Provident shuts car credit arm with 820 job cuts

Click to follow

Provident Financial, the specialist lender, finally threw in the towel on its second-hand car credit business yesterday, announcing the immediate closure of Yes Car Credit's national branch network with 820 job losses.

The news comes three months after Provident said it was considering putting Yes up for sale, after its first-half pre-tax loss of £6.2m. The company conceded yesterday that talks with potential buyers had collapsed, and that it expected Yes to make a full-year loss of about £24m.

Yes specialises in selling second-hand cars and finance deals to people with poor credit ratings, known as sub-prime borrowers. Provident bought the company for £141m almost three years ago to the day, making £62m for Yes's nine directors.

The company said yesterday it would write off the £91m of goodwill assigned to Yes on its books, conceding it would need to spend £50m in cash closure costs and asset write-downs.

Although Yes made pre-tax profits of £11.2m and £4.4m in 2003 and 2004 respectively, its predicted £24m loss this year ensures Provident will have made an overall loss on the division since the acquisition. Although officially closed to new business yesterday, Provident said it will collect the remaining £240m in payments from existing customers as they fall due.

In a statement, Provident said: "Increased competition from motor dealers for sub-prime finance customers, together with regulatory changes that have reduced sales of insurance products, have resulted in operating conditions that are very different from those that have prevailed when we acquired the business.

"Yes Car Credit ceased to be profitable in 2004 and, despite every effort to return the business to profitability, has been suffering trading losses since."

In spite of the failure of Yes, Provident said yesterday the rest of its business was trading in line with expectations, and the group expected overall profits for 2005 to be just 5 per cent below the market consensus. It said it planned to increase its final dividend by 3 per cent.

It warned that conditions were continuing to deteriorate in its core UK doorstep lending division, saying an increasing number of customers were struggling to repay loans because of rising energy costs. It added that as well as anticipating a prolonged period of difficult trading in the home credit market in 2006, its costs would be £4m higher because of the ongoing Competition Commission inquiry into the sector.

Shares in Provident fell more than 8 per cent in early trade before closing down 6.9 per cent at 558.5p, giving the company a market value of £1.42bn.