On the third of July, the Finance and Leasing association released figures that revealed a shocking drop in uptake of consumer car finance. The figures cover May 2020 and show that the volumes of consumer car finance have fallen by a whopping 78%. This figure is a direct comparison with figures from 2019. When figures are spread out through the first quarter of 2020, the fall rate is 41% compared to 2019.
Zooming in to new car finance within the consumer market, the fall rate climbs to 86%. Looking at used car finance, similar trends are reported. A 73% fall in May 2020 and a first-quarter fall of 38% in comparison to last year’s figures.
It is immediately apparent that this sort of fall is a direct consequence of COVID and the decline in consumer confidence and spending power in the wake of the global pandemic. Similar declines have been observed across the business finance sector as well.
IMAGE: UNSPLASH
Future Boost?
Although the rate of decline has eased off a little in the preceding months and many consumer groups are being incentivized to increase spending, the future still looks unclear for the car finance sector.
With announcements made by the UK’s chancellor on the 8th of July, no provisions are in place to see an increase in public spending within the car finance sector.
Should I Invest?
It should come as no surprise but, shares in the sector are low at the minute. Basic economics would force us to conclude a rise in spending will happen after lockdown. With the industry valued at approx £58 Billion, it’s worth consideration.
It’s worth considering the fact that the market is likely to boom as the economy recovers from COVID-19. With additional drives to increase spending on newer, greener vehicles, I’d predict a flurry of car financing purchases as lockdown eases.
Further Context
Recently, the Financial Conduct Authority (FCA for short) announced new and stringent guidance for the sector. This will inevitably impact the way the sector operates and could lead to a shake-up in consumer confidence.
Adrian Dally, head of motor finance with the FLA called for the government to increase support for the industry. In a statement, he said, “it is now time for the Government to support the industry so that it is able to continue to offer finance to consumers and businesses at affordable rates during the recovery”.
Going Forward
With the reopening of showrooms across the country back in June, the ability to test drive picking up again and the sales incentives on the forecourts, I expect a return to pre covid levels before the year is out.
One of the unforeseen but welcome developments across the globe since the onset of COVID-19 has been an increase in innovation. With more and more financiers looking for digital first options to provide their services, I’m confident the industry will innovate and thrive.
Investments need to be made wisely. Look to invest not in the stalwarts of the sector but the innovators. Those offering click and collect etc are far more likely to rocket as an asset in your portfolio.
For those with a close eye on the markets, a few handy KPI’s to monitor are:
Unemployment Levels
Globally, the pandemic has led to unprecedented levels of unemployment. Track this metric and you will be well placed to anticipate financial recovery and a return to normality. Look for consistent declines in unemployment.
Consumer Sentiment
This metric is all about consumer confidence. Low confidence means low spends, low spends means falling stocks. As confidence levels begin to rebalance, this would be a good indicator of economic recovery.
Petrol/Fuel Spend
As people begin taking longer journeys, more spending will be evidenced at the pumps. Watch this metric to get an idea about public consensus on lock down easing.
Shopping Offline
Obviously, the pandemic has forced a massive shift away from consumer retail in the physical world and into online retail. However, now that measures are being lifted worldwide, it’s worth considering the physical retail numbers. A rise in consumer retail in the public space would indicate a return to normal.
Jetting Off
Track global flights. An increase is a key indicator of normality.
Home For Good
The final metric to track is house buying. The only people buying houses will be creditworthy people with stable jobs. If numbers of house buyers begin increasing, this is a significant indicator that the markets are heading in the right direction.
Tracking these metrics and picking innovators in the sector will ensure that investments in the consumer car finance industry bounce back. There’s money to be made, don’t be put off by the fall.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.
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