New figures show the consumer car finance market shrank noticeably in July as supply issues kept a lid on new car sales. With new car registrations suppressed, new figures from the Finance and Leasing Association (FLA) show finance companies saw the market shrink by a fifth in terms of vehicle volumes.
In total, more than 60,500 new cars were financed by private customers in July, down 20 percent compared with the same month in 2020. And the value of advances provided by finance firms that month ran to almost £1.4 billion, a reduction of 15 percent compared with July last year.
That drop coincided with a shocking July for the new car market as a whole. According to figures from the Society of Motor Manufacturers and Traders (SMMT), July 2021 was the worst July for the industry in almost 25 years, with just 123,000 new cars registered.
The SMMT blamed the drop in sales on supply issues caused by the global semiconductor shortage and the staffing problems caused by the coronavirus pandemic. Self-isolation and the so-called ‘pingdemic’ were both cited as problems by the SMMT’s chief executive, Mike Hawes.
“The automotive sector continues to battle against shortages of semiconductors and staff, which is throttling our ability to translate a strengthening economic outlook into a full recovery,” he said at the time. “The semiconductor shortage is likely to remain an issue until at least the rest of the year. As a result, we have downgraded the market outlook slightly for 2021.”
Perhaps surprisingly, given the used car market’s relative strength compared with the new car sector, the FLA’s figures also show a drop-off in the finance market for used vehicles. The organisation’s data suggests the number of used cars bought on finance by private customers fell to just over 119,000 – 19 percent lower than in the same month last year.
And the value of advances on those cars also fell by 16 percent, although it still managed to come in at more than £1.65 billion. Those figures meant the consumer car finance market overall was down 20 percent in terms of volume during July, while the value of advances was down 18 percent.
“Supply side shortages – both of vehicles and labour – have hit the automotive industry in recent months,” said Geraldine Kilkelly, director of research and chief economist at the FLA. “With most consumer new car sales now financed by FLA members it is not surprising that the consumer new car finance market followed recent trends in private new car registrations which fell by a quarter in July. Moreover, July 2020 was a record month for the consumer used car finance market following the lifting of the first lockdown restrictions which was unlikely to be replicated this year.
“Our latest research suggests consumer car finance new business by value will grow by 17 percent in 2021 as a whole, slightly lower than previous expectations. The consumer car finance market is expected to grow by a further 14 percent in 2022 as supply constraints gradually ease and strong consumer demand continues.”