With 2023 on the horizon, we’re reflecting on what a year 2022 has been for the industry and the opportunities that lie ahead for 2023. From getting Consumer Duty ready to adapting to a challenging economic landscape, we’re catching up with Director of Motor Sales Operations, Chris Rowthorn.
2022 in review
Lending volumes for MotoNovo have been very good, which has been reflected in the broader picture for used car finance in the UK. It has not been achieved without challenges, such as staying abreast of used car values and ensuring we have been ready to help people affected by the cost of living crisis. But overall a very satisfying year.
What are the high points from 2022?
For us, it would be multiple award successes, which is encouraging with the Consumer Duty on the horizon. As an industry, I want to highlight recent FLA data that points to 45% finance penetration in the used car sector.
While new car finance penetration is twice as high, they are very different markets, not least in scale and age range terms. I believe that 50% penetration has to be the 2023 goal, and with other lending forms, notably personal loans, arguably more challenged by the cost of living crisis than HP and PCP, that 50% is achievable.
What's the biggest challenge the motor finance sector has faced?
Rising inflation and, with it, rising interest rates. The industry has had to adapt rapidly to a changing environment and ensure that customers' borrowing is affordable.
How has the motor finance industry responded to the new customer duty?
Very positively. There has been an enormous investment in time and money to contribute to the debate and prepare for the October implementation plan deadline and now for next year's launch. The Consumer Duty presents an opportunity for dealer finance to combine what is often an omnichannel financing experience and take even better care of customers, which can help the sector grow.
How has the transition to EVs progressed over the last year?
SMMT tells us that in Q3, the used car market fell for the second consecutive quarter, declining by 12.2%. However, used battery electric vehicles rose 44.1%, and hybrid electric vehicle sales were up 2.5%. Plug-in hybrid sales, however, fell -5.8%. All good, but we must recognise that the increase was from a low base, especially for BEVs.
Into Q4 and CAP HPI data highlights that the volume of all EV types into the used wholesale market has trebled compared to 2021. The influx of used EVs with their typically higher price is having an impact on activity. From an auction days perspective, EVs average 20 days compared to 10 for ICE vehicles. It is here that we can see the cost of living impact. EV values have come under pressure, and recent data suggests that EVs lead the most significant month-on-month falls in vehicle values.
The average auction price for an EV up to 3 years old is £12K higher than a petrol car. In the 3-5 category, it is £15.3K higher. With our findandfundmycar.com data pointing to a hotspot monthly payment range of £200 - £250 PCM, EVs are proving expensive, even if, over time, the running costs are likely to be lower.
Right now, range and arguably charger availability remain consumer concerns; add to that the price premium being charged for EVs, and in the prevailing market, the increased supply is searching for more than 'early used EV adopter' demand.
How has the motor finance industry coped with the huge amounts of economic and political uncertainty over the last year?
With enormous agility. Businesses such as MotoNovo have embraced digitisation, and an increasing fintech capability has ensured flexibility built in, not least in automating many processes. This has enabled us to free up our human capital to focus on customers affected by the economic upheaval.
Looking towards 2023
I see inflation reducing and anticipate further opportunities in the year ahead. While the SMMT expects growth in the new car sector, we suspect this is likely to be driven primarily by business users opting to switch to EVs with their associated business-user tax benefits. On a broader basis, we anticipate that many consumers will choose to defer expensive purchases, such as new cars and choose the used car option instead.
Consumer Duty is an opportunity to take even better care of consumers. This can help sustain used car finance's upward trajectory from the current 45% penetration reported by the FLA. 50% finance penetration has to be the goal for all retailers.
How ready is the industry for the new customer duty?
At MotoNovo, our planning for the Consumer Duty is well on track, and we continue to play a prominent role in encouraging our extensive dealer network to ensure that they are ready and, crucially, in championing the opportunity it presents to delight their customers with their approach to finance.
What needs to be done to aid the transition to EVs in the UK?
Enhance the charging infrastructure, notably in high-speed chargers and increase education to ensure consumers understand the benefits of an EV and address the challenges.
What challenges can the industry expect to face?
While we must be prepared for anything, the most apparent challenges are inflation and the forecast economic downturn.
What do motor finance businesses need to do to thrive over the next year?
Stay agile, seek new collaboration opportunities and focus on creating value for customers.