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.

Carl Court/Getty
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To stop Jeremy Corbyn, I am giving my second preference to Andy Burnham

The big question is whether Andy Burnham or Yvette Cooper will face Jeremy in the final round of this election.

Voting is now underway in the Labour leadership election. There can be no doubt that Jeremy Corbyn is the frontrunner, but the race isn't over yet.

I know from conversations across the country that many voters still haven't made up their mind.

Some are drawn to Jeremy's promises of a new Jerusalem and endless spending, but worried that these endless promises, with no credibility, will only serve to lose us the next general election.

Others are certain that a Jeremy victory is really a win for Cameron and Osborne, but don't know who is the best alternative to vote for.

I am supporting Liz Kendall and will give her my first preference. But polling data is brutally clear: the big question is whether Andy Burnham or Yvette Cooper will face Jeremy in the final round of this election.

Andy can win. He can draw together support from across the party, motivated by his history of loyalty to the Labour movement, his passionate appeal for unity in fighting the Tories, and the findings of every poll of the general public in this campaign that he is best placed candidate to win the next general election.

Yvette, in contrast, would lose to Jeremy Corbyn and lose heavily. Evidence from data collected by all the campaigns – except (apparently) Yvette's own – shows this. All publicly available polling shows the same. If Andy drops out of the race, a large part of the broad coalition he attracts will vote for Jeremy. If Yvette is knocked out, her support firmly swings behind Andy.

We will all have our views about the different candidates, but the real choice for our country is between a Labour government and the ongoing rightwing agenda of the Tories.

I am in politics to make a real difference to the lives of my constituents. We are all in the Labour movement to get behind the beliefs that unite all in our party.

In the crucial choice we are making right now, I have no doubt that a vote for Jeremy would be the wrong choice – throwing away the next election, and with it hope for the next decade.

A vote for Yvette gets the same result – her defeat by Jeremy, and Jeremy's defeat to Cameron and Osborne.

In the crucial choice between Yvette and Andy, Andy will get my second preference so we can have the best hope of keeping the fight for our party alive, and the best hope for the future of our country too.

Tom Blenkinsop is the Labour MP for Middlesbrough South and East Cleveland