Cheap loans and heavy ad campaigns pay off

Carmakers have found a winning formula and are going to stick with it until the end of the year. A combination of low rate finance and heavy advertising of monthly payments has brought customers into new car showrooms in record numbers.

Dealers say customers are finding some of the deals hard to believe. Not surprisingly, this is putting pressure on the used market. Independent finance houses report a considerable drop off in demand, particularly for one- to three-year-old cars which no longer look good value.

The majority of these cars are still financed on conditional sale (hire purchase) which means monthly payments look high in comparison to the PCP-funded new car. This situation is likely to continue for the immediate future until dealers (and some finance houses) become more comfortable with financial products based on residual values for used cars.

Underpinning the market is the low bank base rate which is now dropping below levels not seen since the Sixties. At the same time the pound remains strong against both the euro and the yen, so UK-based carmakers importing can take advantage of the exchange rate bonus. This may not appear as a cut in list price, but is certainly being used to support transaction prices and finance marketing.

Some carmakers were a little slow off the mark in launching their final quarter programmes as they waited to see what the full effect of the September 11 atrocities would be. Now they are in full swing and, once again, there are a record number of entries on the Automotive Management Finance Analysis table.

There is a new-found enthusiasm for 0% finance with Vauxhall, Fiat and Renault all coming in with strong programmes. These deals have the advantage of appearing to be good value whatever happens to base rates in the short term and they remain cheap to fund.