Finance companies are key to the recovery of new-car sales in Australia after industry experts claim they have “strangled” business during the coronavirus crisis by knocking back loan applications that should have been approved.
As soon as the nation went into COVID-19 lockdown, most car finance companies introduced strict new lending measures that meant most dealers could not buy new stock to sell – unless there was a customer-paid deposit for the vehicle.
One anecdote shared with CarAdvice: a pilot with a lengthy employment history with a major airline was knocked back on a finance application for a new car as he was deemed “high risk”.
Another finance manager told CarAdvice some customers are being asked by lending institutions to write letters to explain why their job is essential during the COVID-19 lockdowns. A finance manager at another dealership claimed some lenders were only approving loans to government workers.
All of the dealership finance representatives who spoke to CarAdvice on condition of anonymity – as they are not allowed to speak to media – said more loan applications were being rejected than approved which, they claimed, was unprecedented.
Lending practices had already become tighter in the lead-up to the coronavirus crisis in the wake of the banking royal commission, and many of those measures were welcomed by the industry as it largely stamped out loans to people who could not afford to repay them.
However, several major metropolitan multi-franchise dealers have told CarAdvice a high proportion of sales “fell over” in the past month after customers with good credit history couldn’t get finance approved.
“They strangled us,” said one veteran car dealer. “It was made very clear from the beginning of the lockdown period that (showrooms) were allowed to remain open and most of us were still able to operate. But the finance companies made it very hard to get deals over the line.”
Another major metropolitan car dealer told CarAdvice: “A lot of finance companies are starting to treat small business and certain full-time employees as being in risky professions, when they shouldn’t be. There has been a gross over-reaction (by the finance sector), especially when you consider all the measures the federal government has put in place to help keep people in jobs.”
The CEO of the Australian Automotive Dealers Association (AADA), James Voortman, said: “One of the major reasons for the reduction in new-car sales over past couple of years has been risk aversion by finance companies”.
Mr Voortman added: “During the COVID-19 lockdowns there has been even more of a reluctance to finance new cars to people in certain professions. Any recovery is going to depend on credit being freed up.”
The finance sector is critical to new-car sales as more than half of all vehicles are bought on finance. In some dealerships 70 per cent of all new cars sold are financed. Most of the big finance companies also underwrite dealer showroom stock.
Early estimates for April show sales may have dipped to their lowest levels since the 1990s, though it won’t be confirmed until official figures are released by the Federal Chamber of Automotive Industries on Tuesday.
However, many in the car industry believe “the worst is behind us”, as sales enquiries in the past week or so began to pick up.
Mr Voortman said many of his members – the AADA represents 60,000 employees at 3500 showrooms nationally – reported an upswing as governments forecast an easing of some lockdown restrictions.