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Car Finance - UK - May 2017

“The car finance market has grown at a frenetic pace since the recession, supported by low interest rates and the popularity of affordable Personal Contract Purchase (PCP) products. The shadow of an upcoming FCA investigation into fairness is now looming, and new cars are expected to lose their shine over the next few years. Under-explored opportunities lie in used car finance, online distribution and leasing.”
– Patrick Ross, Senior Financial Services Analyst

This report examines the following:

  • Online distribution can threaten dealerships through user experience
  • The temptation of that new car smell

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Table of contents

  1. Overview

    • What you need to know
      • Products covered in this report
      • Executive Summary

          • The market
            • Strong double-digit growth begins to slow
              • Figure 1: Value of car finance contracts sold through dealerships (private sector only) – Fan chart, 2011-21
            • Franchised dealers continue to dominate distribution
              • Figure 2: Where people buy cars, February 2017
            • Companies and brands
              • Car dealerships control two thirds of finance distribution
                • Figure 3: Car finance providers used, February 2017
              • Providers target innovation and greater share of the used car segment
                • The consumer
                  • Savings used more commonly than car finance for last car purchase
                    • Figure 4: How people paid for the last car they bought or leased, February 2017
                  • Hire purchase has proved narrowly more popular than PCP
                    • Figure 5: Car finance types used, February 2017
                  • Three quarters say they researched car finance before buying
                    • Low cost and brand reputation sway purchasing decisions
                      • Figure 6: Approaches to car finance arrangement, February 2017
                    • The majority intend to own the car they are financing at the end of the product
                      • Figure 7: Attitudes towards car finance, February 2017
                    • What we think
                    • Issues and Insights

                      • Online distribution can threaten dealerships through user experience
                        • The facts
                          • The implications
                            • The temptation of that new car smell
                              • The facts
                                • The implications
                                • The Market – What You Need to Know

                                  • Strong double-digit growth begins to slow…
                                    • … but not before catching the attention of the FCA
                                      • New and used car finance both grew by 12% in value in 2016
                                        • Franchised dealers continue to dominate distribution
                                        • Market Size and Forecast

                                          • Strong double-digit growth begins to slow
                                            • Figure 8: Volume and value of car finance contracts sold through dealerships (private sector only), 2010-15
                                          • Value and volume growth are expected to weaken further
                                            • Figure 9: Value of car finance contracts sold through dealerships (private sector only) – Fan chart, 2011-21
                                            • Figure 10: Value of car finance contracts sold through dealerships (private sector only), 2011-21
                                            • Figure 11: Volume of car finance contracts sold through dealerships (private sector only) – Fan chart, 2011-21
                                            • Figure 12: Volume of car finance contracts sold through dealerships (private sector only), 2011-21
                                          • Forecast methodology
                                          • Market Segmentation

                                            • New and used car finance showed double-digit value growth in 2016
                                              • Figure 13: Volume and value of private car finance contracts sold via dealerships, segmented by new and used cars, 2010-16
                                            • More than four in every five new cars is bought on finance
                                              • Figure 14: Proportion of new private car sales bought with a car finance agreement, 2010-16
                                              • Figure 15: Proportion of used car sales bought with a car finance agreement, 2010-15
                                            • Half of car buyers intend to get a new car
                                              • Figure 16: Car purchasing intentions: used or new, February 2017
                                          • Market Drivers

                                            • FCA announces investigation into the car finance market…
                                              • … and product concerns are key
                                                • New and used car sales have continued to grow
                                                  • Figure 17: New and used car market volumes, 2011-16
                                                  • Figure 18: UK new and used car sales, by volume, 2011-21
                                                • Short-term car buying demand is relatively constant …
                                                  • Figure 19: Buying/replacing cars, last three months and next three months, June 2012-April2017
                                                • … and more than half of people intend to buy a car in the next three years
                                                  • Figure 20: Car purchasing plans, February 2017
                                                • Low interest rates have helped make car finance affordable
                                                • Channels to Market

                                                  • Franchised dealers continue to lead the way
                                                    • Figure 21: Sales of new and used car volumes, by channel, 2013-16
                                                • Companies and Brands – What You Need to Know

                                                  • Car dealerships control two thirds of finance distribution
                                                    • Providers target innovation and greater share of the used car segment
                                                      • PCP is propping up car finance adspend
                                                      • Market Share

                                                        • Car dealerships control two thirds of finance distribution
                                                          • Figure 22: Car finance providers used, February 2017
                                                        • Car dealerships: Ford dominates car registrations
                                                          • Figure 23: Manufacturer shares of new car registrations, 2016
                                                        • Banks and building societies: Lloyds Banking Group is well-placed for car finance and car loans
                                                        • Competitive Strategies

                                                          • Providers look to innovation for growth
                                                            • BMW Financial Services to back start-ups
                                                              • Zopa offers loans targeting PCP balloon payments
                                                                • Ford broadens financial services offering
                                                                  • Providers invest in used car finance
                                                                    • Carbaya
                                                                      • Raphael Finance
                                                                      • Advertising and Marketing Activity

                                                                        • PCP is propping up car finance adspend
                                                                          • Figure 24: Total above-the line, online display and direct mail advertising expenditure on credit products that can be used for car purchases, by type, 2014/15- 2016/17*
                                                                        • Carfinance247 invests over £2 million in advertising
                                                                          • Figure 25: Carfinance247, London bus advert, May 2017
                                                                          • Figure 26: Total above-the line, online display and direct mail advertising expenditure on car finance products, by top five advertisers, 2016/17*
                                                                        • Car finance adspend is skewed towards digital channels
                                                                          • Figure 27: Total above-the line, online display and direct mail advertising expenditure on credit products that can be used for car purchases, by advertiser, 2016/17*
                                                                        • Banks look to cross-sell from other financial products
                                                                          • Figure 28: Advertising on log-in page of mobile banking app, April 2017
                                                                        • Nielsen Ad Intel coverage
                                                                        • The Consumer – What You Need to Know

                                                                          • Savings more commonly than car finance for last car purchase
                                                                            • Two thirds took car credit from their car dealership
                                                                              • Three quarters say they researched car finance before buying
                                                                                • Low cost and brand reputation sway purchasing decisions
                                                                                  • The majority intend to own the car they are financing at the end of the product
                                                                                  • Car Ownership

                                                                                    • Seven in ten people own a car
                                                                                      • Figure 29: Car ownership, February 2016-17
                                                                                    • People are most likely to have cars bought two years ago or more
                                                                                      • Figure 30: Car acquisition, February 2017
                                                                                    • More than a third of non-car owners have a license
                                                                                      • Figure 31: Car access among non-car owners, February 2017
                                                                                  • How People Paid for Last Car Purchase

                                                                                    • Savings were used more commonly than car finance for last car purchase
                                                                                      • Secondary sources help boost affordability
                                                                                        • Figure 32: How people paid for the last car they bought or leased, by number of sources used, February 2017
                                                                                        • Figure 33: Number of sources used for last car bought or leased, February 2017
                                                                                      • Hire purchase has proved narrowly more popular than PCP
                                                                                        • Figure 34: Car finance types used, February 2017
                                                                                    • Car Finance Providers and Channels Used

                                                                                      • Two thirds took car credit from their car dealership
                                                                                        • Figure 35: Car finance providers used, February 2017
                                                                                      • Car dealerships have strongest hold with 45+ age group
                                                                                        • Figure 36: Car finance providers used, by age, February 2017
                                                                                      • One in five arranged their car finance online
                                                                                        • Figure 37: Car finance arrangement methods, February 2017
                                                                                        • Figure 38: Car finance arrangement methods, by age, February 2017
                                                                                    • Car Finance Information Sources

                                                                                      • Three quarters say they researched car finance before buying
                                                                                        • Figure 39: Car finance information sources, February 2017
                                                                                        • Figure 40: Car finance information sources, by age, February 2017
                                                                                    • How People Intend to Pay for Future Car Purchase

                                                                                      • A third of people plan to use car finance to buy a car
                                                                                        • Figure 41: Car funding plans, February 2017
                                                                                      • Older Millennials show strong potential for future car finance uptake
                                                                                        • Figure 42: Car funding plans, February 2017
                                                                                      • Existing car owners more likely to take their next car purchase online
                                                                                        • Figure 43: Likelihood to purchase next car online, by car ownership, February 2017
                                                                                    • Approaches to Car Finance Arrangement

                                                                                      • Low cost and brand reputation sway purchasing decisions
                                                                                        • Scope to improve awareness of refinance options
                                                                                          • Figure 44: Approaches to car finance arrangement, February 2017
                                                                                        • 18-44s are more likely to explore their options, but half are trapped by their car choice
                                                                                          • Figure 45: Approaches to car finance arrangement, by age, February 2017
                                                                                      • Attitudes towards Car Finance

                                                                                        • Most intend to own the car they are financing at the end of the product
                                                                                          • Opportunities to improve consumer understanding and customer service
                                                                                            • Figure 46: Attitudes towards car finance, February 2017
                                                                                          • Millennials are more tempted by the promise of new and expensive cars on credit
                                                                                              • Figure 47: Attitudes towards car finance, by age, February 2017
                                                                                          • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                              • Abbreviations
                                                                                                • Consumer research methodology
                                                                                                • Appendix – Market Size and Forecast

                                                                                                    • Figure 48: Forecast of private car finance plans (value) – Best and worst case scenarios, 2016-21
                                                                                                    • Figure 49: Forecast of private car finance plans (volume) – Best and worst case scenarios, 2016-21
                                                                                                  • Forecast Methodology

                                                                                                  Companies Covered

                                                                                                  To learn more about the companies covered in this report please contact us.

                                                                                                  Car Finance - UK - May 2017

                                                                                                  US $2,570.96 (Excl.Tax)