£355bn car finance debts

LENDING by some of Europe’s biggest car makers has more than doubled – to an estimated £355bn – in the decade since the financial crisis.

Volkswagen, BMW, Daimler and Renault now reportedly have record exposure to customer debts, meaning they will be battered if defaults rise in an economic downturn.

Car finance growth has surged since 2008, with British consumers borrowing £18.3bn for new vehicles in the year to June.

Although traditional lenders once dominated the market, auto firms have moved in and see it as a vital revenue stream. Zeus Capital analyst Mike Allen said that car finance is now even more important to manufacturers than what comes off their production lines.

The four European firms’ lending books have risen in value by more than 10pc a year since 2014. Although losses remain low, watchdogs are increasingly concerned about the risks.

An undercover Mail investigation earlier this year found that salesmen were offering cars worth up to £20,000 without asking for a deposit. One told a 24- year- old how to write a credit check form to ensure he was approved.

Another tried to sell a £15,000 Audi to a young, jobless man.

There are also signs that the car market could be peaking, with Bank of England economists warning it is ‘increasingly vulnerable to shocks’.

Much car finance lending is done through personal contract purchase agreements.

These depend on high used car prices to work – and with signs the second hand market is starting to tail off, lenders could find themselves exposed to growing losses.