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Car Finance - UK - May 2015

“New car sales have increased strongly over the past three years, driven by the availability of cheap point-of-sale credit. Some dealers and manufacturers remain confident the market has further to run, while others expect to see a softening in demand. In the short term, much may depend on what happens to used car values, and if and when the Bank of England decides to raise interest rates.”
Sarah Hitchcock, Senior Analyst – Financial Services

This article will discuss the following key points:

  • Are we becoming a nation of car renters and how long will the boom last?
  • Greater pricing transparency should lead to higher trust levels and greater loyalty?
  • Car finance providers have nothing to fear from competition from high street lenders

The car finance market – like the wider car retail market – is currently experiencing strong levels of consumer demand. In 2014, around three quarters of new private car sales were paid for on finance arranged through dealers at the point of sale. In the new car sector, penetration has risen year on year since 2009, when the level was below 50%. In this report, Mintel identifies the factors driving this growth and considers the market’s prospects for further expansion.

The easy availability of affordable finance through dealerships, along with rising consumer confidence, is undoubtedly behind the recent surge in new car registrations. Three quarters of new private car sales involved some kind of point-of-sale finance in 2014, leaving scope to increase this further still in 2015. There is also considerable room to grow the used car sector, where finance penetration is much lower.

These objectives should be helped by a favourable climate of prevailing low interest rates and falling inflation. These factors, in the short term at least, should allow more people to stretch to more expensive cars through the provision of low-cost finance deals.

At the same time, the industry is not without its challenges. For example, car finance providers need to adjust to more stringent regulation. They must also prepare themselves for a possible slowdown in the retail car market, as the release of previously pent-up demand starts to diminish and sales fall back to more normal levels. Lastly, dealers will have to carefully manage a potential influx of returning vehicles on PCPs, so as to protect future residual values and ensure market sustainability.

The report additionally provides an overview of the size and composition of the market, along with coverage of recent regulatory developments, industry innovation and promotional activity. The market analysis is complemented by the findings of Mintel’s latest online survey, which offers insight into consumer attitudes and behaviour in relation to car ownership and acquisition. It reveals the methods commonly used by consumers to fund a car purchase, and explores the likelihood of converting those who previously used dealer finance into repeat customers. Car buying and leasing intentions are also explored.

 

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Table of contents

  1. Introduction

      • Product definitions and report coverage
        • Abbreviations
        • Executive Summary

            • The market
              • Healthy demand will continue to underpin new sales growth
                • Figure 1: Volume of point-of-sale (private) car finance plans – Fan chart, 2009-19
              • Annual car finance advances predicted to rise to £36 billion by 2019
                • Figure 2: Value of point-of-sale (private) car finance plans – Fan chart, 2009-19
              • Market factors
                • Three in four new car sales were funded by point-of-sale dealer finance in 2014
                  • Booming new car sales
                    • Increased compliance costs
                      • Companies, brands and innovation
                        • Most of the major manufacturers fund their own finance operations
                          • Product innovation
                            • Brand reinforcement
                              • Dealers dominate the sale the cars, with limited transactions being generated online
                                • Figure 3: Channels used to purchase last car, February 2015
                              • The consumer
                                • High levels of car ownership in the UK
                                  • 18% used dealer finance to fund their last car purchase
                                    • Figure 4: Method of financing most recent car purchase, February 2014
                                  • Consumers look for affordability and convenience when deciding which credit option to use
                                    • Figure 5: Influential factors affecting decision to use particular finance option, February 2015
                                  • 85% of car finance customers would consider using their preferred credit option again
                                    • Figure 6: Agreement with statements regarding most recent car finance or loan, ranked in order of significance, February 2015
                                  • 48% of households are planning to buy a car within the next three years
                                    • Figure 7: Likelihood of buying a car within the next three years, February 2015
                                  • What we think
                                  • Issues and Insights

                                      • Are we becoming a nation of car renters and how long will the boom last?
                                        • The facts
                                          • The implications
                                            • Greater pricing transparency should lead to higher trust levels and greater loyalty
                                              • The facts
                                                • The implications
                                                  • Car finance providers have nothing to fear from competition from high street lenders
                                                    • The facts
                                                      • The implications
                                                      • Trend Application

                                                        • Trend: Access Anything, Anywhere
                                                          • Trend: Why Buy?
                                                            • Trend: Collective Intelligence
                                                            • Market Drivers

                                                              • Key points
                                                                • UK car sales boom in 2014…
                                                                  • Figure 8: Volume of new car registrations and used car sales via dealers, 2009-15
                                                                • … but can it be repeated in 2015?
                                                                  • Nearly half of all new car sales are to private customers
                                                                    • Figure 9: New car registrations, by type, 2009-15
                                                                  • Feel-good factor helps drive demand for finance
                                                                    • Margins on loan rates are falling steadily as competition heats up
                                                                      • Figure 10: Average advertised unsecured loan rate, finance house base rate and three-month LIBOR, January 2008-January 2015
                                                                    • Update on consumer credit legislation and the shift towards full authorisation
                                                                      • The added cost of compliance could force some firms to cease offering credit
                                                                      • Market SWOT Analysis

                                                                          • Figure 11: Point-of-sale car finance – Market strengths, weaknesses, opportunities and threats, 2015
                                                                      • Who’s Innovating?

                                                                        • Key points
                                                                          • LBG launches secured car finance proposition in new digital drive
                                                                            • Alphera in push to build on recent success with new CRM propositions
                                                                              • New sub-prime products emerge to target increasing numbers of ‘cash-rich, credit-poor’
                                                                              • Market Size and Forecast

                                                                                  • Strong rise in demand for car finance
                                                                                    • Figure 12: Volume and value of car finance contracts sold through dealerships (private sector only), 2009-14
                                                                                  • More than half of all car finance plans are taken out by used car buyers
                                                                                    • Figure 13: Volume and value of private car finance contracts sold via dealerships, segmented by new and used cars, 2009-14
                                                                                  • Mintel predicts the market to growth at a healthy rate over the next five years
                                                                                    • Figure 14: Volume of point-of-sale (private) car finance plans – Fan chart, 2009-19
                                                                                    • Figure 15: Value of point-of-sale (private) car finance plans, at current prices – Fan chart, 2009-19
                                                                                    • Figure 16: Forecast of the point-of-sale (private) car finance market, by volume and value, 2009-19
                                                                                • Market Penetration

                                                                                  • Key points
                                                                                    • Three in four new cars bought with dealer finance in 2014
                                                                                      • Figure 17: Proportion of new private car sales bought with a car finance agreement, 2009-14
                                                                                    • The growth of PCPs is helping to drive to new car sales…
                                                                                      • …but is there potentially a spoke in the wheel?
                                                                                        • Car finance accounts for a much smaller share of used car sales
                                                                                          • Figure 18: Proportion of used car sales bought with a car finance agreement, 2009-14
                                                                                      • Market Share

                                                                                        • Key points
                                                                                          • Most car manufacturers have in-house finance operations
                                                                                            • Figure 19: Share of new car registrations, by manufacturer, 2013-14
                                                                                        • Companies and Products

                                                                                            • Specialist providers
                                                                                              • Manufacturer subsidiaries
                                                                                              • Brand Communication and Promotion

                                                                                                • Key points
                                                                                                  • Limited above-the-line adspend devoted purely to car finance products
                                                                                                    • Figure 20: Advertising expenditure on car finance and related loan products, 2011-15
                                                                                                  • Media mix varies from year to year
                                                                                                    • Figure 21: Advertising expenditure on car finance, by media type, 2013/14-2014/15
                                                                                                  • Barclays uses direct mail to promote to its unsecured loan as a financing solution for buying a car
                                                                                                    • Figure 22: Top five advertisers in the car finance market, 2014/15
                                                                                                • Channels to Market

                                                                                                  • Key points
                                                                                                    • The vast majority of car finance is sold on the forecourt
                                                                                                      • Figure 23: Channel used to purchase last car, February 2015
                                                                                                  • Car Ownership

                                                                                                    • Key points
                                                                                                      • Survey background
                                                                                                        • Car ownership is determined as much by need as wealth
                                                                                                          • Figure 24: Car ownership, February 2015
                                                                                                        • More car owners buy second-hand than new
                                                                                                          • Figure 25: Condition of car when bought, February 2015
                                                                                                        • The majority of both new and used cars are sold through dealers
                                                                                                          • Figure 26: Where last car was bought, February 2015
                                                                                                        • One in ten non-car owners drive a car belonging to someone else
                                                                                                          • Figure 27: Proportion of non-car owners who lease or drive a car they do not own, February 2015
                                                                                                      • Method of Funding Car Purchase

                                                                                                        • Key points
                                                                                                          • 18% used car finance to fund their last car purchase
                                                                                                            • Figure 28: Method of financing most recent car purchase, February 2014
                                                                                                          • 9% used their credit card
                                                                                                            • Car finance customers are more likely to part exchange
                                                                                                              • Figure 29: Method of financing most recent car purchase – Cross-analysis, February 2014
                                                                                                            • Rise in serial renters
                                                                                                              • Figure 30: Method of financing most recent car purchase, by condition of car when bought, February 2014
                                                                                                            • HP is now as popular with used car buyers as new
                                                                                                              • Figure 31: Method of financing most recent car purchase, by condition of car and length of time ago bought, February 2014
                                                                                                          • Factors Influencing Decision to Use Car Finance

                                                                                                            • Key points
                                                                                                              • Most plump for a solution that is affordable, convenient and familiar…
                                                                                                                • Figure 32: Influential factors affecting decision to use particular finance option, February 2015
                                                                                                              • …but a recommendation also helps to sway choice
                                                                                                                • PCP and lease plan holders are more likely to become repeat customers
                                                                                                                  • Figure 33: Influential factors affecting decision to use particular finance option, by method of finance used, February 2015
                                                                                                              • Experience of and Attitudes toward Car Finance

                                                                                                                • Key points
                                                                                                                  • Survey results suggest high customer satisfaction levels
                                                                                                                    • Figure 34: Agreement with statements regarding most recent car finance or loan, ranked in order of significance, February 2015
                                                                                                                  • 64% of customers opting for a PCP or lease agreement say it enabled them to get a better spec of car
                                                                                                                    • Figure 35: Agreement with statements about arranging most recent car finance or loan – Positive experiences, February 2015
                                                                                                                  • Some small variation in the level of customers reporting negative experiences across the three main product types
                                                                                                                    • Figure 36: Agreement with statements about arranging most recent car finance or loan – Negative experiences, February 2015
                                                                                                                  • All three product types share similarly high levels of endorsement
                                                                                                                    • Figure 37: Agreement with statements about arranging most recent car finance or loan – Future consideration and positive endorsement, February 2015
                                                                                                                • Car Purchasing and Leasing Intentions

                                                                                                                  • Key points
                                                                                                                    • Nearly half of all UK households have plans to buy at least one car within three years…
                                                                                                                      • Figure 38: Likelihood of buying a car within the next three years, February 2015
                                                                                                                    • …of which a significant proportion will use finance to fund the purchase
                                                                                                                      • Figure 39: Proportion of prospective car buyers who used a loan or car finance to fund their last purchase February 2015
                                                                                                                    • Around 6 million households expect to buy a car within the coming year
                                                                                                                      • Figure 40: When expecting to make next car purchase, February 2015
                                                                                                                    • The gap between new and used narrows when it comes to people’s aspirations
                                                                                                                      • Figure 41: Condition of car likely to buy, February 2015
                                                                                                                    • Results indicate a high level of interest in car leasing
                                                                                                                      • Figure 42: Intentions to lease a new or used car within the next 12 months, February 2015
                                                                                                                  • Appendix – Market Size and Forecast

                                                                                                                    • Total market forecast - Best- and worst-case scenarios
                                                                                                                      • Figure 43: Forecast of private car finance plans (volume) - Best- and worst-case scenarios, 2014-19
                                                                                                                      • Figure 44: Forecast of private car finance plans (value) – Best- and worst-case scenarios, at current prices, 2014-19
                                                                                                                    • New car sector forecast – Best- and worst-case scenarios
                                                                                                                      • Figure 45: Forecast of private car finance plans (volume) in the new car sector – Best- and worst-case scenarios, 2014-19
                                                                                                                      • Figure 46: Forecast of private car finance plans (value) in the new car sector – Best- and worst-case scenarios, at current prices, 2014-19
                                                                                                                    • Used car sector forecast – Best- and worst-case scenarios
                                                                                                                      • Figure 47: Forecast of private car finance plans (volume) in the used car sector – Best- and worst-case scenarios, 2014-19
                                                                                                                      • Figure 48: Forecast of private car finance plans (value) in the used car sector – Best- and worst-case scenarios, at current prices, 2014-19
                                                                                                                    • Forecast methodology
                                                                                                                      • Fan chart explanation

                                                                                                                      Companies Covered

                                                                                                                      • Alfa Romeo
                                                                                                                      • Audi United Kingdom
                                                                                                                      • Barclays Bank plc
                                                                                                                      • Bayerische Motoren Werke AG (BMW)
                                                                                                                      • Bentley Motors Limited
                                                                                                                      • Black Horse Ltd
                                                                                                                      • Crédit Agricole
                                                                                                                      • Daimler AG
                                                                                                                      • Fiat Auto
                                                                                                                      • Ford Motor Company Limited (UK)
                                                                                                                      • GMAC Financial Services (UK) Plc
                                                                                                                      • Hyundai Car (UK) Ltd
                                                                                                                      • Hyundai Motor Company
                                                                                                                      • Jaguar Cars Limited
                                                                                                                      • Land Rover UK
                                                                                                                      • Mercedes-Benz UK
                                                                                                                      • Motorpoint
                                                                                                                      • Peugeot Motor Company Plc
                                                                                                                      • Renault (UK) Ltd
                                                                                                                      • Skoda Auto a.s.
                                                                                                                      • Suzuki GB PLC
                                                                                                                      • Toyota (GB) PLC
                                                                                                                      • Vauxhall Motors Ltd
                                                                                                                      • Volkswagen UK

                                                                                                                      Car Finance - UK - May 2015

                                                                                                                      £1,995.00 (Excl.Tax)