the year to August 31 2007
Highlights
August saw continued healthy growth, in particular for business
finance. Excluding big ticket transactions, business finance has
seen nine consecutive months of annual growth. YTD growth for
business finance including big ticket was 5.6 per cent, excluding
big ticket 5.5 per cent. Main YTD growth has come from commercial
equipment (8.2 per cent) while car finance has grown a more modest
0.5 per cent.
The split between direct and indirect finance appears to be
changing. The last six months have each seen a month-on-month
growth in direct finance’s share of the market, reaching 73 per
cent of the business finance market in July, then 75 per cent in
August. This has not been driven by high big ticket months and its
source remains unclear. One theory is that it could potentially be
an increase in broker-introduced new business, possibly of vendor
and dealer business, but still recorded as direct business as the
vendor introduction would not be recognised by the finance company
reporting data to the FLA.
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Meanwhile, lease/hire purchase volumes were 37 per cent of the
business finance market, their lowest level since November 2005.
After five of the last six months showed a downward year-on-year
trend, finance leasing showed a large growth in August, up to 27
per cent of the total business finance market, its highest level
since November 2006.
After the predicted July high, as expected August car finance
volumes were lower than the previous month. This is perhaps a safe
bet since alongside February, it is the lowest month of the year
for car registrations, in advance of the September plate
change.
Overall, motor finance (including consumer and business) has
grown 2.4 per cent YTD. For business customers, growth of 1.6 per
cent on new car financing has been counterbalanced by a fall of 8
per cent in used car finance. A similar pattern is evident with
consumer finance, with new car finance (5.8 per cent YTD growth)
running ahead of used cars (1.5 per cent).
Consumer finance’s modest YTD growth is underpinned by credit
card activity, growing 8.2 per cent YTD to represent 51 per cent of
FLA consumer finance volumes. Over the last three months all other
parts of consumer finance have recorded year-on-year drops. In a
particularly noteworthy development, the last three months have
each seen a year-on-year decrease of over 20 per cent in unsecured
loans (YTD down 14 per cent), perhaps as a result of tightening
underwriting policy.
Comment
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By GlobalDataEight months into the year, with an interesting Q4 ahead, it
seems like a good time to take stock of YTD performance.
Though competitive pressures are ever-present, underlying
conditions have remained fairly benign so far in 2007. Though GDP
looks set to drop from 2.9 per cent this year to 2.1 per cent in
2008, inflationary pressures look set to ease, taking some of the
heat off interest rates. However, FHBR reached 7 per cent in
October, following the period of market turbulence beginning in
early August. The short term future remains uncertain, especially
for players on the fringes of the market, or those carrying below
prime credits.
September should be a good month for motor finance, historically
representing over 17 per cent of annual car registrations. In the
current circumstances, it will be interesting to see how this
translates into finance volumes.
The author is a partner in the consulting and services firm
Invigors LLP, peter.hunt@invigors.com
