Motability plans for 100,000 terminations
14 December 2012
Author: Tristan Young
Motability, the UK's largest fleet, is planning for a near-100,000 car reduction following disability payment cuts by the Government.
The fall in fleet numbers is expected to have an impact on the residual values of some sectors of the market in which Motability contributes heavily.
This is because the vehicles will not come back at the end of a set contract but will effectively be early terminations.
The cuts in payments are due to changes to the Disability Living Allowance.
From April 2013 the Government will start rolling out a new system called Personal Independence Payment.
The switch, which will be completed within three years, will see a 20% drop in spending in this area, according to Government forecasts.
Speaking exclusively to BusinessCar, Motability chief executive Declan O'Mahony, said: "The final assessment criteria and scoring have not yet been published by the Department for Work and Pensions so it is too early to estimate precisely the effect. Early DWP estimates were that 280,000 fewer people would receive the top level of mobility allowance under PIP.
"Given that one in three of the disabled people eligible to use Motability actually do so, this suggests there could be around 93,000 fewer customers.
"However, although that could mean a number of customers lose their eligibility, it does not mean the scheme will shrink by 93,000."
O'Mahony said overall fleet size of 600,000 cars may not change that much due to new customer growth.
Despite the switch to PIPs being completed by March 2016, O'Mahony claims the impact of the fall will be softened by the reduction in numbers continuing into 2017.
However, he did admit that there could be up to 25,000 early terminations per year.
RV experts claim this will have an impact in particular sectors and brands heavily exposed to Motability.
KwikCarcost's Mark Jowsey said: "We have inflated used car values and that is not sustainable. But a few more of the right type of vehicle wouldn't hurt. It could drag down some of the overinflated prices."
However, Glass's Guide's director of valuations and analysis, Richard Parkin, said that the current market's resilience and the time-frame would help, but he admitted: "There may be a little drop in values.
"Those vehicle makers in Motability will know how to deal with the cars and have this 'priced-in' to their values already."
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