A fight to the death in the world of car dealership

Personal loans vs dealer finance.

In a previous post, I expressed bafflement at an article warning car buyers to be wary of expensive finance arranged on the forecourt, at a time when all sorts of wonderfully inexpensive personal loan rates were apparently on offer from high street lenders.

I was baffled because half the “pricey” dealer finance providers the article was warning consumers about are owned by the same banks as the personal loans providers in any case, and because the other half are bankrolled by car manufacturers offering hugely subsidised interest rates that no sane bank would compete with.

I went on at some length about all this (I’m from the trade press… we don’t get out much), but the upshot was that, looking at the way the car finance business works, the assertion that customers should beware of forecourt finance is dubious at best. 

Of course, there’s a lot more to consider than just price when weighing up the pros and cons of two completely different financial products, but let’s face it - it’s price that matters when it comes to consumer judgement. So let’s settle this with numbers.

On the personal loan side of things, Bank of England data shows that the typical cost of a £5,000 loan has steadily risen every month for the last five years, from an average rate of 8.7 per cent in March 2007 to 15.8 per cent in April 2012.

Now, this figure is a mean of all lowest advertised rates in a given month, and does very little to reflect the actual average interest rate of personal loans underwritten in a given month.

And to be fair to the loan providers, there has been a hard core of aggressive players, supermarket players M&S, Sainsbury’s and Tesco among them, pushing in the opposite direction over the same period. In May, we tracked no less than seven lenders duking it out between 6.0 per cent and 6.3 per cent (for a theoretical loan of £8,500 over 4 years). But overall, this action has been drowned out in the Bank of England stats by the mass of more cautious lenders in the UK.

Now let’s look at what’s happening in the world of forecourt finance. As I have already alluded to, more than 50 per cent of all finance deals offered each month are subsidised by manufacturers, dropping them way beyond the competitive reach of the loan providers. Include deals where discounts or freebies are offered in terms of maintenance, service and the like, and you’re looking at 80 percent of all new car finance.

As for the remainder, a quick phone round all the big providers (who are, you will remember, major banks) confirmed that their average APR on deals actually offered to consumers currently varies between 8 per cent and 10 per cent.

OK, sure. This doesn’t look too hot compared to those 6 per cent deals from the high street. But let’s not forget that those figures are “representative” APRs: since the actual rate offered by a lender tends to vary hugely depending on a customer’s credit rating, they can only legally advertise a rate achievable by at least 51 per cent of applicants. Put it another way, and 49 per cent of borrowers end up paying a higher rate.

So: half of applicants to the most competitive loan providers are probably getting a cheaper deal than between 20 per cent and 50 per cent of new car finance applicants, to the tune of 2-4 per cent in interest rate terms. I’ll admit that there’s a certain amount of beermat mathematics involved in working this out, but the conclusion is clear: there’s not much in it.   

In all of this (and I promise I’ll talk about something different now), we’ve just been talking about the new car finance market, and customers with good enough credit ratings to be considered by the manufacturer captives and supermarket loan providers in the first place.

Next time, I’ll look at the hundreds of thousands of people who’ve been completely unable to find a way to finance a car purchase since 2008, and what on earth the industry is planning to do with them. Now that’s a struggle.

Photograph: Getty Images

By day, Fred Crawley is editor of Credit Today and Insolvency Today. By night, he reviews graphic novels for the New Statesman.

Photo: Getty
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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.