lewis, said he believes government aid should be made
available to all car buyers, including leasing and contract hire
companies

Lewis added: “We will continue to call on the
government to ensure that motor finance providers of all types have
access to government liquidity and guarantee schemes so that they
can help businesses and consumers upgrade to cleaner and more
fuel-efficient vehicles.”