Industry body says government intervention may be needed.
The new car finance market took a hit in March as the implementation of coronavirus lockdown saw vehicle sales slashed. New figures from the Finance and Leasing Association (FLA) show a 29-percent drop in the number of new cars acquired through finance deals during the third month of the year.
In total, FLA members financed more than 114,000 cars for private customers last month, but that was still a reduction of almost a third compared with the 160,906 cars financed in the same month of 2019. However, the market accounted for a record proportion of private new car sales, hitting 95.6 percent. That means 19 out of every 20 new cars purchased in March were bought on some kind of finance deal.
Nevertheless, in a market weakened by the impact of the Covid-19 outbreak, the value of advances on those cars fell by around a quarter (24 percent). Where the total value of private new car advances stood at £3.3 billion in March 2019, that fell to just under £2.5 billion in the same month of 2020.
For those looking for a positive spin, those numbers could be construed as surprisingly sporting, given data from the Society of Motor Manufacturers and Traders (SMMT) revealed a 44-percent cut in registrations in March as sales floors more or less shut down. That huge drop in sales came despite the fact the lockdown was only introduced on March 23, more than three weeks into the month.
But the FLA says coronavirus is having an even more sinister effect on the long-term health of the sector, as rules surrounding payment holidays for those suffering financial hardship put pressure on lenders. In fact, the organisation says it needs support from the government to keep the sector competitive.
“The motor finance market has been hit hard by the lockdown in March as the main route to customers through dealerships closed,” said Geraldine Kilkelly, head of research and chief economist at the FLA. “Our latest research suggests that the consumer car finance market is likely to see the value of new business fall by 29 percent in 2020 as a whole.
“The FLA urges the government and Bank of England to open up financial support schemes to all lenders, including non-banks, so that they can meet the significant current demand for forbearance and provide new lending when the economy re-opens. This will also ensure that the motor finance market remains diverse, innovative and competitive after the crisis.”
And Stephen Haddrill, the FLA’s director-general, went even further, suggesting financial aid could be needed in the next few days.
“The asset, consumer and motor finance markets have been hit hard by the measures taken to deal with the coronavirus crisis, with a 20-percent fall in new business in March alone,” he said. “FLA members have also faced almost 1.2 million Covid-19 related requests for forbearance, of which 75 percent have already been granted. The industry is committed to supporting their customers during these exceptional times.
“Urgent action is needed – in days, not weeks – to deliver financial support to the non-bank lending sector to ensure that we maintain a financial services sector that is diverse, innovative and competitive.”