With carmakers still
feeling the pinch from the financial crisis, consumers are having
to wait longer than ever for new vehicles. Sheena Rossitter
discovers how the motor finance industry is stepping up to the
challenge of keeping finance revenue flowing despite the waiting
lists.
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UK car production was down
35% between 2007 and 2009, and imports down by 16% during the same
time period, according to The Society of Motor Manufacturers and
Traders (SMMT) figures.
European factories are not
back up to speed after a long recession, and the motoring press is
reporting lead times for new cars at an all-time high.
After the overproduction of
cars that prevailed pre-credit crunch, the pendulum has now swung
the other way and manufacturers are making cars on a build-to-order
basis.
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Waiting
lists
Manufacturers as a
whole, however, are not keen to talk about waiting lists for new
vehicles, with none volunteering comment about them.
Even Nissan, whose Sunderland
plant is the most productive car manufacturing plant in the UK, did
not wish to discuss the issue. The North-East plant produced a
third of the nearly onem cars produced in the UK last year, and is
expected to produce 400,000 cars in 2010.
Some 80% of this total,
however, will be exported to more than 40 foreign markets,
demonstrating that even rising production levels from UK carmakers
will not necessarily solve the problem of waiting lists.
“You have to remember the UK
is a very significant exporter of cars. You could find that half
the cars made at a site are being exported,” says auto industry
expert Colin Tourick.
Long waiting lists for new
cars pose a notable problem for the motor finance industry,
especially with many deliveries likely to be postponed until after
January’s VAT increase.
The challenge of maintaining
consumer buying interest in these circumstances is particularly
steep for captive finance companies, which have traditionally
focused on supporting sales of new vehicles for their manufacturer
parents.
Both manufacturers and their
finance arms have shifted their strategies in the new car market,
with lenders offering incentives to consumers to buy new, with car
swappage schemes in place of the old scrappage scheme.
Others are offering free car
servicing on new models, or promising to pay extra VAT on cars
ordered now for delivery in the new year.
“There has been an enormous
amount of work done by captive finance companies over the past
year,” says Tourick.
“There has been an enormous
amount of risk-profiling in terms of pricing, while trying to make
sure they are getting the best margins.”
At Volkswagen Financial
Services (VWFS), one of the UK’s biggest captive providers, the
waiting lists being dealt with are among the longest. The
Volkswagen group’s Audi A3 is the car with the UK’s longest waiting
list, at 24 weeks.
Nevertheless, VWFS managing
director Graham Wheeler, says his company has not had to take on a
new strategy, since the group’s vehicles typically have had long
lead times.
“What is more likely for a
captive finance company is to persuade customers to extend their
agreement while they are waiting for their order to come through,”
says Wheeler.
“It is not a new strategy for
us, but we are going to start to implement it more. It is something
we do almost as a matter of course because the waiting lists have
always been so long. Now they are just longer.
“So, we are quite accustomed
to extending contracts.”
Wheeler, who says VWFS’s
business has grown by 20% in the past year, adds that manufacturers
are also increasing their sales through finance and service
‘product bundling’ for new cars.
For Renault in the UK, lead
times are roughly half of those experienced by Volkswagen, but are
long nonetheless. Currently, consumers waiting for a new Renault
are looking at between 8 to 10 weeks for their made-to-order
cars.
Short of
demand
In September, Renault,
which imports all of its cars in the UK from Europe, increased its
production to 13,041 from 8,590. However, supply is still falling
slightly short of demand.
“We have publicly stated our
desire to achieve 5% market share this year,” a Renault
spokesperson says.
“To achieve this, it is
naturally easier to meet demand sooner rather than later. However,
good, in-demand products can sometimes outstrip country
supply.”
Waiting lists for new-build
BMWs and Minis mean a wait of around 10-18 weeks, depending on the
model. Customers ordering cars are allocated a ‘build slot’,
allowing the group to give them an accurate idea of when they can
expect to receive their car.
“As finance documents are
only signed when customers take receipt of their cars, this
forecasting of delivery dates also allows for careful planning and
monitoring of our car finance business levels,” says BMW Financial
Services group general manager, marketing Joe Pattinson.
GM-owned Vauxhall currently
has UK lead times of four to eight weeks for most products, with
its flagship vehicle, the Insignia, taking 12 to 15 weeks to
deliver.
Dennis Chick, Vauxhall’s
director of communications in the UK, says “it is better to have
one car less in the system than one car too many” in order to avoid
oversupply.
Even though lead times for
Vauxhall remain high, Chick says the manufacturer is recovering
from the slowdown at a good rate.
“Vauxhall is running at a 12%
retail share,” he adds.
“We are not getting too
involved in heavy incentives for financing cars. We will come
through the year with our volume at the levels we
projected.”
Tackling new car waiting
lists seems to be a complicated task, given the number of variable
factors involved in new car supply.
As Wheeler comments, it may
be that captive providers are already doing all they can to
mitigate the situation through tried-and-tested methods.
What is new, however, is an
increased focus by captives on financing used vehicles.
According to the Finance and
Leasing Association (FLA), used car dealer finance was up 21% in
August, with the value of advances on used cars up 24% compared to
the same period last year. Also during the same period, new car
finance dropped 12% to consumers, and 26% to businesses.
Considering the increasing
share of motor retail finance business conducted by
manufacturer-owned finance companies, these figures leave no doubt
that captives are trying to make the most of used car finance to
keep their figures up.
Nevertheless, used car sales
mean buyers borrow less, which means an increase in the number of
sales is needed to make up volume targets.
A finance and insurance
director at one of the UK’s top 10 dealer groups, who did not wish
to be named, expressed the opinion that captive finance providers
were almost all taking a greater interest in used car
finance.
Some, the director added, are
moving to compete with independent lenders by writing business
outside franchised networks. This, he said, suggested captive
lenders have to work hard to meet volume targets in a declining new
car retail market.
Much as manufacturers are not
keen to talk about waiting lists in the UK, the elephant in the
room for many finance providers and dealers is used-car
finance.
When asked about the sale and
financing of used cars, many spokespeople were unwilling to touch
on the subject, although others are taking it in their
stride.
Renault’s captive, Renault
Credit International Financial Services (RCIFS), stated that used
car finance was helping keep figures afloat, but admitted the sale
of used cars was not ideal for captives.
“RCIFS is always aggressively
chasing used car business to achieve budgeted numbers regardless of
new car performance. Used sales do not substitute for new,” says
RCIFS brand manager Andy McCabe.
VWFS too has seen its
expanding portfolio take on a more even distribution between new
and used cars. Wheeler says in previous years the ratio of new to
used cars being financed by VWFS was 70% to 30%.
The most recent figures from
VWFS, however, show things have evened out significantly. In
October, 54% of VWFS’ business was new and 46% was used.
But the used car boom cannot
last forever. With every new car on the road meaning another
potential used car on the market, it is feared the new car slowdown
of the past three years may lead to a used car draught in
future.
‘Less cars on the
market’
“There are less cars on the
market from the slowdown two or three years ago,” says Wheeler.
“There may not be enough stock for the dealers to take up the slack
of used cars in the delivery cycle.”
“I am not sure that there
will be the same supply of used cars in the market next year,” he
adds.
“I think there will be a
slowdown, but I don’t think it will be dangerous for our market.
The 2008 slowdown is so recent in the minds of dealers that they
are prepared.”
Long waiting lists and an
increased demand for new cars may also drive up used vehicle
prices.
“In 2008 there was a lot of
supply for used cars but little demand, and in 2009 that reversed,”
says Fredrik Skantze, co-founder of online retailer
Autoquake.
“In 2010 we have seen it
slowly come back to normality. But because new car registrations
have been delayed, car waiting lists are causing a shortage of used
cars, and, therefore, increased prices.”
With continuing tough times
forecasted for the automotive industry in 2011, more adaptation
will be needed to keep finance volumes up in the face of
undersupply.
The silver lining is that consumers can’t deny the need to
replace their cars. For the time being, at least, it seems used car
finance is the name of the game.
