It would be preaching
to the converted, perhaps, to kick-off this issue by saying the
motor finance industry remains extremely ripe for additional
investment. After all, to the majority of business leaders in the
sector, the situation is only becoming more painfully obvious by
the month.
Return on investment (especially
where competition remains sparse) is generally good, and bad debt
levels are at a conspicuous low level across the board. So where is
the money to write more business?
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Only last week I heard from an
experienced practitioner who had walked away from the launch of a
new lender after months of hard work setting up its motor finance
arm.
The reason? After lengthy
discussions with a regulatory body, the investor behind the new
venture had gotten cold feet about the prospect of lending to
anywhere other than the top of the prime segment, and had decided
to drop its motor offering altogether.
These sorts of decisions seem
increasingly counterproductive when one looks at the attitude of
companies such as The Funding Corporation and Duncton Plc, which
seem to be having little trouble in making the case for acquiring
more capital to put into the credit-starved near-prime
market.
Still, retail motor finance is
not entirely without votes of confidence from investors. While
Lloyds Banking Group announced its decision this week to shut down
its Black Horse branded personal finance arm with a loss of 50
jobs, the motor finance division of the same name will be
completely untouched by the decision.
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By GlobalDataSad though this is for those
made redundant at Orchard Brae, it shows that Lloyds recognises the
importance of maintaining its presence as market leader in the
dealer finance world.
Moving aside from retail, it
seems like the contract hire (CH) sector is beginning to see a
genuine uptick in interest from financial institutions looking to
dip their toes into what they see as a relatively secure
market.
While steps are still tentative,
I know that a handful of lenders (one headquartered in the
Netherlands) are getting involved with fleet providers on an
undisclosed agency basis, and are looking to see what returns they
are presented with before (hopefully) putting out further funding
lines.
The CH and leasing sector has
its own mysteries when it comes to investor caution,
however.
Chief among them for me is the
fact that few providers seem interested in promoting car leasing to
consumers other than in their capacity as employees of
businesses.
Calling round fleet
providers to talk about their consumer offerings for a feature next
month, it seemed that even those lessors with the capacity to offer
consumer business didn’t want to promote, or even comment on, the
fact, lest they be seen as straying from a focus on corporate or
public sector business.
Perhaps things will look more
attractive when the new Consumer Credit Directive is in place and
its wrinkles ironed out.
At the moment, there still seem
to be a lot of unknown quantities surrounding its implementation –
which is slightly worrying, considering that most of the industry
intends to be playing by its rules by the end of this
month.
It’s not so much that lenders
are unprepared, but that they – and their panels of legal advisers
– have not agreed on an industry-wide approach to the new
system.
The FLA has done a lot to bring
about consensus with its Specialist Automotive Finance programme,
but acknowledges more needs to be done if dealers are not to find
themselves perplexed by the varied approaches of their funding
panels to CCD compliance.
As one F&I director for a
top UK dealer group remarked to me this month, if the industry
can’t agree on universal standards for dealing with CCD, the
no-win, no-fee brigade could be finding new reasons to knock on the
industry’s doors in 12 months’ time.
Fred
Crawley
fred.crawley@vrlfinancialnews.com
