The Work of the Department - Business and Enterprise Committee Contents

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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