The consumer car finance market fell by more than a fifth in September amid sluggish new car sales caused by the global microchip shortage. The latest figures from the Finance and Leasing Association (FLA) show the amount of “new business” in the market was down by 21 percent in September compared with the same month last year.
The new car market was hit hardest as a result of the global chip shortage that has cut production and wreaked havoc in the industry. According to figures from the Society of Motor Manufacturers and Traders (SMMT), new car registrations were down by more than a third in September as manufacturers struggled to keep up with demand.
As a result, the FLA data shows the number of advances offered to private customers was down 27 percent compared with September 2020, with just 93,617 cars financed. The value of those advances also fell, albeit not quite as dramatically. A 25-percent drop in the value of advances saw the new car consumer finance market reach a value of almost £2.2 billion in the ninth month of 2021. Even so, FLA member organisations provided finance for 93.8 percent of all private new car sales in September.
Things were slightly less bleak in the used car market, where the new car sector’s woes have seen demand rocket and prices have risen in line. According to Auto Trader, the growth in used car prices has quadrupled in the past six months.
Against that backdrop, the used car finance market saw new business volumes fall by 15 percent compared with September last year. That meant a total of 120,337 used cars were acquired on finance by private customers, while rising used-car prices meant the value of those advances totalled just under £1.8 billion – a drop of just four percent compared with September 2020.
Overall, the car finance market saw new business volumes fall by 21 percent in September, with the value of advances falling by 17 percent. However, Geraldine Kilkelly, the director of research and chief economist at the FLA, said most finance companies expect to see growth in new business over the coming year.
“Supply chain issues have been particularly acute in the car market which is reflected in the 17-percent fall in new business volumes reported by the consumer car finance market in the third quarter of 2021,” she said. “Motor finance providers expect constraints on new car supply to ease sooner than those in the used car market. The supply issues in the new car market have primarily been driven by the lack of semiconductors, while the knock-on effects from new car shortages combined with high demand have hit used car supply.
“Despite the risks to the economic and market recovery from supply chain disruption, higher inflation and further waves of Covid-19, our latest research suggests that the industry has maintained its optimism about the opportunities for growth. FLA’s Q4 2021 industry outlook survey shows that 88 percent of motor finance providers expected new business growth over the next twelve months.”