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.

Photo: Getty
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Theresa May could live to regret not putting Article 50 to a vote sooner

Today's Morning Call.

Theresa May will reveal her plan to Parliament, Downing Street has confirmed. They will seek to amend Labour's motion on Article 50 adding a note of support for the principle of triggering Article 50 by March 2017, in a bid to flush out the diehard Remainers.

Has the PM retreated under heavy fire or pulled off a clever gambit to take the wind out of Labour's sails while keeping her Brexit deal close to her chest? 

Well, as ever, you pays your money and you makes your choice. "May forced to reveal Brexit plan to head off Tory revolt" is the Guardian's splash. "PM caves in on plans for Brexit" is the i's take. "May goes into battle for Brexit" is the Telegraph's, while Ukip's Pravda aka the Express goes for "MPs to vote on EU exit today".

Who's right? Well, it's a bit of both. That the government has only conceded to reveal "a plan" might mean further banalities on a par with the PM's one-liner yesterday that she was seeking a "red white and blue Brexit" ie a special British deal. And they've been aided by a rare error by Labour's new star signing Keir Starmer. Hindsight is 20:20, but if he'd demanded a full-blown white paper the government would be in a trickier spot now. 

But make no mistake: the PM didn't want to be here. It's worth noting that if she had submitted Article 50 to a parliamentary vote at the start of the parliamentary year, when Labour's frontbench was still cobbled together from scotch-tape and Paul Flynn and the only opposition MP seemed to be Nicky Morgan, she'd have passed it by now - or, better still for the Tory party, she'd be in possession of a perfect excuse to reestablish the Conservative majority in the House of Lords. May's caution made her PM while her more reckless colleagues detonated - but she may have cause to regret her caution over the coming months and years.

PANNICK! AT THE SUPREME COURT

David Pannick, Gina Miller's barrister, has told the Supreme Court that it would be "quite extraordinary" if the government's case were upheld, as it would mean ministers could use prerogative powers to reduce a swathe of rights without parliamentary appeal. The case hinges on the question of whether or not triggering Article 50 represents a loss of rights, something only the legislature can do.  Jane Croft has the details in the FT 

SOMETHING OF A GAMBLE

Ministers are contemplating doing a deal with Nicola Sturgeon that would allow her to hold a second independence referendum, but only after Brexit is completed, Lindsay McIntosh reports in the Times. The right to hold a referendum is a reserved power. 

A BURKISH MOVE

Angela Merkel told a cheering crowd at the CDU conference that, where possible, the full-face veil should be banned in Germany. Although the remarks are being widely reported in the British press as a "U-Turn", Merkel has previously said the face veil is incompatible with integration and has called from them to be banned "where possible". In a boost for the Chancellor, Merkel was re-elected as party chairman with 89.5 per cent of the vote. Stefan Wagstyl has the story in the FT.

SOMEWHERE A CLOCK IS TICKING

Michael Barnier, the EU's chief Brexit negotiator, has reminded the United Kingdom that they will have just 15 to 18 months to negotiate the terms of exit when Article 50 is triggered, as the remaining time will be needed for the deal to secure legislative appeal.

LEN'S LAST STAND?

Len McCluskey has quit as general secretary of Unite in order to run for a third term, triggering a power struggle with big consequences for the Labour party. Though he starts as the frontrunner, he is more vulnerable now than he was in 2013. I write on his chances and possible opposition here.

AND NOW FOR SOMETHING COMPLETELY DIFFERENT

Emad asks if One Night Stand provides the most compelling account of sex and relationships in video games yet.

MUST READS

Theresa May is becoming adept at avoiding defeats says George

Liv Constable-Maxwell on what the Supreme Court protesters want

Theresa May risks becoming an accidental Europe wrecker, says Rafael Behr

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