Yellowhammer Has Notable Implications for Dealer Finance

The Government’s recently published Yellowhammer contingency plan has notable implications for the motor finance sector because the economic disruption could inevitably impact consumer confidence. This is the stark message from Bluestone Credit Management, which specialises in providing credit management support to the motor finance community.

Yellowhammer outlines a series of worst-case socio-economic outcomes that could arise should the UK exit the EU without an agreed deal. While the Paper provides a worst-case situation, inevitably there will be some impact while the UK adapts to life after EU membership, regardless of the final exit path as Mark Baird Managing Director at Bluestone notes:

“In the immediate future, a no-deal exit from Europe has multiple consequences for motor retailing and financing. Tariffs could see car prices rise, while consumer confidence is likely to be dented with food and utility prices expected to rise, as is the risk of business failures. These impacts bring with them an inevitable risk of is a spike in arrears.

“As well as the short-term issues such a spike would create, it could also have consequences for customer retention with an arrears history risking damage to customers’ credit status. Helping customers to manage their finance effectively through the disruption period anticipated by the Government will be crucial.”

In the short-term, Bluestone expects that there may be some tightening in the availability of credit to address creditworthiness concerns. However, the business sees the broader issue as being the very significant number of existing finance customers whose capacity to meet their repayment commitments could be challenged, at least for a period of time as Baird concludes:

“In the face of an unprecedented position, we are seeing lenders looking to increase their capabilities to manage early arrears and especially to address what we have termed ‘mid-term disrupted’ customers. Without a considered strategy to help these people, either internally or with outsourced expertise, short-term distress could have long-term consequence from what has been a loyal good quality cohort of car finance customers.”