2018 shaping up to be eventful for motor finance

2017: not as good as 2016, but how will it compare to 2018? Jonathan Minter assesses the road ahead for motor finance

When I wrote my year in review last year, times were a little rosier for the industry. It was just coming off the back of a record year in car registrations and car finance sales, following a very strong 2015.

We were beginning to see electric cars (EVs)take a hold of mainstream consciousness, autonomous technology seemed to be developing at breakneck pace, digitalisation was opening up sales of finance to all sorts of new avenues, Brexit and Dieselgate had not had quite the doomsday effect some feared – though there were a lot of unknowns for the former – and even the regulator seemed to be behaving itself.

Some of these are still true. EVs are more popular today than they were a year ago, and the day when alternative-fuelled vehicles (AFVs) make up 10% of new car sales could be less two years away.

More and more cars are featuring elements of autonomy, and the legislation is starting to catch up with the technology. In 2017 we saw manufacturers get a much better handle on selling cars – and finance – online. And these will only increase.

Sales have still been good – not as good as 2016, but most people expected some level of drop this year. Yes, diesel sales have plummeted – falling 30% in some months – but petrol and AFVs have done alright.

The worry is that 2018 is looking like it might be a little slower again. Consumer confidence is not exactly high right now and – having seen billions of pounds flood the market during the good years, buying equity, launching new players or expanding existing ones – it will be interesting to see how companies compete for market share and growth if the market continues to fall or flatline.

Hopefully competition will focus on improving technology and service, as opposed to writing deeper down the credit curve, or offering finance at unfeasibly cheap rates. If a lender does the latter, it will have had plenty of warning from peers that this may not work long term.

It will also have had plenty of warning that the press is now keenly aware of what motor finance is – even if it has got a few of the details wrong on occasion.

National attention

For me as a journalist, the marked increase in national attention to motor finance has been one of the reasons why 2017 has not felt as warm and fuzzy as 2016. Almost from the moment the Financial Conduct Authority (FCA) launched its business plan for the year, which announced an exploratory review into motor finance, there have been stories published regularly commenting on the industry, with the majority of articles featuring a negative take.

The FCA exploratory review will likely result in some interesting news next year when it launches.

I get the sense that the FCA has attempted to temper journalists’ expectations, telling reporters that PCP is not bad per se and so on in more recent months, but I am still curious to see the FCA’s conclusions.

The apparent bubble in consumer debt is another area that is still developing. The Bank of England first spoke about this towards the end of 2015, but awareness of this potential economic danger has grown considerably over the year.

Whether consumers have overloaded themselves during the good years, and will begin to struggle if times get tougher, only time will truly prove. And it is only then will we really find out how sensibly everyone has been underwriting.

This seems to be portraying 2017 in rather bleak terms, which is a bit unfair. The past five years have seen a number of companies post incredible results, with double-digit growth more the norm among lenders and brokers. This, obviously, was not going to last forever, and there has been a sense in the industry for a while now that a readjustment was coming, so slowing sales were inevitable – 2017 is still, however, one of the best ever years for car sales.

Looking ahead to 2018, we may have quite an eventful year ahead of us. On the regulatory front, the FCA will publish its exploratory review and, regardless of what comes directly from that, it seems likely that it will use its improved knowledge to make more direct interventions in the market.

Beyond regulation, I will also be keeping an eye out for how the market performs. Will it continue to shrink at its current rate, or will it flatten out? Is the decline of diesel set in stone, or will we see a turn around? Will PCP continue to dominate, or will PCH or a new model begin to make serious inroads?

One thing is for certain, 2018 is shaping up to be an interesting year