The crisis in the world financial markets is seeping through to fleets as lending for used cars collapses and leasing firms fight for funding for new metal.
Fleets that contract hire their cars should expect rising costs as leasing companies try to redress the imbalance on both sides of the market.
Some fundamental sectors of the car market look set to be lost almost entirely. In the used sector, the number of providers of sub-prime motor finance has dwindled.
Over the past few years, around a third of customers of used cars of around £12,000 or less have been sub-prime.
It means a huge reduction in potential customers for leasing companies and fleets defleeting stock, almost all of which falls into that price band.
In the UK, the sub-prime motor finance market was estimated to be worth £3.4 billion per year, because nationwide more than nine million people have poor credit ratings.
One trader at a major bank, which supplies credit to car supermarkets and dealers that previously offered loans to buyers with poorer credit ratings, said: “This market has come to a complete halt over the past few months. There just aren’t any banks that would supply finance to this kind of customer.”
With the lower price end of the used market stalling, residuals have continued to fall across the board with one expert telling Fleet News that some cars are currently shedding a year’s worth of depreciation in three or four months.
Consequently, many leasing companies are facing large scale revisions of their fleet’s worth, perhaps downgrading by as much as £400-£500 a car, which could push many into the red this year.
Rental and leasing firms that borrow money to acquire vehicles are also having a tough time of it as banks look carefully at their lending.
One small firm told Fleet News: “We’ve been talking to our bank about our future funding and they told us they are reviewing it. Apparently, the fact they are reviewing it is good news, because there are a number of businesses, unrelated to the fleet industry, they are not even doing that to. We should be fine in the end, but getting the funding is proving considerably more difficult than it was. Combine this with the residual situation and the market is a nightmare.”
BVRLA director general John Lewis recognised there are serious problems in the market at the moment, but sounded an optimistic note that the bailout plan for the banks may help liquidity issues of leasing companies.
He said: “With used car values slumping and the cost of credit rising, the inevitable consequence is some upward pressure on short and long-term rental rates.”
“We welcome the interest rate cut and bank bailout plan announced by the Chancellor this week. One of the conditions for the rescue package is that banks agree to open their credit channels again and start lending to businesses. This should help reduce any funding squeeze we are seeing.”