Motor finance sector facing disruption

The coronavirus crisis could reshape the motor finance sector, at least in the short term.

That is the view of Startline Motor Finance, which suggests the sector will need to react quickly to support pent-up demand once the current situation ends.

However, with millions of people having to access government help to support their personal finances, current methods of credit scoring applicants could have much decreased relevance.

CEO Paul Burgess said: “Whenever things return to relative normality, we’ll be looking at a UK working population, both employed and self-employed, whose personal financial situation will not be as simple to read as previously.

“Motor finance companies are very likely to have to think again about how they assess individual creditworthiness and we may well find that the market segmentations that we use now such as prime, near-prime and sub-prime have shifted.”

Additionally, Paul said, despite unprecedented government intervention, there was likely to be a fairly steep rise in unemployment.

“We’re seeing predictions of the unemployment rate doubling from its pre-crisis rate to about seven per cent, which is clearly a significant jump. The perception that employment has become more precarious will also create difficulties.”

More motor finance companies may have to move to something closer to the Startline approach where, instead of just using a one-size-fits-all scorecard approach, they do more to talk to individuals about their finances.

“Our whole near-prime business model is based on being able to use a combination of technology and people skills to recognise applicants who remain good credit risks despite some points in their finances that don’t match a traditional prime lender template.

“Looking forward, we believe that this is going to be an extremely useful skillset for us in the post-crisis world. While it is difficult to predict how the used car market will bounce back, there will undoubtedly be a degree of pent-up demand released, so the motor finance situation is something that may need to be resolved quite quickly and at short notice.”