The government has still not announced plans to aid the motor
finance sector, despite business secretary Lord Mandelson’s
comments in March that discussions about support for the industry
with the Treasury and the Bank of England were “making progress”
(see MF Mar 09).
The delay is bad news for motor finance companies, many of which
have seen their funding costs rise precipitously or disappear
altogether in the wake of the credit crunch.
The Finance & Leasing Association (FLA) said that
discussions with official bodies were still ongoing. “We are still
in discussion with the government and the Bank of England on how
assistance can best be provided to the motor finance industry to
help lenders meet consumer demand and continue to fund the 52.9
percent of cars bought using dealer finance,” said Paul Harrison,
head of motor finance at the FLA.
“While discussions on the purchasing of asset-backed securities
are ongoing, many of our members have expressed interest in the
commercial paper and corporate bond schemes under the Asset
Purchase Facility, and have met with the Bank of England to discuss
access,” he continued.
Under the terms of these schemes, the Bank of England buys
lenders’ commercial paper or corporate bonds in exchange for
short-term liquidity, which “will help bolster cash-flow and enable
lenders to go on lending,” Harrison added.
FLA figures show fall in dealer finance
The FLA has released its most recent figures for motor finance,
which show that 21 percent fewer new and used cars were bought with
dealer finance in February 2009 compared with the same month last
The decline is “further evidence of the need for government
support to boost liquidity in the motor finance market,” said chief
economist Geraldine Kilkelly.
She added: “These figures show the importance of motor finance
to the car industry. Our discussions with government on support for
all motor finance providers are reaching a critical point. Urgent
action is needed to enable finance providers to meet consumer
demand that is currently going unmet due to wholesale funding
While demand for personal new car leases during February 2009
fell 36 percent by value compared with the previous year, however,
personal contract purchase deals grew by 3 percent year on year, a
rise which Kilkelly attributed to consumers’ seeking out “flexible
finance agreements to help them during the economic