Rethinking dealer lending panels for the cost of living crisis

Worsening personal finances are undoubtedly having an impact on customer behaviour in the used car market. According to research we’ve undertaken at Startline, 68% of motorists say the cost of living will affect the choice of vehicle they buy while 85% of motor retailers see the crisis as the single biggest challenge they face during 2023.

So, while it would be accurate to say that the used sector remains relatively strong with prices and values staying close to historically high levels, it also seems to us that this is a moment when dealers should consider examining their lending panels to ensure they are fit for current conditions.

At the most fundamental level, lending panels need to be 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 the products and credit appetites that have worked for your customers in the past going to remain relevant through the remainder of this year and beyond?

The answer starts with an obvious point. A lot of people are being hit hard financially right now. Many are, we believe, effectively removing themselves from the used car market but, out of those that remain, it is likely that over time fewer who actively want to borrow will meet the criteria of a wide range of lenders. Certainly, many dealers have been reporting a noticeable fall in successful first time applications for some months.

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 presented an almost binary choice 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.

The key to successfully meeting the needs of different groups of customers lies in having a genuine understanding of their needs and this is truer than ever today. For example, the Startline offer is something that we term a flexible prime approach. Our proposition is designed to sit slightly behind prime lenders but offer a more adaptable approach to lending, often being able to approve people who do not have typical profiles, such as those who rent their homes or have portfolio career profiles – situations that are becoming ever more common, as most car dealers are aware. We do this while being able to offer competitive rates, terms and customer service standards comparable with the very best that our sector has to offer. It’s an approach requiring a very high degree of expertise.

We know from years of experience that creating a graded lending panel of the kind in which we play a key role for many motor retailers is highly effective when it comes to maximising outcomes for dealers and importantly for car buyers. More recently, it is proving to be the best approach for the cost of living crisis.