Since the FLA released formal guidance for the motor finance industry, John Ingram, managing director of Chartsbridge, says lenders are questioning their choices.
Many lenders have been wondering if continuing the collection of vehicles being voluntarily terminated or surrendered during lockdown is the right thing to do.
However, since the Finance & Leasing Association (FLA) released formal guidance for the motor finance industry on April 15, for many that question has shifted to whether it’s the right thing to do commercially.
The lockdown on March 23 created an inevitable period of immediate market uncertainty, with significantly reduced vehicle collection activity followed by an intense period of consultation with government.
The FLA released official COVID-19 Vehicle Movement Guidance following confirmation from both HM Treasury and the Department for Transport that voluntary terminations (VTs) and surrender (VS) activities should continue to operate, noting this is crucial to ensure the economy keeps moving.
Since this guidance was issued, what has happened in practice? Fairly obviously, the lender market has largely responded in one of two ways: either collecting vehicles and attempting sale of stock now, or choosing to leave vehicles out with customers until the lockdown is lifted. But which of these options is the ‘right’ thing to do?
Despite guidance confirming that logistics falls outside their restricted core auction activity, physical auction houses are closed and many of their internal logistics teams have also been furloughed.
In response, a handful of the national and more solutions-oriented collections and recoveries businesses quickly implemented contactless collections and logistics solutions to assist lenders in keeping the economy moving.
Some of the larger vehicle auction houses, servicing the motor finance market, have launched more frequent online auctions to enable lenders to continue shifting their stock during lockdown and generate immediate liquidity. But who is buying, what is selling and is this working out commercially for lenders?
One large independent motor finance lender has reported, this week (May 4), that they placed more than 100 vehicles into a single online auction and that sales conversion rates were only down 15 percent. They also said sales prices achieved were in-line with stock expectations, with a similar percent of car auction prices achieved this time last year.
When compared to normal sales figures achieved, on the face of it this seems like pretty good going and an encouraging sign for what online auctions can achieve.
New car registrations in Britain were down 97.3 percent year-on-year in April, due to the lockdown restrictions introduced to combat the spread of the coronavirus.
Just 4,321 new cars were sold last month, the lowest levels in Britain since 1946, a year after World War II, figures from the Society of Motor Manufacturers and Traders (SMMT) reveal.
A total of 161,064 cars were registered in April last year. As a consequence, the larger dealer groups are currently out of the auction buying market, so the current sales opportunity seems more suited to lenders with mid-to-lower value stock. This leaves captive lenders with a higher value stock profile, without their usual active pool of main dealer buyers.
Does this mean that for those lenders, leaving vehicle stock subject to terminated agreements out with customers, it is the right thing to do? There are clearly pros and cons to both approaches.
The proactive approach avoids leaving hundreds of vehicles with frustrated customers, whilst avoiding a logistics backlog and preventing a flooding of the market with stock when physical auction business resumes.
On the other hand, it may create large volumes of unsold stock in storage, rendering finance companies with storage site challenges with the auctions already filled to the brim with unsold stock.
Then there is the non-collection of vehicles which gives rise to insurance risks alongside a number of other challenges.
Finance agreements will typically require a customer to have fully-comprehensive cover, but once the agreement ends by VT and the vehicle is no longer being used, lenders become responsible for uninsured, uncollected vehicles.
The FLA has consulted with lenders around the all-new concept of temporary laid-up cover being taken out by lenders. However, many do not have any such insurance policies in place and some have even requested customers take out laid-up cover and they will reimburse them.
Finance agreements will also require the registered keeper to issue a Statutory Off Road Notification (SORN) to the DVLA, which could lead to risks of penalties or DVLA enforcement action where the vehicle is held on the highway or any other public land.
At a time of crisis, it appears that there is no right, wrong or easy answer to these challenges. But it is important that retailers start trading again to keep stock flowing. Auction houses also need to invest time and effort in making virtual auctions a process of ease and earn the ultimate trust of the buying market.
Virtual auctions could be with us for some time and possibly even become the ‘new norm’, at least for the foreseeable future.
Prime Minister Boris Johnson is to deliver an address to the nation this Sunday (May 10), to unveil how Britain intends to “unlock the UK economy”. Hopefully, with a clearer picture of the coming weeks ahead, the industry will be in a better placed to make informed decisions.