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Car Finance - UK - January 2012

“Over the past two years car finance providers have improved their finance penetration of private new car sales, which is helping to drive profitability in a difficult trading environment. Maintaining this level of penetration will be crucial to the market’s success going forward.”

– Sarah Hitchcock, Senior Analyst – Financial Services

Some questions answered in the report include:

  • How has the car finance market performed recently?
  • And how is the wider motor retailing industry faring?
  • What is the outlook for the new car market in 2012?
  • How often are people replacing their cars?
  • Will changes in the automotive distribution chain hit demand for car finance?
  • Are car supermarkets making much of an inroad into the used car market?
  • How has the industry reacted to the idea of further changes to consumer credit regulation?

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Table of contents

  1. Introduction

      • Report scope and definitions
        • Abbreviations
        • Executive Summary

            • The market
              • Sales volumes are growing steadily, and this trend should continue
                • Figure 1: Forecast of the car finance market, by volume sales – fan chart, 2006-16
              • Used car sector continues to perform well
                • Performance of related products
                  • Key factors
                    • The retail car industry
                      • Banks have become more risk-averse
                        • Regulatory developments
                          • Companies, brands and innovation
                            • Ford Credit, VWFS and GMAC are the market leaders
                              • Recent innovation
                                • Limited above-the-line advertising
                                  • Distribution mix
                                    • Figure 2: Where purchased main car from, 2011
                                  • The consumer
                                    • Trends in car ownership, annual mileage and vehicle replacement
                                      • 68% of UK adults have their own car
                                        • Figure 3: Proportion of adults who drive and own a car, October 2011
                                      • 9% bought their last car with dealer/manufacturer finance
                                        • Figure 4: Method of financing most recent car purchase, October 2011
                                      • 14% of adults plan to buy a car within the coming year
                                        • Figure 5: Intention to buy a car within the next year, October 2011
                                      • Attitudes towards car finance
                                        • What we think
                                        • Issues in the Market

                                            • How has the car finance market performed recently?
                                              • And how is the wider motor retailing industry faring?
                                                • What is the outlook for the new car market in 2012?
                                                  • How often are people replacing their cars?
                                                    • Will changes in the automotive distribution chain hit demand for car finance?
                                                      • Are car supermarkets making much of an inroad into the used car market?
                                                        • How has the industry reacted to the idea of further changes to consumer credit regulation?
                                                        • Future Opportunities

                                                          • Offer exciting discounts and promotions to appeal to bargain-hunters
                                                            • Improve penetration of the used car market to take advantage of the downsizing trend
                                                            • Internal Market Environment

                                                              • Key points
                                                                • Size of car parc stabilises
                                                                  • Figure 6: Number of cars in use in the UK, 2002-12
                                                                • Ageing car stock
                                                                  • Figure 7: Age distribution of cars in use, 2010
                                                                • New car sales plateau at two million…
                                                                  • Figure 8: New car registrations, by type, 2003-12
                                                                • … while used car sales similarly stabilise, at 6.8 million
                                                                  • Figure 9: Volume of new and used car sales, 2003-11
                                                                • UK car sales totalled £65 million in 2011, broadly in line with 2010
                                                                  • Figure 10: Value of new and used car sales, at current prices, 2003-11
                                                                • Margins on loan rates have increased noticeably since 2008
                                                                  • Figure 11: Average advertised unsecured loan rates, finance house base rate and three-month LIBOR, October 2007-October 2011
                                                                • Proposed changes to consumer credit legislation
                                                                • Broader Market Environment

                                                                  • Key points
                                                                    • Summary of the main macroeconomic indicators impacting on the consumer credit market
                                                                      • Low consumer confidence depresses demand for big-ticket purchases
                                                                        • Figure 12: GfK Consumer Confidence Barometer – UK, January 2004-December 2011
                                                                      • Household unsecured debt fell by 11% over the 2008-11 period
                                                                        • Figure 13: The value of personal sector debt (mortgages and consumer credit) and as a proportion of total PDI, at current prices, 2000-11
                                                                      • Net lending increases, but from a very small base
                                                                        • Figure 14: Net consumer credit lending, 2007-11
                                                                    • Competitive Context

                                                                      • Key points
                                                                        • Around three in five new private-car sales funded by point-of-sale dealer finance in 2011
                                                                          • Figure 15: Proportion of new private car sales bought with a car finance agreement, 2008-11
                                                                        • Car finance accounts for a much smaller share of used car sales
                                                                          • Figure 16: Proportion of used car sales bought with a car finance agreement, 2008-11
                                                                        • Rival products and alternative funding solutions
                                                                          • Figure 17: Method of financing most recent car purchase, October 2011
                                                                        • New gross consumer credit lending increases slightly in 2011
                                                                          • Figure 18: Gross consumer credit lending, by type, 2007-11
                                                                        • The most common reason people take out a personal loan is to buy a car
                                                                          • Figure 19: Reason for taking out personal loan, 2009-11
                                                                      • Strengths and Weaknesses in the Market

                                                                          • Figure 20: Point-of-sale car finance – market strengths, weaknesses, opportunities and threats, 2012
                                                                      • Who’s Innovating?

                                                                        • Key points
                                                                          • Limited scope for real product innovation
                                                                            • Vauxhall introduces tailor-made finance package
                                                                              • FinanceAcar launches world’s first car finance comparison site
                                                                                • Moneybarn unveils the UK’s first online car finance calculator for the non-prime market
                                                                                • Market Size and Forecast

                                                                                  • Key points
                                                                                    • Over one million car finance plans are sold by dealers each year
                                                                                      • Figure 21: Volume and value of point-of-sale car finance plans sold (private sector only), 2003-11
                                                                                    • Used car sector continues to grow, while sales of new car plans experienced a modest fall in 2011
                                                                                      • Figure 22: Volume and value of private car finance plans sold, segmented by new and used cars, 2008-11
                                                                                    • Mintel predicts steady market growth over the next five years
                                                                                      • Figure 23: Volume of point-of-sale (private) car finance plans – fan chart, 2006-16
                                                                                      • Figure 24: Value of point-of-sale (private) car finance plans, at current prices – fan chart, 2006-16
                                                                                      • Figure 25: Forecast of the point-of-sale (private) car finance market, by volume and value, 2006-16
                                                                                    • Forecast methodology
                                                                                      • Fan chart explanation
                                                                                      • Market Share

                                                                                        • Key points
                                                                                          • Most car manufacturers have set up subsidiaries to provide financing
                                                                                            • Specialist providers
                                                                                              • Manufacturer subsidiaries
                                                                                                • Ford has the largest share of the new car market, followed by Vauxhall
                                                                                                  • Figure 26: Share of new car registrations, by manufacturer, 2009-10
                                                                                              • Companies and Products

                                                                                                  • Ford Credit
                                                                                                    • GMAC Financial Services
                                                                                                      • Volkswagen Financial Services
                                                                                                        • Black Horse
                                                                                                          • Santander Consumer Finance
                                                                                                          • Brand Communication and Promotion

                                                                                                            • Key points
                                                                                                              • Loan adspend increases in 2011, but is still way down on pre-crisis levels
                                                                                                                • Figure 27: Advertising expenditure on car finance and loan products, 2007-11
                                                                                                              • Nissan is the top car finance advertiser in 2011
                                                                                                                • Figure 28: Top five advertisers in the car finance market, 2011
                                                                                                              • Most advertising is channelled through the press
                                                                                                                • Figure 29: Advertising expenditure on car finance, by media type, 2011
                                                                                                            • Channels to Market

                                                                                                              • Key points
                                                                                                                • Most car finance is sold at the point of sale
                                                                                                                  • The franchised dealership is the main distribution outlet for new car finance
                                                                                                                    • Figure 30: Ten largest franchised dealer networks in the UK, by brand and number of outlets, 2006-10
                                                                                                                  • Growth of the online sales channel
                                                                                                                    • Car supermarkets strengthen their presence in the used car market
                                                                                                                      • New and used car markets have a different distribution mix
                                                                                                                        • Figure 31: Where purchased main car from, 2011
                                                                                                                    • Annual Mileage, Owning and Replacing Cars

                                                                                                                      • Key points
                                                                                                                        • Steady fall in multiple car ownership…
                                                                                                                          • Figure 32: Number of cars owned by household, 2007-11
                                                                                                                        • … and in the number of full licence holders
                                                                                                                          • Figure 33: Ownership of driving licence, 2007-11
                                                                                                                        • Most people drive 12,500 miles or less a year
                                                                                                                          • Figure 34: Miles driven per year, 2011
                                                                                                                        • More than half of all car owners spent £6,000+ on their main car
                                                                                                                          • Figure 35: Cost of car (main car only), 2011
                                                                                                                        • A five-door hatchback is the most popular style of car
                                                                                                                          • Figure 36: Type of car owned (main car only), 2011
                                                                                                                        • Nearly one in three drivers obtained their main car five or more years ago
                                                                                                                          • Figure 37: When obtained (main car only), 2011
                                                                                                                        • One in 20 car owners will replace their main car every two years or less
                                                                                                                          • Figure 38: Frequency of replacing car (main car only), 2011
                                                                                                                      • Car Ownership

                                                                                                                        • Key points
                                                                                                                          • About Mintel’s consumer survey
                                                                                                                            • Just over two thirds of UK adults have a car
                                                                                                                                • Figure 39: Proportion of adults who drive and have their own cars, October 2011
                                                                                                                              • Nearly half of new car owners bought their car less than two years ago
                                                                                                                                • Figure 40: Segmentation of car owners, by type of car owned and when bought, October 2011
                                                                                                                              • A person’s socio-economic status strongly affects their propensity to own a car
                                                                                                                                • Figure 41: Car ownership, by gender and socio-economic group, October 2011
                                                                                                                              • Those aged 55-74 are most likely to have a new car
                                                                                                                                • Figure 42: Car ownership, by age of owner, October 2011
                                                                                                                            • Method of Financing Last Car Purchase

                                                                                                                              • Key points
                                                                                                                                • One in 11 car owners used point-of-sale finance to buy their last car
                                                                                                                                  • Figure 43: Method of financing most recent car purchase, by type of car owned and gender, October 2011
                                                                                                                                • The typical car finance customer is aged 35-54…
                                                                                                                                  • Figure 44: Method of financing most recent car purchase, by age group, October 2011
                                                                                                                                • … and works full-time, with a household income of £15.5-25K
                                                                                                                                  • One in five HP customers part-exchanged their vehicle
                                                                                                                                    • Figure 45: Method of financing most recent car purchase, by those who used their savings, loan and HP agreement, October 2011
                                                                                                                                • Car-buying Intentions

                                                                                                                                  • Key points
                                                                                                                                    • 7 million UK adults are intending to buy a car within the coming year
                                                                                                                                      • Figure 46: Intention to buy a car within the next year – all adults, October 2011
                                                                                                                                    • Most car sales will be made by existing car owners
                                                                                                                                      • Figure 47: Intention to buy a car within the next year – all adults, October 2011
                                                                                                                                    • Used car owners are slightly more likely than new car owners to be planning a purchase
                                                                                                                                      • Figure 48: Intention to buy a car within the next year – existing car owners only, October 2011
                                                                                                                                    • ABs are a major target group for the new car market
                                                                                                                                      • Figure 49: Intention to buy a car within the next year, by gender and socio-economic group, October 2011
                                                                                                                                    • Those aged 35-54 are the main target audience for used cars
                                                                                                                                      • Figure 50: Intention to buy a car within the next year, by age, October 2011
                                                                                                                                    • Around one in eight people who are planning to buy a car used dealer finance to fund their last purchase
                                                                                                                                      • Figure 51: Method of financing most recent car purchase, by car owners and prospective car buyers, October 2011
                                                                                                                                  • Attitudes Towards Car Finance

                                                                                                                                    • Key points
                                                                                                                                      • Most people like to own their car outright
                                                                                                                                          • Figure 52: Attitudes towards car finance, by car owners and those intending to buy a car within the next year, October 2011
                                                                                                                                        • Just 3% of car owners think that dealer finance is a dearer option than taking out a loan
                                                                                                                                          • Men are much more likely than women to consider a lease purchase deal
                                                                                                                                            • Figure 53: Attitudes towards car finance, by gender, October 2011
                                                                                                                                          • One in seven car owners aged 35-44 could not afford to buy a car without finance
                                                                                                                                            • Figure 54: Attitudes towards car finance, by age, October 2011
                                                                                                                                        • Appendix – Car Ownership

                                                                                                                                            • Figure 55: Car ownership, by demographics, October 2011
                                                                                                                                        • Appendix – Profile of Drivers and Car Owners

                                                                                                                                            • Figure 56: Demographic profile of car owners and drivers, October 2011
                                                                                                                                        • Appendix – Method of Financing Last Car Purchase

                                                                                                                                            • Figure 57: Method of financing most recent car purchase, by demographic, October 2011
                                                                                                                                        • Appendix – Car Buying Intentions

                                                                                                                                            • Figure 58: Intention to buy new car within the next year, by demographics, October 2011
                                                                                                                                        • Appendix – Profile of Car Finance Customers

                                                                                                                                            • Figure 59: Demographic profile of car finance customers, October 2011

                                                                                                                                        Companies Covered

                                                                                                                                        • AB Volvo
                                                                                                                                        • Alliance & Leicester
                                                                                                                                        • Ally Financial Inc.
                                                                                                                                        • Bentley Motors Limited
                                                                                                                                        • Black Horse Ltd
                                                                                                                                        • Ford Motor Company Limited (UK)
                                                                                                                                        • GM Daewoo UK Ltd
                                                                                                                                        • GMAC Financial Services (UK) Plc
                                                                                                                                        • Grupo Santander Central Hispano S.A.
                                                                                                                                        • Hyundai Car (UK) Ltd
                                                                                                                                        • Kia Motors UK Ltd
                                                                                                                                        • Lloyds Banking Group
                                                                                                                                        • Saab Automobile AB
                                                                                                                                        • Skoda Auto a.s.
                                                                                                                                        • Société Générale Group
                                                                                                                                        • Vauxhall Motors Ltd
                                                                                                                                        • Volkswagen AG

                                                                                                                                        Car Finance - UK - January 2012

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