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Car Finance - UK - September 2009

The car market has been hit hard by the recession – as a big-ticket purchase, and one that can often be delayed, the industry has always been vulnerable to economic slowdowns. Car finance providers have been hit even harder, not only by falling car sales, but also by the turmoil in the credit markets, and a growing reluctance among consumers to take on new credit commitments.

There are some positives, however. The government’s car scrappage scheme helped support the new car market, while rises in unsecured personal loan rates have made specialist car finance loans appear more competitive. Manufacturers have also been keen to reduce stock levels and clear inventories, meaning that many are more prepared to subsidise finance in order to boost sales.

This report examines the market for specialised car loans, as well as other forms of lending commonly used for car finance – chiefly unsecured personal loans, but also further advances and mortgage equity release. It looks at the underlying market for new and secondhand cars, and the implications of market conditions on car finance providers. The market size is assessed, and key firms profiled, covering not only providers of dealer credit, but also major players in the broader credit market.

Consumer research reveals the proportion of people who rely on loans to fund their car purchase, and the number who simply draw on savings. The research also examines the degree to which customers trust car finance providers, and highlights the continued belief that those who can pay in cash can get a better deal when buying a car – a belief that is no longer necessarily correct, especially when it comes to sales of new cars.

Key issues

  • The impact of the slowdown on car sales in both the new and second-hand car markets.

  • Availability of car finance in light of the credit crunch.

  • The impact of interest rates on car finance, and the shift in the competitive environment caused by the combination of restricted lending and low base rates.

  • The strategic value of dedicated car finance products to motor manufacturers.

  • Consumers’ willingness to take on new debt to finance car purchase.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Definitions
        • Future Opportunities

          • Banking green – driving green?
            • Trading Up, Trading Down, Trading Over
              • Rebuilding trust and taking business from the high street
                • Still a need to challenge assumptions
                • Market in Brief

                  • Sales of car finance continue to fall…
                    • Figure 1: Car finance market size, by value and volume, 2003-09
                  • … and have fallen faster than the number of new and used car sales
                    • A tough automotive market…
                      • … and difficult times for consumers
                        • Banks and manufacturers dominate the market…
                          • … while consolidation has reduced the number of active players
                            • Replacement intentions fall sharply
                              • Figure 2: Car ownership, July 2007-June 2009
                            • Cash buyers dominate the motor market…
                              • Figure 3: Car financing methods, June 2009
                            • …and are likely to continue to do so
                            • Internal Market Environment

                              • Key points
                                • Growth rate of cars in use slows
                                  • Figure 4: Number of cars in use (car parc) in the UK, 2003-09
                                • Decline in new car registrations
                                  • Figure 5: Trend in private, business and fleet new car registrations, 2003-09
                                • Used car sales begin to fall
                                  • Figure 6: Used car sales, 2003-09
                                  • Figure 7: Mew retail and used car sales, 2003-09
                                • Car purchase prices and car finance
                                  • Figure 8: Expected cost of car purchase, new and second-hand, December 2008
                                  • Figure 9: Expected method of payment for next car, new and second-hand, December 2008
                                • Lending rates – advantage POS
                                  • Figure 10: Unsecured bank and building society lending rates and finance house base rate, August 2007-July 2009
                                • Falling acceptance rates?
                                  • Figure 11: Consumer credit* applications and acceptance rates, Jan 2009-Jul 2009
                              • Broader Market Environment

                                • Key points
                                  • Economic factors
                                    • Figure 12: Forecast economic indicators, 2004-14
                                  • Base rates fall to all-time lows…
                                    • Figure 13: Base rate, January 2000-July 2009
                                  • … but personal loan interest rates rise
                                    • Figure 14: Average personal loan rates, May 2007-May 2009
                                  • Bankruptcy and IVAs
                                    • Figure 15: Individual insolvencies in England and Wales, 2004-09
                                  • Much higher levels of debt in this recession
                                    • Figure 16: Consumer credit, amounts outstanding, 2003-08
                                  • The post-recession bounce-back
                                    • Figure 17: Rate of change in total consumer spending and consumer spending on cars, 1989-99
                                  • Debt management
                                    • Figure 18: Current financial position, by types of credit outstanding, April 2009
                                    • Figure 19: Current financial position, April 2009
                                  • Financial lifestyle
                                    • Figure 20: Agreement with selected financial lifestyle statements, 2003-09
                                • Strengths and Weaknesses

                                    • Figure 21: Car finance – SWOT analysis, 2009
                                • Market Size and Forecast

                                  • Key points
                                    • Total car finance market falls to £21.9 billion
                                        • Figure 22: Car finance market size, by value and volume, 2003-09
                                        • Figure 23: Comparison of trends in car finance agreements and interest rates, 2003-09
                                      • Stagnation in average values
                                        • Figure 24: Car finance market average agreement value, 2003-09
                                      • Market segmentation
                                        • Car dealer finance (POS)
                                          • Figure 25: Car dealer finance market size, by value and volume, 2003-09
                                          • Figure 26: Car dealer finance average agreement value, 2003-09
                                        • Direct lending car finance
                                          • Figure 27: Direct lending car purchase finance (secured and unsecured) market size, by value and volume, 2003-09
                                          • Figure 28: Direct lending car purchase finance (secured and unsecured) average agreement value, 2003-09
                                        • Finance penetration
                                          • Figure 29: Trend in private, business and fleet new car registrations and finance penetration, 2003-09
                                          • Figure 30: Comparison of trends in car finance agreements and car sales, 2003-09
                                        • Forecast
                                          • Market to stage a recovery – but it will be a slow process
                                            • Figure 31: Total car finance market, value and volume, 2003-14
                                          • Dealer finance – time to change direction?
                                            • Figure 32: Dealer finance market, value and volume, 2003-14
                                          • Direct lending hit hard – but should recover more quickly
                                            • Figure 33: Direct lending car finance market, value and volume, 2003-14
                                          • Factors used in this forecast
                                          • Market Share

                                            • Key points
                                              • Personal loans
                                                • Figure 34: Personal loan market share, by brand and type of provider, September 2008
                                              • The ‘big five’ cater for half of the market
                                                • Car dealer finance
                                                  • Figure 35: Estimated manufacturer and independent finance company share of new and used car finance market (number of cars financed), 2008
                                                • New car finance
                                                  • Black Horse leads the way in the new car market
                                                    • Figure 36: Estimated finance company brand shares of the new car finance market (unit sales), 2008
                                                  • Used car finance
                                                    • Figure 37: Estimated finance company brand shares of the used car finance market (unit sales), 2008
                                                • Competitive Context

                                                  • Key points
                                                    • Car purchasing methods
                                                      • Figure 38: Car financing methods, June 2009
                                                    • Remortgaging and mortgage equity release
                                                      • Figure 39: Housing Equity Withdrawal (seasonally adjusted), Q1 2003-Q1 2009
                                                    • Secured loans and further advances
                                                      • Figure 40: Size of the secured lending market, by sector and gross advances, 2003-08
                                                      • Figure 41: Reason for using secured credit products, October 2007 and November 2008
                                                    • Savings
                                                      • Figure 42: Ownership of deposit or savings accounts and NS&I products, December 2008
                                                  • Who’s Innovating?

                                                    • Key points
                                                      • Still a lack of product innovation
                                                        • The funding conundrum
                                                          • Longer ownership cycles
                                                            • Deferred finance products
                                                              • A new innovation required
                                                                • Is revolving credit the solution?
                                                                  • Service rather than product development
                                                                    • Innovating for the recession
                                                                    • Companies and Products

                                                                      • Key points
                                                                        • Vehicle manufacturer finance companies
                                                                          • FCE Bank plc
                                                                            • GMAC Financial Services
                                                                                • Figure 43: GMAC’s retail car finance products, by vehicle brand, 2009
                                                                              • Volkswagen Financial Services (UK)
                                                                                • Other leading players
                                                                                  • Independent motor finance companies
                                                                                    • Black Horse Motor Finance
                                                                                      • Santander Consumer Finance
                                                                                        • Other finance companies
                                                                                          • Direct lenders
                                                                                            • A more concentrated market
                                                                                            • Brand Communication and Promotion

                                                                                              • Key points
                                                                                                • Overall car finance adspend down…
                                                                                                  • Figure 44: Topline adspend on car finance and selected lending products, 2006-09
                                                                                                • … and manufacturer adspend has collapsed
                                                                                                  • Figure 45: Adspend by company – motor manufacturer finance, 2006-09
                                                                                                • Spend on contract plans also falls
                                                                                                  • Figure 46: Adspend by company – personal contract plans (motor), 2006-09
                                                                                                • Lloyds dominants unsecured personal loan advertising
                                                                                                  • Figure 47: Adspend by company – unsecured loans, 2006-09
                                                                                                • TV adspend falls in favour of direct mail
                                                                                                  • Figure 48: Media type used by car finance specialists, year to June 2009
                                                                                              • Channels to Market

                                                                                                • Key points
                                                                                                  • To go direct to the dealer, or to look elsewhere?
                                                                                                    • Distribution dependent on the type of purchase
                                                                                                      • Figure 49: Expected source of purchase of next car, new and second-hand, December 2008
                                                                                                    • Total number of dealers could be set to decline
                                                                                                      • Banks are the default choice?
                                                                                                        • Figure 50: Likelihood of potential customers to source a loan through their current account provider, September 2008
                                                                                                      • Physical distribution channels still important
                                                                                                        • Figure 51: Websites actually purchased from in the last three months (financial products only), Oct 2003-Jul 2008
                                                                                                    • The Consumer – Car Ownership and Financing

                                                                                                      • Key points
                                                                                                        • Widespread ownership – but few are planning to upgrade
                                                                                                          • Figure 52: Car ownership, July 2007-June 2009
                                                                                                        • Ownership linked to affluence…
                                                                                                          • … and lifestage
                                                                                                            • The young and the affluent form the market going forwards
                                                                                                              • Figure 53: Car purchasing intentions, by demographics, June 2009
                                                                                                            • Cash, not credit
                                                                                                                • Figure 54: Car financing methods, June 2009
                                                                                                              • It’s not the level of credit that differs…
                                                                                                                • Figure 55: Selected car financing methods, by gender, age and socio-economic group, June 2009
                                                                                                              • … but the type of credit used
                                                                                                                • The cost of homeownership
                                                                                                                  • Figure 56: Selected car financing methods, by housing tenure, June 2009
                                                                                                                • Personal loans still have a major role to play
                                                                                                                  • Figure 57: Purpose of loan, 2009
                                                                                                              • The Consumer – Attitudes Towards Car Finance

                                                                                                                • Key points
                                                                                                                  • Savings still top of the list…
                                                                                                                    • Figure 58: Consumer attitudes towards car finance, June 2009
                                                                                                                  • … but are people being realistic?
                                                                                                                    • ABs avoiding finance for the sake of a better deal?
                                                                                                                      • Figure 59: Attitudes towards funding car purchases and cash discounts, by age and socio-economic group, June 2009
                                                                                                                    • Scope for education among the affluent?
                                                                                                                      • Figure 60: Attitudes towards the cost and trustworthiness of dealer finance, by age and socio-economic group, June 2009
                                                                                                                    • A role to play for multiple car owners?
                                                                                                                      • Figure 61: Attitudes towards car finance by number of cars owned, by age and socio-economic group, June 2009
                                                                                                                    • Signs that a lack of trust is pushing people away from dealer finance?
                                                                                                                      • Are recent car buyers recognising the benefits of dealer finance?
                                                                                                                        • How can word of mouth be built?
                                                                                                                            • Figure 62: Most popular consumer attitudes towards car finance, by car ownership, June 2009
                                                                                                                            • Figure 63: Next most popular consumer attitudes towards car finance, by car ownership, June 2009 (continued)
                                                                                                                          • Tough sell for those in the marketplace
                                                                                                                            • Figure 64: Attitudes towards car finance among potential car buyers, June 2009
                                                                                                                        • The Consumer – Targeting Opportunities

                                                                                                                          • Key points
                                                                                                                            • New cars still key to the finance market
                                                                                                                              • Figure 65: Car financing methods, by car ownership, June 2009
                                                                                                                            • Buying in cash to get a better deal…
                                                                                                                              • …but what about those who can’t fund a purchase from savings?
                                                                                                                                • Taking advantage of the new economic climate
                                                                                                                                    • Figure 66: Most popular car financing methods, by consumer attitudes towards car finance, June 2009
                                                                                                                                    • Figure 67: Next most popular car financing methods, by consumer attitudes towards car finance, June 2009 (continued)
                                                                                                                                  • Most are strong cash advocates
                                                                                                                                    • Figure 68: Key consumer groups, June 2009
                                                                                                                                    • Figure 69: Consumer attitudes to car finance, by target groups, June 2009
                                                                                                                                  • Wheeling and dealing in the second-hand market
                                                                                                                                      • Figure 70: Car ownership, by target groups, June 2009
                                                                                                                                    • Dealer dodgers are the key target market – despite their cynicism
                                                                                                                                        • Figure 71: Car financing methods, by target groups, June 2009
                                                                                                                                    • Appendix – The Consumer – Car Ownership and Financing

                                                                                                                                        • Figure 72: Most popular car ownership, by demographics, June 2009
                                                                                                                                        • Figure 73: Next most popular car ownership, by demographics, June 2009 (continued)
                                                                                                                                        • Figure 74: Car financing methods, by demographics, June 2009
                                                                                                                                    • Appendix – The Consumer – Attitudes towards Car Finance

                                                                                                                                        • Figure 75: Most popular consumer attitudes towards car finance, by demographics, June 2009
                                                                                                                                        • Figure 76: Next most popular consumer attitudes towards car finance, by demographics, June 2009 (continued)
                                                                                                                                    • Appendix – The Consumer – Targeting Opportunities

                                                                                                                                        • Figure 77: Target groups, by demographics, June 2009

                                                                                                                                    Companies Covered

                                                                                                                                    • Abbey
                                                                                                                                    • Alliance & Leicester
                                                                                                                                    • Ally Financial Inc.
                                                                                                                                    • Asda Group Ltd
                                                                                                                                    • Audi United Kingdom
                                                                                                                                    • Bank of England
                                                                                                                                    • Barclays Bank plc
                                                                                                                                    • Black Horse Ltd
                                                                                                                                    • BMW (GB) Ltd
                                                                                                                                    • Britannia Building Society
                                                                                                                                    • British Market Research Bureau (BMRB)
                                                                                                                                    • CC Automotive Group Ltd
                                                                                                                                    • Co-operative Group
                                                                                                                                    • Fiat Auto
                                                                                                                                    • Ford Motor Company Limited (UK)
                                                                                                                                    • Funding Corporation (The)
                                                                                                                                    • GE Consumer Finance
                                                                                                                                    • Gfk NOP
                                                                                                                                    • GM Daewoo UK Ltd
                                                                                                                                    • Grupo Santander Central Hispano S.A.
                                                                                                                                    • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                    • HSBC Private Bank (UK) Limited
                                                                                                                                    • J. Sainsbury
                                                                                                                                    • Land Rover UK
                                                                                                                                    • Lombard Direct
                                                                                                                                    • Mazda Motor Corporation
                                                                                                                                    • MBNA Europe
                                                                                                                                    • Mercedes-Benz UK
                                                                                                                                    • Morgan Stanley & Co International Ltd
                                                                                                                                    • Nationwide Building Society
                                                                                                                                    • NatWest
                                                                                                                                    • Nissan Motor (GB) Ltd
                                                                                                                                    • Northern Rock plc
                                                                                                                                    • Porsche Cars Great Britain Ltd
                                                                                                                                    • Royal Bank of Scotland Group plc
                                                                                                                                    • Saab Automobile AB
                                                                                                                                    • Society of Motor Manufacturers and Traders
                                                                                                                                    • Subaru (UK) Ltd
                                                                                                                                    • Suzuki GB PLC
                                                                                                                                    • Tesco Plc
                                                                                                                                    • Toyota (GB) PLC
                                                                                                                                    • Vauxhall Motors Ltd
                                                                                                                                    • Volkswagen UK
                                                                                                                                    • Yamaha Motor Co., Ltd

                                                                                                                                    Car Finance - UK - September 2009

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