Memorandum submitted by the Finance and
Leasing Association (FLA)
The Finance and Leasing Association (FLA) is
the main representative body for motor, asset and consumer finance
providers. FLA members provide finance to consumers and businesses
through purchase and rental agreements. Asset-based lending allows
greater flexibility over agreement terms and is particularly helpful
for consumers in current conditions.
2. FLA members provided £65 billion
of consumer finance in 2007. £19 billion (29%) of which was
for the purchase of vehicles via motor dealerships. The value
of new car finance in November 2008, compared to the same month
last year, was down 34% and the volume of new business was down
37%. The value and volume of used car finance for November 2008
was down 23% compared to November 2007.
3. The pace of the economic downturn has
led to severe liquidity concerns. Credit continues to be available
in dealerships in the short term because lenders are actively
managing risk to maintain liquidity. However, rapidly declining
consumer demand and falling vehicle values have significantly
impacted cash flow.
4. The core issue for all lenders—not
just motor lenders—is an inability to access well-priced
funding. Lenders have previously been able to raise liquidity
via the securitised-debt markets. These markets have effectively
closed in response to the credit crunch.
5. The FLA represents independent non-bank
lenders or subsidiaries of manufacturing companies. These companies
do not have access to the Government's new business lending facilities,
announced in October 2008.
6. The FLA has asked the Government to extend
the eligibility criteria of the Bank of England's Special Liquidity
Scheme (SLS) and the Debt Management Office's Credit Guarantee
Scheme (CGS) to include all non-bank lenders. For some lenders,
the SLS would help address short-term liquidity problems. This
would involve swapping Treasury Bills for illiquid assets and
exchanging them with the Bank of England for funding. For others,
the CGS may be more appropriate in helping to address longer-term
funding problems with the Government guaranteeing commercial funding
arranged by lenders.
7. Access to these schemes would not only
help to address funding problems, but would ensure fair competition
for finance in the market by creating a level playing-field. The
economy would also benefit through the continued availability
of credit for UK consumers and businesses, at a time when they
need it the most.
8. As regards the automotive industry, many
other EU Member States have supported their domestic markets,
including Germany, France and Sweden. The European Investment
Bank (EIB) has also announced an automotive support package. However,
the loans available via the EIB scheme are for the development
of new energy-efficient technology. The package will not provide
the short-term cash injection that is immediately needed.
9. Given the urgency of this issue, we hope
for a response to our proposals from Lord Mandelson during week
commencing 12 January. A failure to act now could further accelerate
the economic downturn and have catastrophe consequences at a local
and national scale.
January 2009
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