FLA predicts 2021 car finance recovery after 3% October decline

New consumer car finance volumes declined 3% in October to leave the sector 20% down year-to-date, according to the latest data from the Finance and Leasing Association (FLA).

New business volumes declined to 189,612 during the month prior to England’s ‘Lockdown 2’ measures as car retailers in Wales were impacted by their nation’s ‘firebreak’ period.

The total value of advances during the month rose 2%, however, to £3.06 billion.

The FLA's October finance market data comes over a months after the Society of Motor Manufacturers and Traders (SMMT) said that England's COVID-19 'Lockdown 2' and the Welsh 'firebreak' would trigger the UK’s weakest new car sales performance since 1982, following a 1.6% decline during October.

Geraldine Kilkelly, head of research and chief economist at the FLA, said: “The introduction of new restrictions during October to curb the growth in coronavirus cases has led to a softening in demand for consumer car finance. 

“The fall in the used car finance market in October was the first since May of this year.”

Kilkelly said that the UK’s economic outlook had improved following the promised rollout of a vaccine before Christmas and predicted a partial recovery in 2021.

She said: “Based on this more positive outlook, our latest research suggests that consumer car finance new business by value is likely to grow by 18% in 2021, following a contraction of 20% in 2020 as whole.” 

The FLA’s latest market data showed that the consumer new car finance market had delivered a year-on-year decline in new business volumes of 4% in October (to 63,647) as the value of advances remained static at £5.36bn.

Year-to-date, new business volumes in the new car sector fell by 25%, it said.

The consumer used car finance market reported a fall in new business volumes of 2% (to 125,965) in October compared with the same month in 2019, meanwhile, as the value of advances rose 3% to £1.64bn.

In the ten months to October 2020, new business volumes in the used car sector declined 17%, the FLA said.

• Read this month's digital edition of AM Magazine to gain insight on the UK car finance market and the imapct of incoming Financial Conduct Authority (FCA) regulation changes in 2021.