A recent spate of articles about the increase in complaints to the financial ombudsman about car finance is an interesting and worrying sign of the times.
This year there were nearly nine thousand complaints about car finance (up from 5,805 in 2017-18 - a leap of 50%)
Worryingly the complaints were not restricted to poor quality vehicles - people complained that they were not made aware what type of finance they were on, and being sold cars on finance plans they couldn’t afford.
Whilst it seems obvious to some that a monthly commitment of several hundred pounds is not to be entered lightly, news reports told the story of a student taking on a £300 per month car finance commitment without any affordability checks.
On the one hand, this could be seen as an indicator of personal irresponsibility. But there is a worrying context. Dealerships seem to be under a lot of pressure at the moment - are they taking short cuts to shore up sales?
For instance, beleaguered car dealership Pendragon brought in a new MD earlier this year and almost immediately lost him.
New boss, Mark Herbert, was hired just as Pendragon - which trades under the Evans Halshaw, Stratstone and Car Store brands - slumped to a loss in the first quarter of 2019 after it was forced to lower prices to shift cars.
Halshaw’s review of the Pendragon brand strategy led to a clash with the board and his departure after just three months. Herbert has experience in franchising and new vehicles - but the board is adamant that Pendragon should concentrate on their used car market.
Pendragon shares lost ground in June after it warned it would be “significantly loss-making” in the first half of 2019. Whilst analysts had been expecting a profit of almost £35m for the year, the company’s own predictions are a small pre-tax loss for 2019 as a whole.
Whatever the best strategy, things are really not good in the automotive market place. Demand for new cars is down on 2018 with both new and used car sales taking a hit in 2019. A combination of uncertainty about the economy in general and the prospect of clean air zones and other policy changes have slowed people’s enthusiasm for buying cars and hesitate over which kind of vehicle - taking time to make choices which will meet future rules and keep running costs low.
The pressure on dealerships is evident. It’s hard to tell right now whether the desperation to shift excess stock, is leading to shortcuts and the ‘blind eye’ approach to car finance affordability. If there’s a lack of due diligence with the financially inexperienced we could see more complaints to the financial ombudsman in future - and that would just be the canary in the coal mine for systemic problems in the car finance industry. Inevitably these could come to light and cause serious problems if the economy faces headwinds in the latter part of 2019.
by Beate Kubitz at 12 Jul 2019, 00:00 AM