2021 in review
While 2021 is ending much as it began, with further concerns about a COVID-19 wave, I am clear that 2021 has been a year of progress against a challenging and ever-changing backdrop for all of us connected and invested in motor retailing.
Industry recognition
As a starting point, I am immensely proud that MotoNovo and our team members have won an impressive ten awards over the course of the last 12 months. Two of our colleagues were recognised at the Women in Credit Awards, we won awards for complaint handling, training, an agent of the year award for helping vulnerable customers and five awards as a business, mainly relating to our ground-breaking risk-based product, MotoRate and for the support provided to dealers and customers during the pandemic.
Delighted as I am, we took nothing for granted, and we will never rest on our laurels. Improvement, innovation and listening to and adapting to our customers' needs continues to be crucial.
An unprecedented used vehicle market
From a business perspective, we have enjoyed a successful year in what has been another unusual and testing 12 months. The well-publicised supply issues for new cars has continued. The knock-on impact for the used cars has been nothing short of phenomenal, with values rising by around 30% as supply-demand issues created an unprecedented used vehicle marketplace. Dealers have adapted with characteristic agility. Today, the impact of the pandemic sees dealers operating in a leaner fashion in terms of both stock and people. The reported profits have been impressive.
The dealer finance market
For used vehicle finance, the most recent FLA data revealed that in the nine months to September 2021, new business volumes in this market remained 11% higher than in the same period in 2020. I suspect volumes will have moderated in the final quarter. The overall picture is fewer cases but more volume.
As the UK reopened, we saw the challenge from unsecured personal loan providers return. Direct Lenders who had moderated lending during the pandemic became more active. Independent research commissioned by MotoNovo indicated that by H2, they were taking market share from dealer finance with highly competitive APRs used as a typical core marketing weapon.
Pricing brings me back to the significant strategic change in dealer finance, the ban on discretionary commission that came into force back in January. The FCA was prominent on the outcome they were seeking from the ban;
"Ultimately, once motor finance firms move away from discretionary commission models, we expect to see consumers' financing costs reduce."
The FCA estimated the ban would save consumers £165M pa.
Since September, the regulator has been undertaking supervisory work to assess the ban's success concerning its desired outcomes to help assess whether the potential for customer harm remains and, if so, how they address it.
It is impossible to speculate on the outcome of the FCA's work; we will have to wait. We are in the unique position of being able to compare risk-based pricing with a flat-rate model, and the former is achieving notably higher penetration, most especially with more creditworthy consumers. As I noted previously, there is evidence that dealer finance is losing ground to personal loans and interest rates are part of this for the creditworthy customer. Commercially more dealers may choose to opt for risk-based pricing to counter this threat.
Whether we can expect more regulatory changes in the year ahead is an easy question - Yes. Quite apart from the outcome of the FCA's ongoing supervisory work, we already know that the regulator plans to launch its new Consumer Duty across retail consumer credit. Quite what this will mean is as yet unknown but as always we will engage with a sense of energy and opportunity.
So, in conclusion, 2021 has been a positive year overall for motor retailing based upon classic dealer agility, and I don't doubt more of this will be required in 2022.
Karl Werner, Managing Director
