The motor industry has seen a severe drop in sales, which insiders say is exacerbated by current difficulties in obtaining finance, writes PADDY COMYN
LACK OF available finance and the difficulty in getting customers passed for credit is being cited as a huge reason for the dramatic drop in new car sales in the State.
Not only is consumer confidence low, but also dealers are reporting frustration as they are finding it increasingly difficult to get customers who would previously have been given credit, passed on finance.
Director general of the Society of the Irish Motor Industry (SIMI), Alan Nolan, told The Irish Times: "Dealers have been working very hard through what has been a very difficult phase in the motor industry. Used car values have really dropped down, probably permanently and with the flow of cars from the UK over the last few years, dealers have had to get more competitive.
“Now they are facing further problems with the availability of finance to stock their showrooms and we can’t run an economy on that basis.”
But it is not just dealers who are facing problems in securing finance, it is the consumer who is being badly affected and, according to Nolan, this will affect Government coffers too.
“Lending institutions are advertising that they are open for business for car loans, but the reality is often very different for customers and with those people who are willing to buy new cars unable to due to lack of finance, the flow of taxation from Vehicle Registration Tax, which has already significantly reduced will almost dry up.”
Gerry Caffrey is the chairman of SIMI’s franchise dealers’ committee and a Suzuki dealer and he says that the situation has got very difficult.
“People who are looking for finance, and even those who are already on finance but are looking to extend it, are finding it hard to get passed. It would appear that the criteria have changed and the banks are no longer just looking at people’s current account but also at where they work, are their jobs secure, it just seems to have tightened up completely, and this has been the view that has been expressed by an awful lot of the members.
“In the good old days it used to be eight out of 10 being passed for finance, then it started slipping back and now we are hearing that it is as low as two out of 10 getting passed.”
Car retailer Paraic Mooney says the situation is hugely difficult. “Last Saturday, we sold nine cars, six applied for finance and we got one passed so far. People depend on the dealer to get them finance and it used to be quick and convenient but it is no longer the case.
“There used to be about a 75 per cent pass rate on finance and now that is down by 50 per cent. There are a variety of reasons for this but it makes doing business very difficult and the banks and lenders seem to be changing the rules as they go along.”
Kia Motors Ireland managing director James Brooks says: “Dealers are generally open for business, but people need more collateral in the car than they needed 12 months ago. The banks are being careful and probably rightly so.”
This is a sentiment echoed by others within the industry.
“To gain some momentum in the industry in terms of retail sales there will need to be the availability of retail credit, especially from January,” says Mazda Ireland managing director David McGonigle.
“The banks are taking a more cautious view, and that is probably the way it should have been. They are not interested in long-term loans on cars. For me, these things are common sense. It is a big-scale shift from where we have been, but if we all adopt the new rules it will all be better for us in the long run.”
Ciaran Barr, chief executive of GE Money told The Irish Times: "Very little has changed from our part, we are in the business to provide car finance and we are continuing to provide car loans and we are continuing to provide car finance to dealers to allow them to stock new cars.
"What is very apparent is that people simply aren't buying cars. You only have to look at things like the McCarthy Reportand witness the job losses we are seeing to see why people are hesitant to buy new cars."
On the subject of the number of new loans being issued and if there were any changes to the criteria being set to provide car loans, Barr says: “We don’t discuss specific commercial details on our business.”
The same is true of Permanent TSB finance, who would not give specific details on loans, but a spokesperson says that “car finance activity has reduced in line with industry trends and a reduction in car sales overall. The criteria for lending has not changed in that the customer must provide evidence of his/her ability to repay the loan. Online applications are being accepted and normal lending criteria applies.”
A spokesperson for AIB told The Irish Times: "AIB is now one of the few providers of car finance in the Irish market at very competitive rates and welcomes the opportunity to quote for a car finance, whether for private or business use.
“With new car sales down 62 per cent, the ratio of car finance applications to car loans being taken up by our customers has only reduced marginally. Our criteria for car loans have not changed. Credit policy for car finance has always been based on repayment capacity and loan to car value. Repayment capacity is determined by the customer’s weekly or monthly income.”
So what course of action do you have if you have been refused credit? We asked the Financial Regulator to explain.
“If you have applied for car finance and been refused, you can contact your lender and ask for an explanation, however, they are not obliged to give you one,” a spokesperson said.
“If you missed repayments or failed to repay a loan, it is kept on your credit history for five years after the loan is closed and this could result in you being refused a loan. If you have been refused credit because you have a poor credit history, try another lender. Lenders use different credit scoring systems, so even if one lender refuses you, you may be offered a loan from another provider.
“If you’ve never missed a repayment, there could be an error on your credit record. Contact the Irish Credit Bureau to get a copy of your record. If there is an error, you are entitled to have it corrected, so ask your lender to write to the credit bureau asking them to correct your record. You should also ask your lender for a copy of this letter.”