The Strategic Rationale for the foundation of The Motability Endowment Fund
When the Motability Scheme was founded in 1977, with all-party support, in order to help disabled people and their families, the key piece of the jigsaw was the value of the car at the end of the three-year lease.
In the early days, the motor dealers contractually agreed the price at which they would buy back at the end of the three years. The speed with which the Scheme numbers grew was such that it became too great a strain on the motor dealers’ balance sheets: Motability and Motability Finance could not take the risk that any of them would fail to meet their obligations, and so the manufacturers increasingly assumed the risk.
Motability Finance was buying the cars at heavily discounted rates which we initially, and then Motability Finance, negotiated. As time went on, the Scheme’s buying power was such that the value for money for our disabled customers increased.
Over the first 35 years there were times of great inﬂation, very high interest rates and motor manufacturers increased their prices, sometimes four times a year. It should be noted however that, despite this volatility, the percentage loss of value between the discounted purchase price of a car and its resale value at the end of the lease remained relatively stable during this period. Motability Finance, who were increasingly delivering the Scheme, were able to steadily enhance the value and choice of cars for disabled people and their families.
In 2008 Motability Finance altered its name to Motability Operations Limited, to reflect its delivery role, and became a subsidiary of Motability Operations Group plc which was created, as the culmination of a decision planned several years earlier, to raise long-term funding on the capital markets. This was taken because of the possible risks, given the very sizeable amounts raised, of relying on annual bank borrowing. The decision was - with hindsight - most timely.
During the last few years there has been an extraordinary second-hand market whereby cars have been selling consistently at values significantly higher than originally anticipated when the lease was written. This phenomenon has continued, despite the fact that the use of diesel vehicles has faced massive pressure from across the political spectrum. The motor industry is global and is coming under increasing ﬁnancial and environmental pressures, as evidenced by the rise in green movements around the world. We see these pressures daily in announcements of re-structuring and plant closures in the motor industry.
Extraordinarily cheap monies over the last decade have had a significant eﬀect on consumer purchasing power in the second-hand market, reversing normal depreciation. This has resulted in extraordinarily high second-hand car values over a sustained period but they will inevitably return to normal levels. This has created a unique financial benefit. It may well be that we will never again see these most unusual conditions which have produced such significant profits in Motability Operations.
To date, the Scheme has achieved our ambitions for disabled people in putting them on the road to freedom. Over the years, money has been reinvested, with our approval, by Motability Operations back into the Scheme for the benefit of customers, through customer support and the enhancement of many areas of customer service. The Charity has also been able to adopt measures such as giving transitional support payments and grants towards wheelchair accessible vehicles.
But until now we have not had the ﬁnancial capacity either to expand those measures, or to explore other initiatives beyond them.
Future Strategy and direction
Going forward, we now have the resource in the coming years to expand our current support for Scheme customers, such as grants for wheelchair accessible vehicles and driving lessons, to increase social mobility for disabled people. We know that there is demand for this now and this is likely to increase as the Scheme grows. Working with the Family Fund, we have also been running a small pilot scheme of support to the families of severely disabled children under the age of three. This age group is ineligible for Motability support through the Disability Living Allowance. The pilot is moving to a second phase, where we intend to help the many thousands of families with the vehicles they need.
Using these resources we are able to develop these, and new, initiatives to enhance the lives of disabled people who are not on the Scheme by helping them with their transportation needs. Some of these may require major research projects, for example, exploring opportunities created by new technology. We are in very active discussions with the Department for Work and Pensions (DWP) in other areas of particular interest to them, where we can help disabled people with both expertise and money.
Our guiding principle in designing any of these initiatives is to ensure that any commitments we make can be maintained over the long-term.
The very substantial monies that Motability Operations has already donated to the Charity are of a size which enables the Charity to commit to a long-term strategy, to enter into some of these areas of support for disabled people. These monies will be supplemented by any future donations that may materialise.
None of us can accurately forecast the future but in the years to come Motability Operations could face some very volatile years, making future donations uncertain. The Charity’s creation of an Endowment Fund would be an excellent long-term insurance policy for our beneficiaries and their ongoing mobility needs, ensuring that we will not get into the position of taking away new support that we start to provide to our disabled customers. We will be able to provide them with the certainty of funding into the future.
There will always be members of the community who have disabilities of one form or another. Despite the extraordinary development of medical science, this fact is unlikely to change in the foreseeable future. It would be wonderful if the economic circumstances of disabled people were such that they no longer needed the help of an organisation like Motability.
However, as far as we can see, our endeavours will continue to play a vital role for the indefinite future. The major funds arising from these exceptional circumstances enable us to expand our charitable horizons, moving Motability into a new and exciting era.
Lord Sterling GCVO CBE, Chairman of Motability
14 June 2019