Higher interest rates increase dealers’ stock funding costs and tend to dampen demand for cars. There’s also speculation of a further rise.
Standish says: “Inevitably car sales could be impacted, but rather than dwell on the threat, we need to look at how we counter it.
“If dealers want to control their costs, then increasing their finance sales could help maintain and perhaps even lower funding costs. That is, if a retrospective agreement is in place for funding.
“Dealers should be looking to use finance in their marketing to promote the affordability of their stock.”
Standish urges dealers to keep things in perspective over interest rates, because they remain relatively low compared with past levels. Also, the reason for the rate increases is the booming economy, of which car retailing is a key part.
He believes the increase could help dealer finance to be more attractive than other lending forms because of the knock-on impact of rate rises on increased bad debt.
“Unsecured lending such as personal loans tends to be impacted more than secured finance such as hire purchase. As a result, personal loan providers may well become more selective in their underwriting.
“Dealers have an opportunity to promote their finance, confident that acceptance levels are generally higher than for personal loans, and that interest rates offered are within their control.”
Last month’s increase in interest rates came as a surprise to most people, but was seen as an important pre-emptive strike by the Governor of the Bank of England in an effort to bring inflation under control.
Total UK spend during December is estimated at £51.6bn. Around 10,000 personal insolvencies in the first three months of 2007 will be the result of festive spending.