The shortage of consumer finance available to potential customers is really starting to hurt car dealers. The perceived success of the scrappage scheme (real or otherwise) and the general buoyancy of used car sales have papered over the cracks in an industry which is still in a lot of trouble. As we have previously pointed out the September new car registrations were 11.4 percent up on last year but September 2008 was a pretty dismal month for new car registrations, it being 21.2% down on 2007, so everything is certainly not as fantastic as many would have us believe. It really was inevitable that the government would extend the scrappage incentive (announced with a flourish by Peter Mandelson at the Labour Party Conference last month) as the underlying market is still in a whole world of bother and the much feared and widely predicted slump at the cessation of the scheme is as unpalatable to an unpopular Labour government as it is to a car industry desperate for good news. Which brings us back to the first point; the lack of funding and the tightened lending criteria has had, and continues to have, a serious effect on volume sales and profitability.
The ironic thing is that, whilst manufacturer backed finance packages are often the best and most competitive on the market, this competiveness is no good if few buyers can actually qualify for it.
Independent dealers are having it even harder as they do not always have access to the same funding solutions and therefore, not only are they struggling to compete with franchised dealers, they cannot even advertise competitive rates to tempt customers to the showroom in the first place.
Customers are also reluctant to use their own bank or a high street lender for credit because, although the base rate is historically low, the rates that are actually being offered are ridiculous especially for small amounts of money. Of course in a downturn the consumer will opt for a cheaper car so the credit market will then ultimately stagnate.
Until credit lines are easier for dealers to access it will continue to be a struggle for both dealers and customers to complete a deal and this will often lead to a lot of wasted time and disappointment.
The news that GMAC the US car financing company has just requested an additional $5.6 billion in US government bailout money (its third bailout request which will make $18 billion in total) should give us some indication as to the overall strength of the car financing industry.