MotoNovo has urged finance companies to review figures for residual values (RV) and guaranteed minimum future values (GMFV) in the face of shifting market trends.
Chief executive officer for the motor finance division, Karl Werner, pointed to a variety of factors, including a possible rise in interest rates, a slowdown in new cars sales, scrappage schemes, and tighter pollution regulation, which together create a level of uncertainty that finance providers should account for.
Werner drew parallels with the negative condition of equity a decade ago, and advocated caution in the light of similar current trends: “I recall the impact of PCPs when the ‘half-a-car concept’ hit our shores. Early market scepticism was quickly followed by rapid growth, and in a market operating in an upward trajectory, residual values and GMFVs were bullish.
“Sadly, when the economic cycle and operating conditions turned, the issue of negative equity emerged and hit the finance industry very hard. Consumer confidence in the PCP product and dealer finance was seriously undermined, something which in turn affected dealers as credit conditions tightened. The whole industry needs to avoid such a repeat.”
He warned that “no dealer benefits from choosing a lender with a model which proves unsustainable”.
He continued: “A more conservative RV/GMFV strategy seems entirely appropriate. 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 [then] 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.”