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FCA rules 'will push down residual values'

FCA sign

Financial Conduct Authority (FCA) regulations will have a negative impact on residual values.

Automotive data provider KeeResources chief executive Denis Keenan said: “The recent FCA regulations around fair selling will have an impact on RVs in the near to mid-term, reports Fleet News.

"Current very high retail and trade values have been supported long-term by profits from finance paper at APR levels which are now deemed as unfair to the consumer.

"This will restrict the ability of the retail trade to be able to have next-to-no margin in the metal when it suits their marketing purposes.

“On the basic assumption that the retail asking prices, already at all-time high values, cannot realistically be raised higher, there will simply have to be more profit in the metal.

"The effects of this will largely be felt in the three-year-old stock and older, where penetrations of finance have clawed upwards gradually by dint of need.

“Younger vehicles have been generally well served by manufacturer captives, and some have already taken fairly aggressive APR-capping measures.

"This may cost them some volume if other finance sources don't tighten down fairly quickly the APRs they are willing to provide.

"As retail values have escalated in the times of short supply, and with a general easing of credit, finance houses have until now been willing to allow high APRs without too much concern.

"However, this will have to change to meet FCA requirements.

“Our opinion is that while large swathes of the retail motor industry have recognised the legislation, the activity to control APRs to genuinely FCA ‘fair’ levels indicates that no more than lip-service has been paid to it to date, and that, for some, it will take a while to convert their businesses out of an underlying dependency on finance profit.

“The short term route will be to keep those finance sources, who haven't capped to any significant degree, sweet.

"This would see finance margins at current levels for as long as possible, and as the FCA is operating on a light-touch basis, at least initially, there is some time yet for a few to test the boundaries. Nonetheless, this will create some downward RV pressure for sure.

“Our opinion is that with the various timings for compliance going out some months, we will not see undue downward pressure until very late on in the year, if at all in 2015.

"The recent parliamentary attention on the ‘rent to own’ sector may also prove a distraction for the FCA, which may buy some extra time for those with a higher dependency on finance margin.

"Extra time is all, though; there is an inevitability that ‘acceptable’ financing behaviours will become the norm ongoing.”

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  • Reg Willcox - 26/03/2015 14:29

    Why is it every time something is raised as being unfair to the consumer, does someone jump up from the industry and make unfounded predictions designed to scare everyone. Why would something as simple as giving the customer a choice, threaten the vehicle residuals. It wouldn't is just scaremongering from the very people who have benefited from this unfair 'del boy' practice for a number of years.

  • Rob Chisholm, Applewood Vehicle Finance Ltd - 02/06/2015 14:36

    I don't buy this (excuse the pun). The dealer is already in charge of the margin in the car - they just need to control the margins that are already there. Enforcement of the rules that shouldn't allow a 'price for cash' and a 'price for finance' will stop the need for over manipulation of the finance rate. Treat the customer fairly. If you feel you have done that then you can rest easily.