DEALERS should be studying their lending panels to ensure they are fit for the coronavirus era used car market.
Startline Motor Finance Chief Executive Paul Burgess said that, while the used car market is currently booming, there are two longer term, interrelated trends underway that need to be considered – lender appetites are changing and the needs of customers are also shifting.
He said: “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 their customers. The question right now is, are those products, credit appetites and customer profiles going to work over the next few months and into 2021, what you might call the coronavirus era.
“The first thing to mention is that, and we have noticed this as a flexible lender, that most prime lenders have tightened up their lending criteria, so more business is going to cascade down the motor finance market.
“The second is a wider but more important point. A lot of people are likely to be hit hard financially by the coronavirus pandemic, something that is already underway, and more people who want to borrow won’t meet the criteria of more lenders.
“At a point in time when the used car market is undergoing the boom that is currently being seen, these factors seem less important but it is probably inevitable that both will start to have an impact, if not in the near future, then in the medium term.
“Our belief is that dealers need to start thinking in these terms, looking at the kind of changes in the profile of their lending that they have seen since the start of lockdown, extrapolating them into the future and seeing if their lending panel is fit for purpose.”
Burgess said that the situation was likely to accelerate a trend that had now been underway for some time, with a greater number of motor finance companies 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 emergence of companies such as ourselves that offer more subtle gradations and which allow a more sophisticated approach to building lending panels to be employed.
“To some extent, the emergence of risk-based products is a reaction to this but the problem with those solutions is that they fail to really create any expertise around different types of customer.
“While they are flexible to an extent, they remain relatively blunt instruments and are certainly not a substitute for a well-thought out, well-constructed lending panel.”
The key to successfully meeting the needs of different groups of customers lay in having a genuine understanding of their needs and this was truer than ever in the new normal.
“For example, our whole flexible business model is based on being able to use a combination of technology and people skills to recognise applicants who remain good credit risks despite sometimes unconventional financial profiles. That takes a degree of expertise and not just the kind of menu-based approach that you’d see in a risk-based product.
“From experience, we know that this is very much the kind of approach that produces results for dealers and which is probably more relevant than ever in the coronavirus era.”
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