In late April came the news that Welcome Financial Services
(WFS), part of Cattles plc, had decided to pull out of the
third-party hire purchase market. This, coupled with other
sub-prime lenders leaving the market and many prime lenders
tightening their underwriting criteria, compounds the feeling that
UK motor finance brokers face an uncertain immediate future.
It is, however, not only the small brokers who depend mainly on
the sub-prime sector for their livelihood that are due to suffer.
The car supermarkets that specialise in selling large volumes of
vehicles to the sub-prime sector will find it very difficult to
fill the gap vacated by WFS, and reportedly British Credit Trust
and others.
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In mid-May, delegates at an industry seminar held by icenet
mulled over the current state of the market. Delegates reported
that some smaller brokers were “panicking” as their funding sources
dried up. “There is genuine concern out there,” said one. “Some
brokers are looking to diversify themselves away from motor finance
towards other specialities such as commercial mortgages.”
“What we are experiencing,” said another, “is not so much the
increasing control by funders of costs, but rather increased
control on the cost of risk. Many funders for example are pulling
their personal contract purchase products because of the balloon
residual risk. We are also seeing an overall tightening of credit
scoring and credit terms.”
Some delegates believed that there may be a move towards the US
model where, for example, in the sub-prime “buy here, pay here”
sector, customers pay a commission to the finance provider for
supplying a finance facility. This system, some recalled, was
practiced in the UK market in days gone by.
More consolidation?
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By GlobalDataThere is growing evidence that broker consolidation may be
speeding up; it will be particularly beneficial where the net
result is concentrations of greater expertise. “A really skilled
brokerage,” one broker opined, “will consist of several specialists
with in-depth industry knowledge and the ability to source a
variety of new business across a range of specialities. Business
levels will be spread in a way to control better cyclical movements
in the marketplace as a result.”
A broker business that fails to adopt the latest technology has
little future. Survival during the credit squeeze means, at the end
of the day, brokers displaying a high level of professionalism and
commitment – not least of all where technology is concerned. A
modern broker’s representative, it was agreed, ought to be in
possession of a personal digital assistant (PDA) and a laptop, to
provide quotation capabilities in the field and a direct link to
the brokership’s software system.
The joint ventures
Fortis Lease was one of the first funders to develop the concept
of a joint venture with brokers. Under such a joint venture, a
formal arrangement allows a guaranteed element of funding source
with a basic net return for the funder – and the broker gains a
percentage (often around 70 per cent) of any upsell. Some funder
joint ventures are target-related and most depend upon the broker
working on partial underwriting and having some responsibility for
default.
Prior to the current credit squeeze, joint ventures were
becoming more common in the marketplace and this is considered to
be a trend that will continue. It will also work to eliminate
wasteful practices such as multi-proposing and reducing the ratio
of proposals to acceptances.
The end of a cycle
Many brokers see the current credit squeeze as an inevitable
adjustment at the end of a credit cycle. The underwriting policies
and questionable rate quoting of some funders – both prime and
sub-prime – in recent years have caused eyebrows to be raised.
The retreat of the direct lenders, albeit only temporary, is
seen as a very real opportunity for credit at the point-of-sale and
a boost for motor dealers wishing to capitalise on the
still-buoyant motor trade.
In the end, it is likely that although in the short term some
less-prepared brokers will leave the market, the final result will
be a fitter and more flexible array of brokers well able to
negotiate terms with funding sources seeking eagerly to return to
the sector. Given the continued lack of appetite for funders to
employ their own local workforces, it seems the future for modern
UK brokers is more or less assured.
A BROKER’S VIEW
Martin Brown, Fleet Alliance
We have enjoyed a record quarter, and our April figures are
looking similarly healthy. I haven’t seen any impact of the credit
crunch on vehicle finance brokers – our main funders are backed by
large banks and their appetite for new business remains strong.
We have seen no evidence of lenders tightening their criteria or
requesting further information in our vehicle finance business,
although our leasing and asset finance arm is seeing some of these
changes. That’s not to say that the vehicle finance business won’t
experience some kind of downturn in the coming months – but all the
signs at the moment are extremely positive and long may it
continue!
Stefan Erentraut, MVM Vehicle
Contracts
The market is buoyant and holding up very well. I had thought at
the beginning of the year that things were tightening up – but this
proved to be a false alarm.
The quality of enquiries we are seeing is better – and it’s
important to remember that every day someone changes their car. The
biggest problem we are facing is the supply of vehicles, with long
lead times for factory orders of anywhere between 12 and 20 weeks,
depending on the manufacturer.
Motor Finance Issue: 43 – May 08
by Brian Rogerson , Deputy Editor
Published for the web: May 23 08 12:23
Last Updated: May 23 08 15:7
