Finance keeps the brakes on recovery

Finance is still a hurdle, if not a mountain, to overcome when buying a new car, writes Paddy Comyn

EARLY SIGNS FOR car sales in 2010 weren’t good. Sales for the first 10 days of 2010 showed that car sales were down 30 per cent on the same period in 2009, a year that itself was a disaster for the Irish motoring industry. The weather has been largely blamed for this and since the great thaw that has followed the big freeze, showroom traffic appears to be returning to levels that will give the industry some cause for hope.

Twenty-day figures are likely to show a return to stronger sales and most commentators are predicting that the 10-day figures in February will give us a true indication of where the market will be headed this year.

According to Alan Nolan, director general of the Society of the Irish Motor Industry, the availability of finance is still a concern, but there has been an easing in the availability for new car sales.

“There is a sense that particularly on the new car end of things and particularly on scrappage there doesn’t appear to be too much difficulty in getting finance. It is beginning to ease on the used car side but it is still a concern. There are signs that it is improving and we would hope that it would continue to improve. With the pick-up in new car sales boosted by scrappage, finance is the only thing that could slow down recovery, but the signs are good so far.”

Shane Teskey, managing director of Motorcheck.ie and Benchmark Fleet Services says that the dealer network does continue to suffer from a lack of available finance from customers, “anecdotally dealers who would be carrying out vehicle history checks or vehicle finance checks on our website, they are reporting that finance is very difficult to source”.

You only had to read last week and this week’s Motors to see that car prices in Ireland are at an all-time low and that some of the offers available on new cars are not likely to be repeated for quite some time. Brands like Renault in particular appear to be attacking 2010 with an aggressive discounting approach that seems very much to aimed at gaining market share. And it is working. Renault has come from out of nowhere to be the fourth biggest selling brand in 2010, with 9 per cent of the market share, compared to the 6.39 per cent they finished at in 2009.

“Finance is still very difficult for anyone and what is helping our brand at the moment is the trade-in allowance which is bringing a large deposit on the vehicle, which is up to €3,300, so in the case of a Mégane which would retail normally at €21,000 you already have a deposit of €3,300,” says Renault Ireland’s marketing manager Julien LeLorraine. Renault Ireland will announce a finance package with an as yet unnamed finance partner by the end of January. “We are working on something to be even more aggressive, but it is in the pipeline. We are coming with a finance package pretty soon.”

As sales faltered in 2009, much of the blame was put on the global economic downturn, uncertainty over jobs and the result was that buyers lost confidence and banks and lending institutions lost the ability to provide finance, the lifeblood of new car sales.

A survey by the Peugeot dealer network in late 2009 showed that 71 per cent of car finance proposals were being rejected compared to 30 per cent in September 2008. In the last 12 months GE Money, Friends First and Lombard Ireland all left the market, which is now dominated by the likes of Permanent TSB, Bank of Scotland Ireland and the two main banks, AIB and Bank of Ireland. Evidence also suggests that the credit union has become a prominent lender for private individuals in the car market.

The car industry called, clamoured and lobbied for a scrappage scheme and the Government granted them their wish this year. But has there been an improvement in the access to car finance? According to main lending institutions, they are very much open for business.

“AIB’s Car Finance Unit provides car finance for both new and used cars and up to 100 per cent finance is available subject to the customer’s repayment capacity. Customers generally are borrowing over a three- or four-year period but car finance is also available over five years,” says a spokesperson for the bank.

“Repayments vary depending on the amount borrowed and term of loan and the APR is given with every car finance quotation. One of the advantages of dealing with the AIB Car Finance Unit is that credit decisions are made within 24 hours or less. As with all of AIB’s lending products, normal lending criteria apply.”

A spokesperson for Bank of Ireland says that it too is very much open for business on motor loans. “For motor finance amounts under €7,000, loan rates are from 11.5 per cent APR fixed, with the flexibility of paying off their loans over one to five years. For finance amounts over €7,000, our hire purchase package offers very competitive rates from 7.6 per cent APR fixed. Consumer Hire Purchase is a traditional form of car finance that is convenient to arrange and has flexible terms to suit a customer’s needs. The rate is fixed so our customers know the amount of each repayment throughout the term.”

Promising words from the banks, but neither were willing to provide details on their pass rates for customers.

A spokesperson for the Credit Unions of Ireland says: “We (like all financial institutions) have witnessed a slight inertia in the market in 2009. Overall personal lending has decreased somewhat, but within this the demand for car loans has remained quite good. The average rate for car loans in credit unions was 7.1 per cent last year.

Despite the difficult economic conditions, and in conjunction with the difficulties experienced in other financial institutions, credit unions remain in a very strong position to lend to their loyal members. Existing members with a proven track record in repaying other loans, and those with the capacity to repay, will have their loan applications assessed speedily.”

Chris Hanlon, chief executive of Permanent TSB Finance, which provides car finance solutions for a number of major manufacturers such as Hyundai, Kia and Opel says that they are lending and that scrappage has been a good boost to the industry. “At the tail end of last year there was no suggestion of there being a scrappage scheme introduced, but now it has been introduced so all the talk has to turn into action.

“There was a slow start to the year because of the bad weather and we weren’t processing a lot of applications and there wasn’t a lot happening at dealerships, but since the thaw there has been more activity and we are cautiously optimistic that things will improve. We have money and we are working hard with our partners to provide finance, so this year it really is all to play for.”

Permanent TSB had made it clear at the end of 2009 that it would be looking for customers who had bought cars in ’05, ’06 or ’07 with a large portion, or all of the borrowings paid off and they had stated that they would be financing the ex-VRT price of the car with a deposit of at least 15 per cent required.

What became clear at the end of last year is that lenders were going to be tougher when it came to screening and processing motor loan applications, and while many lenders might talk about offering 100 per cent finance on deals, many customers would report having to stump up around 30 per cent deposit.

With the absence of finance available from many domestic lending institutions, some car firms looked to their own finance houses to provide customer credit. Volkswagen bank rowed in behind the newly formed Volkswagen Group Ireland and its German-based bank, without the burden of a legacy of bad debts, has entered the market supporting its brands Audi, Skoda, Seat and Volkswagen.

Volkswagen has a 6.75 per cent APR offer on the full range of VW passenger cars, with the bank claiming to have an acceptance rate of 86 per cent. There are even more aggressive rates offered on Seat cars, with a 5.99 per cent APR offer on the Seat Ibiza. This rate is bettered by Skoda’s 4.99 per cent APR rate on the Skoda Fabia. Volkswagen is also trialling a personal contract plan lease deal on the Polo, which offers a Polo over 36 months from €234, with the option to refinance to a new model at the end of the three-year period or simply to hand the car back or buy the car outright.

Audi will also roll out a personal contract plan on Audi A3 and A6 models in the first quarter of this year, with rates of between 7.2 per cent and 7.8 per cent allowing customers to lease a new car from as little as €390 per month.

However, it isn’t just brands with the might of a German financial institution behind them that are offering competitive finance rates on new cars. According to a spokesperson for Toyota Ireland, “Toyota Finance is very much open for business with 75 per cent of all new car applications being approved and we have rates which are as competitive as any on offer in the market place.”

Ford Ireland, through its financial provider Ford Credit claims a loan approval rate of 70 per cent and is keen to stress it too is very much open for business. “We are getting feedback from our dealer network that the pass rates are not as problematic as before with a general approval rate of around 70 per cent, although in the first few weeks of 2010 the standard of applications hasn’t been quite as good as it was in the period of pre-ordering up to Christmas,” says Ford Ireland’s chairman and managing director Eddie Murphy.

Opel will offer zero per cent finance over three years on all new retail passenger cars with the exception of the Opel Agila registered between January 1st and March 31st, this being provided through Permanent TSB Finance.

Other offers include one from Mitsubishi, through the same provider, which offers Colt and Lancer models at 3.6 per cent APR, with a 36 per cent deposit required over a period of 36 months.

Fiat has this week also announced details of a finance offer on Panda, Grande Punto, Bravo and 500 models with an APR of between 7.9 per cent and 8.1 per cent. Under the deal, a Panda can be financed over 60 months for just €139.

What seems to be clear is that motor finance is available, but like so many of the radio advertisements will say, ‘terms and conditions apply’. Large deposits and tough credit checks have replaced the sort of one-click, one-signature availability of the recent past.