Europe: automakers turn to credit to boost sales image

The usually powerful sales region of Europe has been hit by a six-years slump in demand following the latest financial crisis, and only recently has shown some signs of recovery.

Turning their eyes to UK’s flourishing sales market, one of the few bright spots, carmakers seek to emulate the Britain’s credit financing schemes. The main reason UK’s car sales level is back in the pre-recession area is the use of personal contract purchases (PCPs) schemes – in which typically a buyer pays half of the car in monthly installments and the other half is used for a new acquisition three years after that.

“We are definitely going to see more and more PCP-style initiatives in Europe going forward,” said Allan Rushforth, chief operating officer at Hyundai Europe. “The question is about what kind of twist you put on it in each country.”

“For PCPs to work well the carmaker’s need strong balance sheets and they need some natural market growth to be able to capitalise on,” said John Leech, automotive partner at KPMG. “Both those things are far more positive in Europe now than they were a few years ago.”

Still, PCPs are not yet very popular besides the UK and Germany – a good example being Ford’s financing arm (an already established auto provider), which has 38% and 27% of its European credit in the UK and Germany, respectively – whilst any other country is not above an 8% threshold.

Via Financial Times