The much publicised decline in new car registrations has meant that new or used cars being bought through dealer finance have declined accordingly. Although there is divided opinion from many dealers – both franchised and independent from all areas of the UK – on what other reasons there may be for this, it would usually follow that fewer cars being sold should naturally mean fewer being bought with finance. However there is a feeling that because savings rates are so low leaving cash in banks and building societies is probably not worth doing, so one could logically argue that many potential customers in this position are more likely to fund their next car with their savings. That is not the whole story though because, as the rates, especially with asset backed finance, are extremely competitive at present many people will see the attraction of the monthly payment alongside the retention of their “rainy day” savings.
This is clearly happening as many dealers are telling us that ‘cash converting’ customers is easier than it’s ever been. The hitch is that, apart from those customers who are likely to be easily financeable, other potential buyers are not finding the task of acquiring finance for their next car very easy at all.
It seems that, much the same as the mortgage markets, only the very best of credit scores achieve the most competitive rates, and as the lenders swing from one extreme to the other, the hapless car buyers and sellers are caught in the crossfire. The dealers we spoke to form a good cross section of the trade are saying that buyers they have spent a long time with and who appear to ‘stack up’ well are often being declined by their lenders and they are losing sales as a result. The consensus seems to be that one in every four finance cases they are proposing are either being declined or the lender is asking for a larger deposit, which often customers do not have.
One dealer estimated that refused finance deals has contributed to them losing more than 50 sales this year so far which if you include all round potential profit generated from each car sale could add up to many £000s in lost revenue. Whilst no-one is suggesting a return to the reckless lending of recent years, there clearly needs to be more flexibility in lending criteria to fully reflect the current climate and continue to assist the economy in fighting back.
Despite the fact that the doom laden headlines associated with car sales this year have probably contributed to a large reluctance for finance lenders to become involved there is clearly an appetite from consumers to obtain cars on credit.
It’s probably time for buyers to wise up and shop around for the right deal because in our experience there will always be institutions out there that are keen to lend money and lend it competitively and sensibly, it’s just that they may be just that little bit harder to find at present.