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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