The Financial Conduct Authority’s (FCA) Motor Finance Review has finally arrived. The eagerly awaited and long-overdue investigation into auto finance has revealed what many in the industry had predicted, writes Andy Alderson, chief executive officer and founder of Autorama Group.
The FCA’s Motor Finance Review is here at last. What many of us have long predicted is now public knowledge: dealerships have been mis-selling PCP and its days as the most popular way to get a car are numbered.
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The report states car buyers have paid £300m more every year than they should have, by dealerships driving up interest payments on PCP to get higher commissions. The root cause of this problem is PCP’s complexity and lack of transparency. Last year over 90% of all new cars sold were on PCP, is it any wonder that claims firms see PCP as their next PPI moment?
A typical PCP agreement is overpriced at the start (by £1,000 according to the FCA) and in negative equity at the end, with car buyers facing a big balloon payment to settle. Is it any wonder more and more people are ditching PCP?
We know through our own research that customers who lease a vehicle save on average £4,424 over PCP. HMRC’s recent decision that monthly PCP payments will need VAT charged to them, is yet another nail in the coffin for PCP.
Everyone that goes into a showroom will know that car dealers take a commission. What they can’t have known is how interest rates were being manipulated to ensure dealerships got their cut. Our entire industry, and its regulatory bodies need to address our systems and processes, to put a stop to a practice that has become the norm in dealerships across the country. If dealerships continue to take advantage of car buyers, then quite rightly they will stop buying cars and start to consider other ownership options. There will be those that say we should just sweep this under the carpet and focus on dealing with Brexit – but that’s not going to work.
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By GlobalDataLittle in the FCA’s report will come as a surprise to anyone that works in auto finance. What remains unclear is how the sector will respond. We all need to think carefully about our industry’s future. The trust of the customer is fundamental to all that we do. We need to embrace greater transparency. The customer must come before commission. It cannot be long before full disclosure is mandatory and telling customers how much commission they are paying is the norm. After reading the FCA report, I think this has to happen. What’s best for the customer is best for business and it is that ethos that I’ve built the Autorama Group on, from day one, and why we have committed to never sell cars using PCP.
Regardless of how the sector reacts, it is probable that we are going to see an influx of PPI style claims. These claims will erode trust in a sector that’s already grappling with Brexit. What I believe, is that whatever happens in the future, it will be the most transparent, fair and affordable car finance models that will win, which is why PCP’s days are numbered.
by Andy Alderson
