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Car finance growth defies ‘negative narrative’ on PCPs in 2017

Household expenditure on vehicle ownership defied the negative narrative surrounding PCP car finance products with an increase of 47.7% in spending on “hire loan purchase agreements” during 2017.

As the Office of National Statistics reported that total average weekly household spending rose to £554.20 in 2017 – its highest level since 2006 – during the year, it also revealed that the largest increases in spending had been seen in the purchase of new and used vehicles.

In its Family Spending report, the ONS revealed that expenditure on the purchase of new vehicles increased by £1.80 when compared with the previous year, whilst spending on the purchase of second-hand vehicles increased by £3.10, in figures not adjusted for inflation.

The percentage of households that own a car or van has increased by 3ppts over the last three years to reach 79% in 2017, it said, adding that this had been driven by an increase in spending on cars bought outright and cars bought on a hire loan purchase scheme, commonly referred to as PCPs.

It noted that PCPs had resulted in higher spending in the used car sector, in particular, with expenditure on hire loan purchase agreements for second-hand cars increasing from an average of £4.40 per week to £6.50 when compared with the previous year (figures not adjusted for inflation).

Motor finance expert Graham Hill noted that the increased spending on car finance products in 2017 had come “despite the mixed messaging around PCPs”.

"It's certainly encouraging that the negative narrative didn't drive away punters altogether but next year's report will be more revealing about how closely the fate of PCPs are tied to the recent downturn in the car market,” he said.

“Having said that, consumers still need to be mindful about what they are getting into when buying new or used cars.

“While PCPs themselves can be appropriate solutions for many car owners - as they reduce the monthly payments quite significantly - it's the way they are being sold that saw PPI lawyers start to circle in 2016.”

Earlier this month Simon Hill, managing director of Leicester-based fleet management business Total Motion, warned that 2018 could see car retailers fall foul of FCA investigations into the mis-selling of finance products and PCPs in particular.

Despite Bank of England tests of the sector’s resilience which saw all major banks prove their ability to overcome an extreme slump in vehicles’ residual values, and assertions from the FCA that the sector was more resilient than first thought, the FCA is scrutinising the industry’s sales practices and procedures and will publish an update on its findings in the first quarter of 2018.

AM’s sister publication, Fleet News, reported how Hill believes that the investigation will result in leasing companies, dealers and brokers facing huge fines and even going out of business.

However, Andrew Smith, consumer credit director at FCA compliance consultancy Compliancy Services, told delegates at Automotive Management Live that the likelihood of a mis-selling scandal in motor finance was unlikely as a result of the investigation.

He said: “The FCA recently said that they don’t see the risk as being as high in motor finance as they originally perceived. That goes on to support what I presently believe, that the press really are clutching at straws to get a story. Largely the reports are inaccurate, the terminology is wrong and the figures just don’t stack up.”

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