Demand for motor finance is growing, but the product needs more
visibility in dealerships, says Paul Harrison

Every day we are told that the cost of living is increasing.
Record oil prices have caused higher fuel prices, and the cost of
food and utility bills continues to escalate. So how is the motor
market faring in current economic conditions?

So far, the answer is: surprisingly well. New car registrations
remain consistent with the SMMT’s annual forecast, and FLA
statistics show that motor dealers are selling more new cars on
finance to consumers than 12 months ago. Point-of-sale (PoS)
finance for the year to May increased by almost 6 per cent, from
£11.3bn to £11.9bn.

Consumer demand for vehicles remained robust in the first five
months of 2008. The value of new cars financed was up 3 per cent
and the corresponding number of cars financed increased by 7 per
cent compared with the first five months of 2007. 

PoS finance has become more competitive over the last year. As
the finance is generally secured against the vehicle, it is easier
for providers to offer more competitive terms than available from
other forms of lending. It also allows providers to lend to people
who may have been refused unsecured credit elsewhere. Our members
have seen an upturn in new business as a result.

The bespoke finance packages available at the PoS are attracting
consumers to showrooms. FLA members have equipped motor dealerships
with a wide range of products which can be tailored to the
consumer’s circumstances and – more importantly – budget. FLA
statistics also show that members are writing more lease and
personal contract purchase (PCP) agreements. The value of lease
agreements has increased by 25 per cent in the year to May – albeit
from a low base – and the value of PCP agreements jumped by 21 per
cent. These products take away many of the risks associated with
ownership, and make the costs clear before any agreement is signed.
The recent Vehicle Excise Duty announcements in the Budget again
highlight how consumers’ pockets can be hit by market
changes. 

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PoS finance is a competitive and flexible proposition and this
appears to have struck a chord with consumers. Last year, dealer
finance funded 47 per cent of all new car purchases. By May 2008,
penetration had increased to 49.3 per cent – the highest since
October 2004.

However, a professional approach to the sale of finance is
vital. The FLA’s Specialist Automotive Finance (SAF) is a voluntary
initiative designed to improve dealers’ knowledge of finance
products. With over 5,000 registered users and 400 dealerships
signed up, it is important to maintain SAF’s momentum. Phase two
later this year will involve the expansion of SAF certification
from individuals to dealerships. It is important that SAF’s
visibility to customers is increased so that they can understand
the benefits of the PoS proposition. A communications campaign is
currently being developed.

The author is head of motor finance at the Finance &
Leasing Association

Motor Finance Issue: 45 – July 08
Published for the web: July 25 08 12:9
Last Updated: July 25 08 12:11