Amanda Hall-Davis looks at how captive finance houses are weathering the economic storm
Amid the global economic slowdown, and with major UK financial institutions curtailing their exposure to the vehicle finance sector as a result of escalating portfolio losses, what strategies are the lending arms of the car and commercial vehicle (CV) manufacturers employing to deal with these turbulent economic conditions?
The slump in CV registrations is severe. According to figures compiled by the Society of Motor Manufacturers and Traders, registrations of vans and trucks were down 39 percent for the year to October. Captives, so closely tied to the fortunes of their parent brands, have not escaped the pain caused by collapsing registrations.
Many of the finance captives active in the UK are supporting their respective retailer networks with a range of new competitive finance offers, customer incentives and add-on insurance products, in an attempt to stimulate sales in the teeth of the recession.
For example, Vauxhall Finance UK is offering new incentives on Vauxhall’s commercial vehicle range, including four years of zero percent APR on selected commercial models. This deal has the additional offer of four years of free servicing, warranty and breakdown cover. An online van budget planner as an add-on is available to customers to help with payment planning, along with the General Motors credit card, which offers customers the opportunity to collect points which can be redeemed against the purchase of a new Vauxhall model.
Other strategies being implemented in the commercial sector include RCI Financial Services UK’s offer of zero percent APR on all hire purchase agreements on CVs until the end of 2009. Ford Credit Europe (FCE) UK included promotional offers until December 2009 on the new Fiesta and Transit van range, with fixed 7.9 percent APR and discounts off the retail prices. FCE provides commercial GAP insurance as an extra, along with varying online tailored finance packages, and also offers customers online account management.
With the decline in the commercial vehicle sector, brands need the protection and dealers the support which captives can provide, through developing strategies to meet the specific needs of their customers. But manufacturers’ finance arms need to avoid resorting to offering large discounts – and thereby destroying residual values. The focus should stay on building strong residual values and brand loyalty, with the long-term goal of increasing market share.
Looking into the future, the gradual transition of fleets to electric-powered and/or low carbon vehicles will open up new opportunities for finance providers – highlighted by the news that Nissan and Sumitomo have started a joint project to create a secondary market for electric batteries (see below).
It appears captives are taking into account the need for diversification strategies to provide additional selling points. The inter-relation between captives, manufacturers and dealers is becoming ever-more imperative in order to ride out the economic storm.