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Motor Finance 2022 outlook: Julian Rance Q&A

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Paragon Bank’s Motor Finance division posted over £100 million of new lending last year. Managing Director Julian Rance discusses the outlook for the used car market in 2022 and what we can expect from the division this year.

Julian, you recently launched into Battery Electric Vehicles (BEV). How has business been for this segment of the market?

We’ve been pleased by how the dealers and brokers have responded to the launch of the proposition and we are ahead of where we’d thought we’d be.  Finance is offered for cars only, on hire purchase and lease purchase agreements, and loans are available to both consumers and businesses through intermediaries.

Demand for electric vehicles (EV) is growing across both the new and used car segments, with the latest SMMT figures showing that second-hand BEV purchases were up 56% during the third quarter of last year compared with the same period in 2020. It’s growing from a small base, but the direction of travel is clear and we are keen to support that growth.

How do you see the market for electric vehicles developing?

After years of talk, we are seeing all major car manufacturers implementing their electric strategies now and over the next five to 10 years I expect to see electric vehicles dominate model ranges. We will also see new entrants to the market outside of the traditional car manufacturer group; for example, Sony is mooted to be launching an EV.

Technologies are also advancing quickly, improving vehicle range, whilst the infrastructure network is maturing, although not at the same pace, and consumer acceptance is growing.

For the used car market, that means there will be a wider choice of EVs for consumers in the coming years. With the Government announcing that they are bringing forward the date for ending the sale of new petrol and diesel cars by 10 years to 2030, this only looks set to increase.

Julian Rance

We saw used car values appreciate during 2021, what do you think will happen in 2022?

I have never seen used cars grow in value to the extent they did in 2021 during my 30+ year career in this industry. It was an amazing year with so many influencing factors at play.

I expect the used car market to remain buoyant during the next 12 months, and that includes values. The supply chain issue for new vehicles is well known and that is not going to be resolved anytime soon, so demand for used cars will be strong again this year. Simple supply and demand economics dictates that will underpin prices.

I also expect values to remain robust over the subsequent three to four years. Fewer new cars today means fewer used cars in the future, so supply will continue to be constrained.

Paragon’s Motor Finance division enjoyed a particularly strong second half of 2021. What do you attribute that to?

If we look at Paragon’s financial year, which runs to the end of September, approximately three quarters of our lending for the year was concentrated in the second half. That aligns with what we saw in the broader motor finance market, as reported by the FLA.

I think there’s a couple of factors here. Car showrooms were shut during the first part of 2021, so a lot of pent-up demand was released when motorists were able to see and test drive vehicles. I also think consumer confidence improved when lockdown restrictions started to ease so that people felt more comfortable making a sizeable purchase, such as a car, plus they had built up cash deposits by not going out during the lockdown.

What else can we expect to see from Paragon’s Motor Finance team in 2022?

We are always looking to innovate, so dealers and brokers should expect to see some service improvements during the year. We always focus on the personal touch, with our introducers being able to reach us on the end of the phone to discuss a case; that won’t go away but we want to make improvements where we can.

Outside of that, we are looking at growth across our key market segments, including BEVs and the leisure vehicle market, whilst we expect to see an increase in refinance activity. Given the value inflation and shortage of stock we have seen in recent months, people are increasingly keen to keep hold of their vehicle once a finance agreement has come to an end through refinancing. We have seen an increasing number of requests for that.

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551