OVER-REACTION to moves by regulators attempting to protect car buyers from over-extending on the amount of money they borrow has caused a credit squeeze which most in the industry believe is responsible for a downturn in dealer sales of both new and used cars.

The buyers are there, they just cannot get funding.

Flying under the flag of “responsible lending”, the big financiers and banks are so afraid of being beaten up by ASIC and the media they have run for the hills and will only accept loans of the highest quality.

Working to a strict formula of creditworthiness, the banks are refusing loans that would in normal times have sailed through the approvals process.

But not only are new-vehicle sales falling through, used-car deals are being denied as well.

One smallish regional city dealer sent GoAutoNews Premium the picture published on the following page which tells the story. He sent the image and an explanation to 180 MPs, many of whom replied that they ‘had no idea’ that the responsible lending rules were having these unintended consequences.

The image shows two storage boxes holding 231 loan applications that have been rejected in his used-car department at a rate of about 15 a month. The additional 31 rejected loans on the top are for the last three months of 2019. During that time just 25 customers were approved for used-car loans by big financiers.

But help is on its way.

In this issue of GoAutoNews Premium we look at one of two alternative directions on financing that are racing to fill in the automotive funding gap left by the big banks and the responsible lending crisis in car dealerships.

The first is Allied Credit, a longstanding financier which has recently moved into retail car finance and which rejects the ‘tick-the-box’ form of loan approvals which are seeing so many loan applications turned down.

Allied Credit is appointing skilled people whose role is to find the middle ground by workshopping with dealers to set the price, terms and conditions that a buyer can afford while meeting the rules of responsible lending.

Allied Credit is also a unique animal. It is entering into partnerships with the bigger dealer groups, effectively allowing dealers to own half of their own finance company.

This is seen as an alternative to relying on property as a way of investing in the future of the businesses of participating dealers.

In next week’s issue GoAutoNews Premium talks to Scott Hardie, a finance industry specialist and consultant at KPMG Motor Industry Services which is talking to dealers about strategies to recover lost sales that occurred when buyers funding their cars by topping up on their home loans dried up the wake of the drop in house values and banks frowning on the practice following the banking royal commission.

Something like 30 per cent of vehicle sales to private buyers were being funded on home-loan add-ins because inflating house values were rising so far above home loan lending limits that there was enough gap to fit a car under the limit on loan amount.

But when housing values dropped by seven-figure sums, suddenly there were all these potential car buyers facing the prospect of exceeding their loan limit and an unwelcome demand to put more cash up to cover the limit. So putting in a car on top of the house was risky and no longer viable.

Scott Hardie talks to GoAutoNews Premium about how dealers recover the missing home-loan top-up deals that have dug so deeply into monthly sales numbers.

Read more: Allied Credit to fill funding gap

Read more: Allied Credit invites ownership

By John Mellor