Car salesmen - worse than bankers?

Perhaps not.

Bankers take solace; public opinion may have turned against you in the last few years, but you will forever be held in higher regard than car dealers.

That is according to Daily Mail’s online title thisismoney.co.uk, which recently published a story warning consumers not to be taken in by “pricey” forecourt car finance at a time when high street lenders were offering personal loans at rates as low as 6 per cent.

The Mail’s warning was prompted by the announcement by the Finance and Leasing Association (FLA) that some 66 per cent of new cars purchased in March - a peak month for motor retail - were bought via dealer finance, a fairly astonishing leap from 54.2 per cent last March.

The article quoted Andrew Hagger of comparison site Moneynet, warning consumers not to get “carried away” by the patter of “smooth-talking car salesmen” and sign up for finance without shopping around for cheaper deals.

But is the rise in dealer finance seen over the last two years due to a sudden influx of brutally persuasive forecourt finance salespeople, or indeed a sudden deterioration in the average UK consumer’s desire to seek out cheaper deals?

Nope. It’s the car manufacturers themselves, and the fact that, in many cases, they are undercutting the banks on price.

The UK new car market, a vital arena for global carmakers, has been having a hard time for a few years now, and is still desperately trying to push back into the two million-units-plus annual sales total enjoyed before the recession.

Manufacturers, engaged in a prolonged battle to keep the metal moving through dealerships and into suburban driveways, have seized any opportunity to incentivise purchases. The scrappage scheme was a temporary panacea, but with that gone, finance has become the weapon of choice.

Low- and even zero-percent interest deals have proliferated in the last two years, and have not only been a large part of the reason for any growth in the UK new car market, but for the ballooning penetration rate of finance into motor retail.

The deals are provided by the vast captive finance houses – essentially pet banks - of the carmakers, and since these are fed directly from the manufacturer balance sheet, any revenue lost in low interest rates is more than mitigated by the revenue contribution of sales made possible through the offering of cheap finance. The captives are, essentially, colossal and extremely well-accounted marketing departments.

If anything, the gradual softening of personal loan rates offered by the high street – a trend which has corresponded chronologically with the rise of dealer finance – could be seen in part as an attempt by banks to compete with the boom in manufacturer offers.

But even taking the auto industry’s mass marketing campaign out of the equation and looking at the deals offered by non-captive finance houses (nearly all of which, incidentally, are bank subsidiaries anyway), are consumers really being offered a raw deal in comparison to personal loan rates?

It seems highly unlikely. After all, the penetration of finance into used car sales – a section of the market largely ignored by the captives since it offers little benefit to manufacturers – has also risen since the onset of hard times for the consumer pocket.

Being blunt, this is because car finance offers many people a way to fund a car when they are not able to get affordable credit elsewhere. The reason for this is fairly simple. Motor finance providers secure their lending against the car purchased, which gives them an alternative way to mitigate credit risk besides hiking up APR on a deal.

This does leave customers at risk of vehicle repossession if payments are not maintained. However, with the current regulatory climate leaning heavily on those companies which take a louche approach to affordability in their lending, not to mention the costs involved in repossession, it’s not as if lenders are funding vehicles with a view to seeing them again within a year.

In fact, default rates in the motor finance sector have been sitting at a historic low in the years of relatively cautious lending since the recession, despite the weakness of the UK household wallet.

So far in this discussion, we’ve taken the high street lenders on their word with regard to advertised rates. But there is, you may be unsurprised to hear, a fairly heft salt cellar to be pinched from when considering these claims. I’ll be looking to get stuck into that next time.

It may indeed be a good time for car dealers looking to entice people into signing up for finance, but to be fair to this much-maligned sector of the retail industry, they may actually be telling the truth when they tell potential buyers they’re doing them a favour.

Fred Crawley edits Leasing Life and Motor Finance at VRL Financial News.

Car salesmen: as bad as all that? 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.

Daniel Berehulak/Getty Images
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The hidden joy of charity shops

Mary saw her colleagues at the charity shop every day, but she didn't tell them she was sleeping on the 31 bus.

Camden is a bric-a-brac kind of place – market stalls, blaring music, occasional offers of weed. But the back room of the Sue Ryder charity shop on Parkway is immaculate, with hooped petticoats waiting to be steamed and crockery stacked neatly on the shelves. I’ve come to talk to the shop’s manager, Oya, and one of her volunteers, Mary*, and they are waiting for me with milky tea and chocolate-chip cookies.

Mary is nervous. She is afraid of having her real name printed. “It’s shaming to tell you my story but I believe if I tell people at the right time, good things will happen,” she says. Now in her fifties, she arrived in Britain four years ago from Italy, without friends or savings, having left her husband. The jobcentre gave her an Oyster card and told her to volunteer at a charity shop to improve her English. “So we put her on the tills,” says Oya. “That’s what we do with anyone who gets sent to us to learn English.”

But Mary had a secret. She couldn’t find anywhere to live, so every afternoon, when she finished her shift at the shop, she would go to the jobcentre and laugh and joke with the staff there to cover up the reality that she didn’t have anywhere else to go. When the jobcentre closed, she would ride the 31 bus through the night, from White City to Camden and back again. It was the best way to stay warm. Then, every morning, she would arrive at the shop early, brush her teeth in the staff bathroom and change into fresh clothes – washed in a friend’s hostel room. No one else knew.

The charity Crisis calls people such as Mary “the hidden homeless” and says that it is almost impossible to estimate how many of them there are in Britain today. Most homeless people don’t qualify for accommodation in shelters but eke out their time shuttling between friends’ sofas, insecure rented accommodation, bed and breakfasts or sleeping rough on the streets.

Eventually, the shop manager – Oya’s predecessor – asked Mary what was wrong and her story tumbled out. Between them, with help from the jobcentre staff, Mary found a studio flat and moved from volunteering on the tills to working at a nearby convenience store, where she is now a supervisor. Both she and Oya have to stop to reach for tissues while telling me this story. “Sue Ryder is my family,” says Mary. “Sometimes I want to cry but there are no tears left. And Allah would be angry if I dared to cry now, with all that I have.”

Despite having a paid job, Mary still volunteers at the charity shop on Friday mornings. She leaves at 3pm to work the evening shift at the convenience store. She and Oya are firm friends outside work. Mary brings in home-cooked lasagne for Oya and her daughter – “She says, ‘Eat some tonight, freeze the rest for Ella’” – and Oya invites her round and cooks her Turkish food on Friday nights. “She’ll say working here saved her life,” says Oya. “I’ll say I made a friend for life.”

The reason I’m here is a selfish one. Volunteering for a charity is the perfect antidote to a culture that can often feel mercenary, cynical and ruthlessly individualistic. I wish more people did it. I’m also here because in December, I wrote a piece defending charities from accusations that many do not turn every penny of donations into outlay on their projects. But running charity shops requires upfront investment – on electricity, rent and wages – so it’s too simplistic to demand that all the money they receive should go straight back out of the door.

That article prompted the management of Sue Ryder, which operates 457 shops with 12,000 volunteers, to get in touch and invite me in. Some of their volunteers, like Mary, need to learn English and other skills before they can get a paying job; some are serving prison sentences; others are youngsters sent unwillingly by their schools for work experience. (Jackie, who now manages one of the charity’s shops in Aberdeen, had previously been imprisoned three times.)

Not that everything is rosy in the charity shop back room. Oya says that some people use them as a “dumping ground”. I tell her that I once read a story about a donation of tights that had a used sanitary towel still stuck to the crotch and they nod: “We had that.” Oya is very proud, however, that the store “doesn’t smell like a charity shop”.

As well as providing jobs and raising money, stores such as this one provide a useful social barometer. There are around 9,000 charity shops in the UK and their number rose 30 per cent in the five years following the financial crash of 2007. Since then, the economic downturn has increased trade significantly. Last year at the shop in Camden, the number of donation bags increased by 52 per cent and takings went up by 8 per cent, yielding a net profit of £65,000.

In Camden, close to chichi Mornington Crescent and Primrose Hill, the donations can be eyewateringly expensive (recent finds include a £1,200 clarinet and a £980 Prada handbag), while the cheapest brands stocked are Marks & Spencer and Next. “More people are charity shopping,” says Oya. “And not the people you’d expect. They’re suited and booted. Sometimes they’re famous.” Mention is made of an EastEnders actress spotted in the store.

Because of her work, Oya has been invited to a garden party at Buckingham Palace on 12 June and naturally she is taking Mary. A trip to buy hats is coming up and their enthusiasm is infectious. Here in the back room of a north London charity shop, as the three of us – a Turkish-British Muslim, an Eritrean-Italian Muslim and plain old white agnostic me – drink milky tea, I feel the most British I have all year. These guys really love the Queen. And they love being friends. Stepping out into the sunshine, my overwhelming feeling is: maybe we’re all going to be OK.

*Her name has been changed

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 19 May 2016 issue of the New Statesman, The Great Huckster