2014 started with some good news for the British Car Industry and for Vehicle Finance.
The latest figures announced by the Society of Motor Manufacturers and Traders show that car production rose 3.1% in 2013, surpassing 1.5 million units. This is the highest volume since 2007, and is a positive sign that the UK economy is growing strongly.
Members of the trade body British Vehicle Rental and Leasing Association purchase around 80% of UK-manufactured vehicles sold in this country,
This news came as I drove to the inaugural quarterly meeting of the International Auto Finance Network (IAFN) conference (in the best selling British-made car of 2012 – a Nissan Qashqai) which was a good start to the day.
64% of all new cars sold in the UK are now bought using a personal contract plan (PCP), up from 53% in 2009, according to Paul Harrison of the Finance Leasing Association.
All of this is a good news story for the finance business, showing the benefits they bring to our manufacturing industry. Ironically anecdotes say that some of the deposits for these cars are coming from the compensation being paid out by lenders for mis-selling Payment Protection Insurance.
However the vehicle finance business may be building up problems for the future. Values of used cars have been holding up well through the recession, as many people traded down to a second hand car, or kept their cars for longer. However the boom in new car finance now may build to a bust when the cars all get sold after three years, causing used car prices to plummet and upsetting the whole profitability of the leases – particularly for the guaranteed minimum final values of PCP deals.
Postscript:
Residual value tide is turning warn used car experts
Business Car Date: 06 May 2014
Residual value and whole-life cost specialists have warned that used car prices are declining following months of record price highs, with values expert Cap warning the
industry of a larger fall in its May book than was seen 12 months ago.
Speculation that the used car bubble will burst has been circulating for some time, and Cap reported “a market downturn” in April, which it blamed on “a bumper new car March”.