With the UK and much of Europe currently in lockdown, dealerships have been forced to close, and some could be facing an uncertain future. In this article, we explore how lenders can work to help dealers through the crisis in the short term.
As part of Sopra Financing Platform, we operate SFP Wholesale, one of the leading wholesale floorplan finance platforms globally. Here, we’re going to be leveraging our insight into some of the issues and possible solutions facing lenders and dealers in the current crisis.
The knock-on effect for wholesale finance lenders remains to be seen. With the funding of assets seeing mixed fortunes in the past week, lenders and dealers must work together to mitigate losses to ensure survival.
Lenders could extend lines of credit to dealerships under pressure, either to help dealers free up cash by funding vehicles currently held with equity, or to fund any increased inventory likely to hit dealer floors that will become available from OEMs prior to many of the inevitable plant shutdowns.
If the current pandemic continues for an extended time, this could mean both lenders and dealerships have a higher level of financial exposure. Furthermore, if (as seems likely) a recession or even a depression ensues following the pandemic, will the general public have the buying power to balance out the scales, particularly if we see the value of used cars crash as a result?
Extend capital repayment dates
Extending the due date of capital repayments from floored vehicles is another way for the lenders to alleviate immediate pressure on dealers. However, while this wouldn’t increase the financial exposure of both parties as much, it doesn’t solve the problem of how this payment is met in the situation of an extended pandemic. Perhaps the lenders would then look at offering further deferred payments should the pandemic continue to impact our lives and businesses beyond the next few weeks.
Manual interest application and fee charges
While our SFP Wholesale system would usually automate interest calculations according to client specification, it’s possible to switch this to manual in-line with client requests. Also, switching would allow these charges to be applied on a case-by-case basis with specific dealers.
After the Bank of England lowered the base rate to 0.1 percent, interest rates on many stock loans have been lowered across the board. This could be a great solution for lenders currently, as they exercise discretion on when and how to charge dealers, dependent on their individual circumstances. However, it does make forecasting more subject to variation, and income more uncertain.
Captives extend interest-free periods for dealers
For manufacturer-linked funding, an extension to interest-free periods would certainly help dealers at the current time, but they’ll still need to find the equity for the capital repayment, or look to work with the lender on other solutions, including those listed above.
No doubt as the pandemic unfolds further over the coming weeks, we’ll see evolving situations, including how effective many European countries government rescue packages are at keeping businesses afloat, and many clever combined solutions to the problems being thrown up by such a challenging time for the industry.
During these uncertain times, it’s important for dealers and lenders alike to stay abreast of the latest news, so be sure to check back regularly to read and watch our latest insights. Also, please contact us if you’d like to book a demo or discuss how SFP Wholesale can help manage your stock portfolio.