Consulting warns that motor finance providers need to look closely
at their arrears management process.
“One of the issues in running any finance company is that you have
a point of equilibrium in arrears, and if the volume rises sharply
you can get overwhelmed. So if your bad debt goes from 2 per cent
to 2.1 per cent, you can cope, but if it suddenly goes to 3 or 4
per cent, you will find you need twice the resource.
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“Training people to cope takes time, and you may find your
arrears team is smaller anyway due to headcount reductions – and
beware your competitors, who will be facing the same problem,
trying to lure away your best people just when you need them
most.
“Do you focus on early arrears or accounts at the back end,
where it will be very expensive if you don’t do something?
“We haven’t seen anything like this in the UK for a good 16
years or so – meaning there’s a high probability the majority of
your staff will never have seen anything like this before, and
won’t be sure of the best thing to do.
“In a recession, there is a fundamental shift from lending and
securitising, back to the nuts and bolts of the business – which
needs a different sort of manager. However, the sub-prime end of
the market tends to be more realistic – they have had to handle the
same kind of difficulties [regarding arrears/bad debt] that more
and more lenders are now having to face, and have a competitive
advantage.
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By GlobalData“If you’ve been underwriting sensibly for the last couple of
years, you’ll be having a bad time – and if you’ve been
underwriting less-than-sensibly, you’ll be having a very bad
time.”
Peter de Rousset-Hall is former CEO of Ford Motor Credit and a
director of Woburn Consulting
