Finance for Chauffeurs Business Car Leasing Taxi Leasing Private Hire Vehicle Finance

Not a day passes and we are haunted with news stories about the so-called ‘credit crunch’, reports of job losses and the lack of sales in almost every area of enterprise, so Paul Gibson set out to find some light in the murkiness.

If you listen to the industry ‘experts’, finance deals for professional drivers are at their worst level ever and it is becoming almost impossible to get a chauffeur or private hire driver through the approval stages of finance. With the consumer market apparently avoiding dealer showrooms, does this make it a good time to buy for the professional driver? Or is more a case of just being able to buy a car in the first place?

There has been a massive downturn in car production, with every manufacturer reporting reduced figures. Yet, in here lies an irony, as finding a bargain is dead easy. Walk into any car showroom and you will be pounced on by any number of salespeople, who had been snoozing in the corner previously, until they heard the door creak open.

Hundreds of thousands of cars are sitting at UK ports and former RAF ‘holding grounds’, without buyers. Many car manufacturers in the UK have taken much-reported breaks in production, even though around 70% of the cars built in this country are exported, which highlights that this is a worldwide issue, not confined to our domestic market.

As a chauffeur or private hire driver, you have a responsibility to keep the standards of your business high and to provide capable, reliable and comfortable cars. Yet, how can you achieve this, when it seems that squeezing even a penny out of a financial institution, despite a faultless credit history, seems all but impossible. Unless you are in a fortunate enough position to be able to purchase a vehicle with a briefcase of ‘readies’, then you will be forced to locate finance for that vehicle.

Prior to late-2008, finance was available to almost anybody. Rates and deposit requirements would increase for those who were perceived to be a greater risk and, to be fair, this opportunity is still available. What has changed significantly is what is known as the ‘middle’ market. This class of customer may require a 50,000 Audi or Mercedes-Benz and been default free with prior agreements. However, the person may be a tenant, divorced or possess only limited accounts and these are the parameters now being placed under the microscope. Unsecured risks used to be problematic, believe it or not, although recent retail finance history seems to suggest the opposite.

What we have been seeing in the past few years was not a complete relaxation on behalf of the finance companies but, rather, motor industry influences playing the ‘hidden incentives’ game in order to warrant that their products would be funded. The only time secured lending was demanded was when the applicant was not credit-worthy or the rates offered were prohibitively high. This was not ideal, as factoring the value of the vehicle costs into an existing mortgage was not only complex but also resulted in paying for it over too long a time-span.

We are at crisis point, said an industry expert, who wishes to remain anonymous. On top of this, several funders, including Bank of Scotland, Barclays and Lombard are backing away from the chauffeur scene at present. No one knows for how long Lombard will still service its existing customers’ needs.

This is not to say that the recent ‘good times’ did not foster forward-thinking, when underwriting a deal. No observer envisaged that the down-turn would be either as rapid or as far-reaching as it has been thus far, when it came to used car values. Instead, finance providers have been left with enormous losses due to residual values plummeting and this could amount to hundreds of millions of Pounds with each organisation. Naturally, underwriting is the key to whether finance deals are forthcoming. It is the underwriter’s job that is at stake, should he miscalculate. The unwritten mantra among these people is ‘if you’re not sure they will be able to repay the loan, don’t do it!’. If a deal were declined, nobody would know and the underwriter would avoid placing a bad debt on his record.

The stresses on today’s underwriter to decline any deal that is not ‘gold-plated for risk’ are immense. So, it has become even harder for the professional driver to continue to provide quality up-to-date vehicles for his clients. Of course, carmaker schemes are merely ordinary deals supported by extra money from the manufacturer. They are nothing special and are just another way of selling the product. It is a case of that old adage, ‘everyone’s Pound notes are the same, it’s just how you package them’.

An industry expert told me, The credibility of the chauffeur market has endured a shaky ride. For many years, finance companies associated the industry with the battered old motor, driven by people of unproven reputations, picking up punters from the pub on a Friday night.

He added, We all know this is wrong and it took me a long time to prove it, with the help of legislation, that it was a professional industry run by professionals. The proof now is how the individual car debts are maintained and repaid. Believe me, and I cannot emphasise this too much, this will determine for a long time who, what and how much is financed.

So it seems that even if you have enjoyed finance in the past and you have built up a good record of payments, you are still going to struggle to find a company prepared to offer a helping hand. The future is not looking much brighter, as it seems that most of the banks will become part-owned by the Nation and its tax payers. The important issue lies in the amount of funds available to the finance arms of each of these banks. The amounts available would depend almost entirely on the financial model each firm has developed, its past performance and the sector at which they are aiming. So, why do financiers seeing the chauffeur and private hire industries as a risk?

It is not a lack of market experience but rather a ‘wait and see’ tactic, to monitor how the industry pays back its debts. Unfortunately, the trade can be very fragmented. For example, many small or one-man-band operations, regardless of their aims and ideals, costs and profit margins, in stressful financial times, such as we are experiencing, may resort to rate-cutting, just to retain their existing business. This could have detrimental effects on the industry and may determine how the trade is loaned funds in the future.

Chris Brown, of Ethos Finance, commented, The smaller cars, around 30,000, can still be funded and people with an A1 credit history, good risks, can still be funded on all cars. These companies will normally have accounts and a good trading record and will be established.

We can fund vehicles between companies, in other words, through mergers or sales between individuals and firms, if people wish to purchase this way and not involve the dealer networks. We recently funded three cars from one chauffeur company to another. However, with car prices coming down, we feel such moves can help the market, as less depreciation will occur for both customers and funders on the asset value.

Despite the purported benefits, finance leases, according to brokers, are in decline, with some houses offering packages, but only to fleet customers, not individuals or partnerships, as they have been caught previously with cars holding larger on-paper residuals contrasted with their actual worth. Chris added, Finance is still available, it’s locating the clients that can and want to do something. We are happy to speak with everyone, as some potential clients think that they can’t get approval, when they can.

It also seems that some car manufacturers are still suspicious of both chauffeur and private hire sectors. They are happy to sell, but less sure, when it comes to funding. Be warned, you can expect higher interest rates for an unspecified amount of time, bigger deposits are being requested and there are greater demands for detail information, in order to underwrite the deals. Underwriters will still lend, but they want to feel that the work will be there and that they are lending to organised borrowers.

Do’s and Don’ts If you are considering applying for finance

* Unless your accounts show that you do earn enough to make payments, your taxes and live, finance will not be forthcoming.

* Cash is great, as you don’t have to wait months for your money but it is invisible to the finance company and meaningless to your credit rating.

* Do prepare accounts and, if you have a broker, help him by preparing a detailed explanation of your business, its customers, its cash flow and how you will cope in adverse times. The broker will then be able to present your case for finance to the lending institution.

* Do have a clear client list of work previously undertaken and preferably showing a positive future graph.

* If you do have a car on finance, remember it is how up-to-date that your payments are, which will determine obtaining finance next time.

* Do have as much as possible for your deposit.