Motor
Finance
poll of finance providers reveals
picture of  post-crisis finance. Girish Gupta
reports

 

Photo of a fleet of carsSix out of seven consumer finance providers polled by
Motor Finance reported a rise in new business for the
first half of 2010. The return of consumer confidence, a revival in
point of sale (POS) deals, and consolidation in the sector all
combined to drive the uplift.

Responses from the 11 companies
questioned showed that those with corporate business were less
likely to have seen a rise.

First Response sales and marketing
co-ordinator Ben Garside says: “Throughout 2008-2009 the UK finance
market was in a volatile state.

“Consumers stopped spending and
started saving, putting off used car purchases and making their
vehicle last longer than usual life-cycle periods.

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“In the second half of 2009, the
economy began to recover and some say the UK pulled out of the
recession in early 2010. This has led to the first half of 2010
being more buoyant because usual purchase cycles have come into
place at the same time as those who had put off earlier
purchases.”

 

POS revival

Dealer POS is now given as the
primary sales channel by the majority of companies, with
manufacturer programmes and brokers next.

Black Horse managing director Chris
Sutton adds: “We are concentrating our efforts on working with
dealers where we have long-lasting committed relationships.

“The fact that we have exited the
broker market and our BDS/sales consultant channels have impacted
as expected.

“Consumer confidence is slowly
returning and hopefully this trend will continue, creating an
appetite for dealer finance as a tried and tested route to
purchasing a new vehicle.

“POS dealer finance makes good
sense for dealers and customers, particularly when the economy is
in a fragile state, as it is now. Not only does it help dealers
sell more cars, it also brings them an additional revenue stream,
which is so vital when the market is squeezed.

“It is clearly an attractive
proposition for customers, being easy to arrange at the point of
purchase and the secured finance option allows lenders to pass on
more attractive terms for customers.”

Spencer Burnell, head of marketing
at Volkswagen Financial Services (VFS), notes the rise of POS deals
too.

“Reduced visibility of alternative
loans, increased headline APRs and tighter lending criteria from
most banks and direct lenders are all factors that have given car
retailers a greater opportunity with POS finance,” Burnell
says.

Spencer Halil, director of BMW
subsidiary Alphera Financial Services is another to comment on the
POS comeback.

Halil says: “From the feedback we
have received there has been a general improvement in POS dealer
finance penetrations, this has been even more the case in
dealerships with a strong personal contract purchase focus.

“This is at least partly
attributable to recovering residual values making these products
attractive again, as well as a lack of availability of credit from
other direct sources.

Advantage Finance, by comparison,
claims that it sources 80% of business through brokers.

 

Consolidation

Halil says consolidation across the
sector has enabled Alphera to gain a greater foothold and, topped
by economic improvement, helped new business to grow.

“We have been able to take
advantage of what has been a very open market in order to win new
business, putting us in a strong position to achieve our ambitious
future plans,” Halil says.

Comparing the first six months of
2010 with the same period in 2008, which Halil says better reflects
a “normal year”, Alphera reports a 51% increase in business.

Close Motor Finance agrees that a
fall in competition has led to gains over the past year.

“We have experienced unprecedented
levels of new business in the last 12 months which we can attribute
to reduced competition with far fewer direct lenders operating in
the market place,” says Close managing director Janet Wilson.

Car finance specialist Duncton
echoes claims that consumer confidence and market consolidation
have contributed to a strong first half for 2010.

Duncton head of commercial
development Shamus Hodgson says: “The macroeconomic conditions and,
in particular, consumer confidence have improved.

“While there has still been
uncertainty around a double-dip recession, inflation and
unemployment, we have definitely seen an increase in consumers who
are willing to look at making a major purchase, such as a car, in
our market sector.

“A reduction in competition within
the non-prime vehicle funding market, and funding restrictions on
some of those left, means that there are now fewer players in the
market.

“This, added to more customers now
finding themselves ‘non prime’, is allowing us all to increase our
volumes.

“Over the last nine months, Duncton
has introduced two new tiers of business that has allowed us to
support the near- and non-prime areas of the market in addition to
our traditional subprime space,” Hodgson adds.

“We are delivering this through our
new automated application and decision system, Eclipse. This is
revolutionising the way we write business and has allowed us to
significantly increase volumes on 2009.”

 

Risk appetite

The majority of finance providers
polled by Motor Finance said their risk appetite remains
generally unchanged and relatively low for the past year. A number
of companies reported that the need to take risk has
diminished.

VFS’s Burnell says: “Our lending
criteria has remained consistent and working closely with our brand
partners we have created more effective finance campaigns and
communicated them extensively in the marketplace.”

Advantage Finance director Keith
Charlton adds: “Our risk appetite has not changed. What has changed
is that the quality of business we are writing is better than it
has been historically, which is likely to be a reflection of the
exit of a number of competitors from the marketplace over the last
few years.”

Close’s Wilson says: “As a company
our risk appetite has always been conservative and we have always
looked at managed growth.

“This conservatism, coupled with an
insistence pre-recession on strict underwriting standards, has also
shielded us from the worst shockwaves to have hit the
industry.”

Fluctuation in business

When asked about the level of
fluctuation in new business month-on-month, most companies reported
that the year had been level.

“Close can attribute the steady,
month-on-month increase in new business in 2009 to, among other
things, to the strength of our parent company,” Wilson says.

“The stability of Close Brothers
Group plc within a highly unstable market meant that we were in a
lucky position to have our liquidity needs fulfilled and
consequently Close Motor Finance still has a huge appetite to
lend.”

 

Full-year
ahead

For some companies, the second half
of 2010 looks to be more challenging while others are full-speed
ahead. Public sector spending cuts, the end of the Scrappage
scheme, and the VAT decrease to 15% are all potential pitfalls
ahead.

AFS reports a record first half to
2010, and expects business for the full year to be 159% ahead of
2008, the company’s strongest year-to-date.

Alphera is also predicting a strong
remainder of 2010, but Halil still warns of the potential
challenges ahead

“Dealers should not allow these
gains to make them complacent, as direct lenders are bound to
return at some stage,” he says.

“While Scrappage supported the sale of POS finance, the fragile
recovery and looming cuts are likely to be on our customers’
minds.”

See also: Alphera
Financial Services expects 2050% growth by
2015