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Car finance market improves

14th September 2009 Print

Car finance business volumes remain lower than last year, but the rate of contraction recorded in July is the smallest this year, according to the latest figures by the Finance & Leasing Association (FLA).

The FLA says that the improvement in new business volumes compared with earlier this year is most likely the result of competition in the car finance sector. The Government’s car scrappage scheme appears to have had limited impact on dealer-financed sales of cars.

Although the cost of wholesale funding remains high, lenders are competing to offer good credit deals in the showrooms.

The number of new cars bought by consumers via dealer finance fell by 4% in July compared with the same month a year earlier. The number of used cars bought by consumers using dealer finance fell by 7% over the same period. FLA members provided finance for over 408,500 new cars bought by consumers in the past 12 months, which was down 20% compared with the previous 12 months.

The business new car finance market showed a low level of growth – up 5% in July compared with the same time last year. But over the past 12 months, this market was down by 23% on the previous year.

Commenting on the figures, Geraldine Kilkelly, Head of Research and Chief Economist at the FLA, said: “The slight improvement in car finance volumes in July may in part reflect the impact of the car scrappage scheme. But there is no evidence that scrappage accounted for more than a small number of finance deals on mostly smaller cars.

“Motor finance companies still need a long-term and sustainable market for affordable wholesale funds. Otherwise, with or without the scrappage scheme incentive, it will be difficult for the industry to continue to offer good motor finance deals in response to rising demand.”