The credit crunch is taking its toll on underwriting capacity
across the motor finance markets. The effect in recent months has
been most obvious in the sub-prime sector, with Welcome Car Finance
withdrawing its facilities from all unconnected dealerships and
British Credit Trust (BCT) also heavily reducing its new
business.
One finance broker commented: “It is the bank-owned lenders that
are most jittery. BCT has said that they have dropped 21 brokers,
and this included us. However, our business is mainly prime, and
here our lenders are supporting us at present.”
Go deeper with GlobalData
Outside the sub-prime sector, the pattern seems more varied.
Graham Hill, chief executive of the GHA Finance brokerage,
specialising in small fleet deals, said: “We are finding it harder
to place business now, yet there is no consistency among the prime
lenders. One might put a deal straight through, when another would
look at the same proposition much more cautiously.”
Hill added: “The one certainty is that rates are increasing, for
both PCP and contract hire. Just in the past four weeks, average
monthly hire costs per car have probably risen by £10–£12, or four
to five per cent. Finance companies are also becoming more
reluctant to take RV risk, so there is a general move away from PCP
towards ‘lease purchase’. One particular manufacturer finance
operation is getting very hard nosed towards customers on return
conditions in contract hire and PCP contracts. “
One motor lessor noted: “Our competitors are moving their lease
rates quite a lot. For the moment there is a variety of quotations
out in the market that we have not seen before.”
Some brokers feel themselves very much at the sharp end of
finance companies’ response to the credit crunch. One commented:
“Some of the third party funders are pressing for payment of
commission debit-backs where customers default. They will not wait
for debit-backs to level out against new business – they want the
cash now. Bank of Scotland (BoS) Dealer Finance has dropped all its
broker connections.”
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataA spokesman for BoS Dealer Finance stated: “We continue to be
active in underwriting new business. Just like any other finance
company, we have become more selective about the business we choose
to write. This is simple a matter of prudence.
“We face increasing levels of voluntary terminations by HP
customers under the statutory rules. So lending risks have
increased and product ranges need re-evaluating. Our dealers are
aware that our 42-month PCP product is under review. We
nevertheless remain committed to the point-of-sale marketplace.
There has been no major impact on existing customers and dealer
relationships, as we still have a highly diverse product
offering.”
Another dealer commented: “Commission receipts from lenders are
falling as deals become more difficult to get through, although
manufacturers seem to be building up their volume bonuses to
compensate. Some finance companies are taking far longer with their
credit decisions. It seems that their underwriting is reverting to
manual systems.”
In the used car market some finance companies make no apology
for taking time on underwriting. Miles Roberts, managing director
of Southern Finance, specialising in used cars for relatively prime
customers, remarked: “Our manual underwriting allows us to talk to
customers. As well as making all the standard credit checks that
will show up things like over-commitment on credit card borrowing,
we might need to find out whether there could be good reasons why
an applicant may not be on the voters list, or why the car may seem
to have a higher specification than we would expect in the light of
the applicant’s job. In the present market conditions we have
adjusted our underwriting criteria, to focus on more responsible
lending.”
In the new car market some lenders are moving towards risk-based
pricing spreads in loan rates. “Within the past 18 months, our
policy of pricing for risk has allowed us to move our new business
profile from strictly prime towards including some near-prime. We
are not turning down more business now than we were before”, said
Nigel Williams, senior planning manager for Black Horse Motor
Finance.
Andy Thompson
Motor Finance Issue: 44 – June 08
Published for the web: June 25 08 15:56
Last Updated: June 25 08 16:9
