Market Report: Used car wholesale funding

Auction houses are using their finance subsidiaries to help more dealers buy more vehicles at auction.

The two leading remarketing companies in the UK are Cox Automotive and BCA Marketplace which compete head to head. Finance is a growing sector for both.

Cox Automotive has its NextGear Capital wholesale funding arm and BCA Marketplace its BCA Partner Finance business. BCA has 1,500 dealers on its books, a number its managing director Malcolm Thompson said is “rising steadily”.

In the first six months of 2017 it funded 60,000 vehicles worth £450m. It provides funding for an average between 50 and 65 days.

NextGear Capital has 1,300 used vehicle dealers on its books and last year provided £500m of funding for 71,000 vehicles.

The business, according to sales and marketing director Pam Halliday, is “growing rapidly” and in 2017 expected to fund 100,000 vehicles, a 41% unit increase year on year. So what in particular do they offer? A big difference between the two is that BCA focuses on funding vehicles being sold at its own auctions.

“BCA Partner Finance is a unit stocking plan for vehicles acquired from BCA in physical and online auctions. Earlier this year we extended the service to fund vehicles that are taken in part-exchange at the dealership, linking with BCA Dealer Pro, BCA’s valuation, appraisal, part-exchange management and remarketing tool,” said Thomson at BCA.

“Our customers tell us that BCA Partner Finance is simple to understand and manage. We fund 100% of the auction invoice price including all fees and customers appreciate that they know exactly what they are able to fund without any calculations relative to CAP values or other pricing sourcesm,” he said.

NextGear Capital on the other hand provides funding not just for cars bought at its own centres but others as well.

“Our standard stocking plans enable dealers to stock up their forecourt with used vehicles bought from auction, wholesale or trade sources without using their own funds or using an overdraft facility, which in turn reduces the need to tie up their own capital. In addition, our Stocking Plus plan allows dealers to fund demonstrator, courtesy or staff vehicles and works in tandem with their standard stocking plan giving dealers even more flexibility with their stock.

“The benefit of a NextGear Capital Stocking Plan is that it can be used at point of sale at 60+ auction and wholesale sources across the UK and Ireland at 100% of the hammer price plus auction and delivery fees. In addition, it can also be used to fund trade and part exchange vehicles at 100% of CAP Average or invoice price if lower, which is unique within the market place,” said Halliday.

NextGear Capital said 88% of its business goes to independents while 12% goes to franchise dealers. Halliday argues that while captive finance houses often bundle in any wholesale finance deals with retail finance, NextGear Capital funding is provided in its own right and is not tied in this respect.

Both companies service franchised and independent dealers but the majority of business comes from independents.

“Whilst we have some franchised dealers as customers of BCA Partner Finance, the vast majority of our business is with the independent sector. These range from single site and professional buyers to multi-site used car supermarkets,” said Thompson at BCA.

Both finance houses expect that more dealers will be using its funding after the September plate change.

“Typically demand for funding rises as the supply and consumer demand for used vehicles increases. Our recently launched Part Exchange Plan provides additional funding and affords
our customers the opportunity to trade more freely when the taking of a part exchange is involved.

It allows customers to trade more freely, confident that they have the funding they need,” said Thompson at BCA.

Halliday at NextGear Capital concurs. “Based on previous plate changes we expect an increase in demand around 30 days’ post plate change due to dealers looking to accept part-exchanges on new vehicles.”

These two wholesale finance providers have grown their business but they still only have a fraction of the franchised and independent finance market. There is a long way to go.