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In the first IAFN Online conference named ‘COVID-19 impact on Auto and Equipment Finance’, senior executives in the industry were informed of the array of incentives and support that is available in the industry at the current time and how they could be accessed.

Speakers included:

  • Stephen Sklaroff, ex-director general of the Finance & Leasing Association;
  • Simon Goldie, head of asset finance at the Finance & Leasing Association;
  • Richard Knubben, deputy director general at Leaseurope & Eurofinas;
  • Jonathan Andrew, chief executive officer at PEAC Finance;
  • Colin Fleischmann, business development director EMEA at White Clarke Group.

Throughout the duration of the event, audience members were polled on a series of relevant topics the results of which are revealed below.

What shape will the economy take through the COVID crisis and in particular as we emerge out the other side?

Interestingly, 40% of respondents at the time forecast a U-Shaped economy following the pandemic, with a close second group of 37% of respondents expecting a W-Shaped economy. Unsettlingly, some 16% of respondents forecast an L-Shaped economy.

Multiple Choice OptionsResponses
V Shape  8%
U Shape 40%
W Shape 37%
L Shape 16%

What do you want governments to do next?

With the next question, a significant 63% of respondents wanted the government to tackle the orderly transition back to normal market discipline next, this group was especially larger than the next biggest, with 24% of respondents wanting the government to stimulate demand through new schemes such as scrappage schemes. This shows a deep desire in the industry to resume normal operations, perhaps despite the potential health risks involved in doing so.

Multiple Choice OptionsResponses

Extend current forbearance with extended payment holidays

Manage the orderly transition back to normal market discipline 63%
Stimulate demand through new schemes 24%
Nothing 2%

In general, how well do you think government intervention has succeeded in protecting borrowers through and beyond the COVID crisis?

The third question put to the audience revealed that 45% of respondents thought that the government intervention had succeeded quite well in protecting borrowers during the crisis, and a further 20% thought it had succeeded very well.

The bounce-back loan scheme that the UK government implemented after this survey was completed, offers a fast-tracked lending of between £2,000 and £50,000 to smaller company borrowers. A company can borrow 25% of turnover up to £50,000, and the government guarantees the loans up to 100% of the money borrowed.

Multiple Choice OptionsResponses
Very well  20%
Quite well 45%
Neutral – neither well nor badly 25%
Quite badly 9%

What will the long-term effect of COVID be on current trends?

Some 77% of respondents expected the pandemic to result in more digitalisation in the industry in the long term. An increased level of innovation in finance models (pay-per-use etc.) was also highly anticipated with 39% of respondents selecting it.

The move towards dealing with customers online was no doubt emphasised by the fact that all auto dealerships were closed with effect from 21 March and were not allowed subsequently to open until 1 June. This closure period is likely to have the effect of making consumers more eager to adopt online car acquisitions, and could highlight to dealers the necessities of making such an investment.

Multiple Choice OptionsResponses
More digitalisation (e.g. dealing with customer online)?  77%
Less digitalisation? 0%
Dis-intermediation 15%
More innovation in finance models (pay per use etc) 39%
Less innovation 0%
More flexibility in agreements 21%
Less flexibility 3%
More outcome-based finance payments (servitisation) 18%
Less interest in servitisation 5%

What are key areas for improvement for the industry, as highlighted by COVID?

As could be expected, a third of respondents (33%) foresaw an increase in flexibility to vary contracts as crucial to their efforts to comply with FCA forbearance and also on the anticipated workload that lenders will be facing in regard to the renegotiation of contracts. Further to this point, some 20% opted for enhanced collection technology, illustrating that lenders are aware of the major challenges they will face in gearing up for the exponential increase in customer arrears.

Multiple Choice OptionsResponses
Enhanced methods of assessing credit risk  13%
More focus on treating customers fairly 0%
More flexibility to vary contracts 33%
Enhanced collection technology 20%
Enhanced management of arrears 13%
New approaches to managing residual value risk 20%
Nothing we have performed very well 0%

How well do you think government intervention has met the needs of lenders?

The final question put to the audience asked them how well they though government intervention had met the needs of lenders, and a gratifying 31% of respondents thought it had done quite well, with the majority (44%) remaining neutral.

This result implies a general acceptance amongst industry leaders regarding the government’s forbearance measures, despite a few kinks in the processes experienced by many lenders. For example, non-bank lenders have struggled to gain direct access to term funding from the Bank of England or the British Business Bank to give them the capacity to provide forbearance and new lending without taking on unsustainable risks to their liquidity.

Multiple Choice OptionsResponses
Very well  5%
Quite well 31%
Neutral 44%
Quite badly 18%
Very badly 3%

Operations and forbearance

In the second IAFN Online conference named ‘COVID-19 impact on operations and forbearance’, the audience was delighted to learn about the multitude of nuanced issues surrounding forbearance from the series of veteran industry professionals including:

  • Adrian Dally, head of motor finance at the Finance & Leasing Association;
  • Melanie Chell, partner and head of asset finance at Shoosmiths;
  • John Rees, global head of sales and marketing at Societe Generale Equipment Finance;
  • Peter Landers, chief change officer at MotoNovo Finance;
  • Simon Harris, partner at Avantalion Consulting;
  • Rohan De Souza, global head of auto finance at Genpact.

The ensuing conversations and questions fired throughout the conference were thrashed out in depth by speakers.

However, the speakers were not the only ones to voice their opinions and have their say, as throughout the event the audience were polled on a series of key topics, revealing exactly where the industry’s chief executives, presidents and senior executives stand on the issues facing the industry today.

There were three key opinions brought up throughout the event and audience members responded with how much they agreed with each statement, the results of which are detailed below.

The COVID-19 crisis has highlighted serious weaknesses in the UKs current regulatory regime, with lenders forced to choose between abiding by the Consumer Credit Act (CCA) and the requirement to treat customers fairly.

Some 52% of the 82 respondents agreed with the statement that the pandemic has highlighted weaknesses in the UKs regulatory regime. The next largest audience grouping remained neutral in regards to the statement, with 24% of the respondents.

As an industry, the FCA has been lobbied for a long period of time to update the CCA to add flexibility in coping with current lending issues, as it is seen by many as not fit for purpose in many circumstances and particularly not in a crisis. It can slow things down and create confusion for customers and creates risk for lenders should they try to circumvent the barriers it puts in the way, and the Treasury is reportedly considering the proposals to update the CCA in detail.

Poll QuestionResponses
Statement One82 Total Votes
Strongly agree  15%
Agree 52%
Neutral 24%
Disagree 9%
Strongly disagree 0%

Payment holidays and quick access to finance through guaranteed loans offered on uncommercially low interest rates will damage the auto and equipment finance industry in the UK in the short and medium term leaving it less able to play its natural role in powering the bounce back.

Statement Two79 Total Votes
Strongly agree  8%
Agree 41%
Neutral 29%
Disagree 22%
Strongly disagree 1%

The second question put to the audience revealed that 41% of the 79 respondents agreed with the statement that the guaranteed loans offered on low interest rates will damage the UK auto and equipment finance industry in the short- and medium-term, leaving it less able to help power the bounce back. Some 29% of respondents remained neutral to the statement, and 22% disagreed with it leaving the spread of responses somewhat evenly distributed along the scale.

Auto finance lenders will be able to mitigate the deleterious effects of the COVID-19 crisis on residual values through smart collections, delaying repossessions and appropriate agreement modifications.

However, no matter how cautious lenders will be with forbearance measures such smart collections, delaying repossessions and appropriate agreement modifications, they have no control over the direction that the market will take in terms of supply and demand of used vehicles.

Statement Three67 Total Votes
Strongly agree  9%
Agree 27%
Neutral 27%
Disagree 28%
Strongly disagree 9%

Finally, some 27% of the 67 respondents agreed with the statement that lessors would be able to mitigate the effects of the pandemic on residual values through strategic operational changes, and an equal percentage of respondents remained neutral to it. Furthermore, an equal 9% of respondents strongly agreed and strongly disagreed with the statement, showing a particularly diverse array of opinions currently populating the industry.