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January 12, 2010updated 12 Apr 2017 4:28pm

Peter Hunt analyses market statistics for the year to 31 October 2009

October new business volumes of FLA members were expectedly down on the previous months quarter end, though thanks to the first year-on-year growth in car finance in 13 months, the business finance market (excluding big ticket) was down only 5 percent on the month and 22 percent on October last year

By Peter Hunt

Highlights

October new business volumes of FLA members were expectedly down on the previous month’s quarter end, though thanks to the first year-on-year growth in car finance in 13 months, the business finance market (excluding big ticket) was down only 5 percent on the month and 22 percent on October last year. Less positively, with new business volumes of only £75 million (€83 million) the big ticket market has continued its downward slide, hitting its lowest point for many years and 89 percent down on the same period last year.

For the second month in a row, consumer finance volumes were less than 10 percent below the corresponding month in 2008, suggesting some form of bottoming out may be occurring. Consumer car finance seems to be leading this market movement, and is up 20 percent on the previous year.

With both business and consumer car finance showing growth, motor finance is overall 12 percent up on last year monthly total, though still 15 percent down on a YTD basis.

Business finance on cars was up 0.7 percent on 2008. This seems broadly in line with registrations, with the fleet market (more than 25 vehicles) down 2 percent, but the business car market (fleets of less than 25 vehicles) up 12 percent. The car scrappage scheme was responsible for 20 percent of all registrations in October, and the SMMT claimed that other purchases were brought forward to avoid the VAT increase in January. Economists have suggested the scrappage scheme has simply brought forward purchase behaviour. If this is the case, with the scrappage scheme due to cease and the increase in VAT, registrations and connected funding volumes in the first quarter of 2010 could easily slip back.

While the performance of business car finance has seemed promising, the position for other business asset classes is less positive. As the chart below shows, the three month rolling average for plant & machinery remains stubbornly more than 40 percent down on last year, with business equipment and commercial vehicles fairing little better.

The latest CBI Industrial Trends survey highlights manufacturer order book weaknesses and an expectation of lowering output, suggesting plant & machinery funding volumes are unlikely to grow in the near term.

One possibly hopeful piece of news for commercial vehicle funders is the SMMT reporting in October that van registrations appear to be stabilising (down 19 percent on previous year), though truck registrations were down 63 percent. The SMMT also report that the outlook for bus and coach registrations is weak, having lagged other asset classes going into the downturn. While not good news in terms of funding volumes, it may create strong extension rental incomes in the sector.

Perhaps in line with the low big-ticket volumes, aircraft, ships and rolling stock reported its lowest total (£46 million) since September 2007 and after last month’s low for international assets, October’s total was £1 million lower, at £56 million.

Among continued reports of difficulties in the sector, broker-introduced business represented only 13 percent market volumes in October, its lowest figure this year. Proportionately, direct finance had a strong month, with 67 percent of the market.

Comment

Office of National Statistics data showed third-quarter business investment 22 percent down on last year. Little to cheer about perhaps, but the corresponding quarterly graph shows a slowing of the downward curve and perhaps a bottoming out of demand weakness. If this is the case, funding volumes can hopefully start to grow, though it may take a few quarters before this comes through without the sort of government incentivisation that has helped car finance volumes over recent months.

The author is a partner at the consulting and services firm Invigors, and can be contacted at peter.hunt@invigors.com

 

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