New figures from the Finance & Leasing Association (FLA) show the asset finance sector is starting to bounce back strongly, more than a year after Covid-19 saw activity stall, with consumer car finance leading the way.
Total asset finance new business (primarily leasing and hire purchase) grew by 106% in May 2021 compared with the same month in 2020. In the first five months of 2021, new business was 26% higher than in the same period in 2020.
The commercial vehicle finance sector reported new business up by 126% in May compared with the same month in 2020. The plant and machinery and business equipment finance sectors reported new business up by 58% and 20% respectively, over the same period.
However, the IT equipment finance sector reported new business 29% lower in May than in the same month in 2020, as companies delayed moving employees back into offices and in some cases began downsizing workplaces.
Commenting on the figures, Geraldine Kilkelly, Director of Research and Chief Economist at the FLA, said: “The broad-based recovery in the asset finance market continued in May as businesses have become more optimistic of a strong economic recovery. The significant growth rates reported in April and May reflect the impact on new business levels of restrictions to deal with Covid-19 during the first lockdown and we expect these to moderate in the coming months. Nevertheless, the industry is on track to return to pre-pandemic levels of new business during the course of this year.
“Our latest research also shows a rebound in the share of UK investment in machinery, equipment and purchased software financed by FLA members which reached 37.1% in Q1 2021.”
Kilkelly said the association is continuing to urge the government to recognise the importance of the asset finance market in supporting business investment, by extending the super-deduction allowance for expenditure on qualifying plant and machinery announced at the Budget to include leasing.
Consumer car finance
The FLA data shows that the consumer car finance market reported growth in new business volumes of 327% in May 2021 compared with the same month in 2020. In the first five months of 2021, new business volumes were 37% higher than in the same period in 2020.
The consumer new car finance market reported new business volumes up by 514% in May compared with the same month in 2020, while the value of new business grew by 555%. In the first five months of 2021, new business volumes in this market were 32% higher than in the same period in 2020. The percentage of private new car sales financed by FLA members in the twelve months to May 2021 was 92.9%.
The consumer used car finance market reported new business volumes up by 270% in May compared with the same month in 2020, while the value of new business grew by 293%. In the first five months of 2021, new business volumes in this market were 39% higher than in the same period in 2020.
Kilkelly said the recovery in the consumer car finance market came off the back of a severe drop in business when Covid-19 restrictions were introduced during the first lockdown, and was likely to moderate in coming months
“Risks to the recovery remain from ongoing restrictions that may be needed to deal with the pandemic, the impact on confidence and unemployment once government support schemes end, and increasing inflationary pressures. Nevertheless, we currently expect the industry to return to more normal new business levels during the second half of 2021,” she said.
Used car price hike
There was further confirmation of a buoyant UK used car market in Q2 this year from Aston Barclay’s latest Market Insights report. This shows a record 25% price increase (£3,723) for late and low mileage cars to £18,350 and a 16% price rise (£1,698) for ex-fleet cars to £12,109.
Younger dealer part exchanges between 55 and 75 months experienced a 17.3% price rise (£1,234) to £8,435, while the older part exchanges between 78-125 months reported a 9.5% increase (£357) to £4,113.
Only the budget sector at 126 months+ experienced a fall of £92 to £1,412 mainly due to a 57% increase in volume during Q1.
Used demand continues to exceed supply exacerbated by the manufacturer semiconductor production challenges which is putting additional pressure on the used market. With talk of it being Q1 2022 before production starts to fully recover then this market position is likely to remain in place for many more months to come, Aston Barclay predicted.
Large order books are being reported by all the leasing companies and manufacturers and many business and personal contracts are being extended for six to 12 months to manage the restricted new car supply.
Used hybrid car prices have become an integral part of the used car industry hierarchy and are typically in line with average fleet age and price of 40 months and £13,000. However, used EVs continue to find their feet, arriving at auction on average at just 12 months old and at an average price of £28,000 which has hampered demand.
“In over three decades of working in the remarketing sector I’ve never seen used car prices rise so dramatically in a three-month period. Many dealers are desperately short of stock which is compromising their businesses, but there is no change on the horizon,” said Martin Potter, Aston Barclay’s MD – Customer.
“The majority of new cars being delivered into late 2021 and 2022 will be EVs so it will be interesting to see how demand from consumers for used zero emission cars shapes up over the coming 12 months,” he added.