What can we expect of car finance in 2017?

For the past few years, motor finance has been in what could be described as a golden period.

Sure, there has been the odd tough month here and there, and companies have had to deal with all sorts of new regulation from the Financial Conduct Authority (FCA), but fundamentally, motor finance lenders who have behaved sensibly, invested, and generally done their job to a decent standard, have posted year after year of growth.

2016 marked the year where new car sales stopped growing at such a strong rate (though they still grew a bit overall), but even this wasn’t enough to stop the increases in motor finance. The Finance & Leasing Association (FLA) last week reported the number of cars sold to consumers on dealer finance jumped 8% to nearly 2.3m.

Breaking those figures down, just over 1m of the finance contracts were for new cars, with just over 1.2m for used. Given that over the same period new car sales in the private market actually fell slightly (-0.2%), this meant that the percentage of private new car sales financed by FLA members through the POS reached 86.6% in 2016, up from 81.4% in 2015.

What is more, in 2017, the general expectation seems to be that new car sales are going to shrink slightly – with estimates ranging from 3% to 7%

This leads to the question – just how long can car finance keep on growing if new car sales begin to contract?

At this early stage in the year, no one knows for sure, but one would expect the growth to slow down at some point – with penetration already at record volumes, finance has currently got only so much further it can grow.

It will be at this point where we’ll start to see the results of company’s investments and initiatives in the good year.

At the same time lenders need to be conscious of new ‘usership’ technology’s and systems being created today, which have the potential to eat into car buying numbers, and in so doing, potentially finance figures. We’ve already seen most manufacturers invest in these, and captive finance companies haven’t been shy in exploring their options in this area either.

2017 is almost certainly too early for this sort of thing to have a real impact on car finance volumes.

In the used space, penetration is much lower. On the one hand this gives finance much more room to grow, but on the other hand finance is lower in the used space for a reason. Some people can’t get finance due to their credit rating, or can’t get finance at a rate they find acceptable. Also, used cars are much cheaper, and so it’s potentially easier to stomach paying £5,000 for a used car than £10,000 and up.

So the question is, will finance continue to grow in 2017? It could, but if it does, it’ll probably be at a slower rate than before. And if it doesn’t, it’s important to remember that motor finance volumes are currently at record volumes, and that this wouldn’t be a disaster.