MotoNovo’s Motor Division CEO, Karl Werner, has warned the market of the importance of finance companies reviewing their residual value (RV) and Guaranteed Minimum Future Value (GMFV) as the economic and market conditions change.
Werner said, “After almost a decade of largely benign operating conditions, our judgement is that it is time for the industry to review residual values. For sustained success, a more conservative approach, particularly in GMFVs now seems appropriate. Candidly, counting on a strong disposal price is just delusional economics in today’s market.”
Werner says that a “cocktail of conditions“ are at play, including rising interest rates, the slowdown in new car sales, the introduction of scrappage schemes, regulatory oversight and the development in clean air standards at local and potentially national levels.
Werner adds: “Given the importance to dealers in both sales and retention, no dealer benefits from choosing a lender with a model which proves unsustainable. For this reason, a more conservative RV/GMFV strategy seems entirely appropriate.”
Werner is aware of the short term hazards of this approach: “Yes, we may lose some sales, but even in what is a tactical often short-term market, the smart step is to take a longer-term view; and that is exactly what we are advocating. Working to keep the customer in a positive equity position is smart business sense, the part-exchange and renew journey is far better for both customers and dealers.”
“At the same time, we recognise that some market segments may benefit from the market changes we are seeing; which is why we are taking a more positive view of electric and hybrid cars.”
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