3:13 pm, September 23, 2020
A quarter of dealers have resorted to short-term financing such as the government’s Covid-19 recovery loans and overdrafts to pay for stock since they reopened.
That’s according to the latest dealer sentiment survey commissioned by NextGear Capital, which goes to some 100 leaders across independent dealers, franchise dealers, remarketing, fleet and lease companies.
NextGear says that since June 1, when dealerships gradually began opening across the UK, 13 per cent of dealers have used the Bounce Back Loan Scheme or Coronavirus Business Interruption Loan Scheme to get stock.
Meanwhile, 22 per cent of them have used an overdraft facility – which NextGear Capital said was a sharp rise since its last poll of dealers about their funding.
In October 2018, just nine per cent said overdrafts were a source of wholesale funding. More dealers are also using their own cash now against late 2018 – 78 per cent versus 47 per cent.
NextGear Capital, which is part of the Cox Automotive Group, said it had approved requests for an extra £27m since June 1, and had funded some 10,000 vehicles worth £82m during lockdown itself.
Liam Quegan, NextGear Capital’s managing director, said: ‘I think it’s a great thing that dealers have taken advantage of government support.
‘These loans have allowed many to weather the storm and the cash injection has no doubt helped them keep pace with demand and their forecourts stocked over the last few months.’
Source: NextGear Capital
However, the percentage of dealers opting for an overdraft was ‘concerning’, he said.
‘Overdrafts are a short-term solution that can be expensive, as cost is incurred until the overall balance returns to black.
‘It can be like chasing your tail to get back into a positive position.
‘I would urge any dealers leaning heavily on their overdraft facility to review their options and consider alternative means of stock funding that better suits their longer-term requirements.’
Quegan added: ‘It makes sense dealers are using their own cash to fund stock where they can.
‘With costs under scrutiny and market conditions forcing many to buy from multiple sources, cash trumps most alternatives.
‘However, it doesn’t come without risk. Now more than ever, it’s vital to keep costs front of mind and maintain a very close eye on cash flow.
‘Remember that government schemes are unlikely to remain in place for much longer.
‘Dealers with cash in the bank and access to funding that protects this position and affords them flexibility and choice will be best placed to navigate the challenges that lie ahead.’
The survey also revealed that since June 1, 22 per cent of dealers have bought stock with captive finance (ie, from a wholly owned subsidiary), nine per cent via a bank loan and the same percentage using non-captive finance such as via NextGear Capital.
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