Sponsored by Startline Motor Finance
Why dealer lending panels need to be fit for the cost of living crisis
Paul Burgess, CEO, Startline Motor Finance
Headlines are currently dominated by the cost of living crisis. A perfect storm of economic bad news for personal finances has arrived in the UK. Factors such as the war in Ukraine, the aftershocks of the pandemic and Brexit are causing prices of essential goods like fuel and food to rise rapidly, resulting in the highest inflation seen in decades.
To some extent, it appears the used car market is insulated from these trends, at least for now. While vehicles prices and values have finally stopped rising in the unprecedented manner that we’ve seen in recent years, demand remains consistent at a point in time when supply shows few signs of increasing substantially.
However, there are trends underway that we believe mean this is exactly the moment when dealers need to be examining their lending panels to ensure they are fit for the future. Why? Well, at the most fundamental level, lending panels are constructed so that dealers have a range of products and credit appetites to suit the profiles of different customers. The question right now is, are those products and credit appetites going to work for customers through the remainder of 2022 and beyond?
The answer starts with an obvious point. A lot of people are being hit hard financially right now. Some are, we believe, already effectively taking themselves out of the used car market but, out of those that remain, it is likely that over time fewer who want to borrow will meet the criteria of a wide range of lenders. Indeed, there are signs this is already happening.
The overall situation is almost certainly accelerating a movement that has been underway for some time, with a greater number of motor finance companies emerging with differing risk appetites. For a long time, the motor finance sector had an almost binary shape of prime and sub-prime, with very little in-between. However, that has changed in recent years with the arrival of flexible lenders such as Startline that offer more subtle gradations and allow an increasingly sophisticated approach to lending panel composition.
For dealers whose panel does not include a spread of risk appetites among lenders, the drop from prime to sub-prime especially is vertiginous with the APR rate rising by perhaps as much as double figures. What Startline offers is a third way. We centre on the circumstances of the person making the finance application. There are all kinds of ways in which the factors traditionally used to credit score people no longer apply to many who are actually solid applicants, especially following the pandemic. These include the decline in home ownership, the rise in contract and temporary working, and a host of other general changes to overall economic circumstances. All of these could place them outside of the scope of a prime lender where, in some dealerships, the only other solution is a sub-prime. Instead, our flexible approach provides a further option with much more attractive rates, terms and service.
We know from experience that this strategy works and works well – and there is every indication that it will be even more relevant and successful for dealers as the cost of living crisis progresses.
About Startline Motor Finance
Founded in 2013, Startline is one of the UK’s leading motor finance companies, providing flexible solutions to around half of the top 50 franchise dealers and 70% of the top 50 independent car retailers measured by turnover, as well as accounting for more than 2% of the motor finance market by volume.
It aims to deliver market-defining levels of customer service, compliance, innovation and insight. The company is headquartered in Glasgow where it employs more than 170 people and has a comprehensive sales presence throughout the whole of the UK.