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Car Finance - UK - June 2019

Covered in this report

The focus of this report is on car finance products sold to consumers, as opposed to business customers.

Mintel draws on data provided by the Finance & Leasing Association to show the volume and value of consumer POS (point-of-sale) car finance. This covers PCPs, HP/conditional sale plans, lease agreements and car loans sold to consumers through dealerships. Some FLA members may also include business written through third parties, such as online dealers and brokers. For further information, please see www.fla.org.uk.

"The consumer car finance market will continue to expand, with the used car segment driving this growth. The majority of new business will still be generated at the point of sale, via dealers and other retail outlets. However, digital channels will steadily increase their share of the market, albeit from a small base currently."
- Sarah Hitchcock, Senior Financial Services Analyst

This Report looks at the following areas:

  • Pre-approval for credit will drive more deals online
  • Growing appetite for greener cars will drive demand for ‘green’ finance

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Table of contents

  1. Overview

    • What you need to know
      • Report coverage and product definitions
      • Executive Summary

          • The market
            • The market will continue to grow, at a steady pace, over the next five years
              • Figure 1: Volume of consumer POS car finance contracts – Fan chart, 2014-24
            • PCPs will remain the product of choice for consumers, but face growing competition from traditional leasing alternatives
              • Used car sector represents the main growth area
                • The distribution mix
                  • New car registrations expected to fall again in 2019
                    • Regulator publishes final report
                      • Companies and brands
                        • A mix of specialists and captive operations serve the market
                          • Subsidiaries of two high street banks have expertise in the market
                            • The market continues to attract new entrants
                              • New innovations cater for rising numbers of people who don’t need to ‘own’ their car
                                • A lot of specific product advertising occurs below the line
                                  • The consumer
                                    • There are an estimated 38 million car drivers in the UK
                                      • Two in five people obtained their car less than two years ago
                                        • Figure 2: Length of time ago acquired car, March 2019
                                      • Half of all licence holders would like to buy or lease a car this year
                                        • Figure 3: Plans to buy or lease a car within the coming year, March 2019
                                      • Many people have experience of acquiring a car on finance
                                        • Figure 4: Past usage of types of car finance agreement and willingness to use again, March 2019
                                      • One in four prospective finance users would prefer to be pre-approved
                                        • Figure 5: Preferred method of arranging car finance, March 2019
                                      • 60% will use a price comparison site to find a deal
                                        • Figure 6: Consumer buying behaviours (prospective car finance users only), March 2019
                                      • What we think
                                      • Issues and Insights

                                        • Pre-approval for credit will drive more deals online
                                          • The facts
                                            • The implications
                                              • Growing appetite for greener cars will drive demand for ‘green’ finance
                                                • The facts
                                                  • The implications
                                                  • The Market – What You Need to Know

                                                    • Consumer car finance market was worth £37 billion in 2018
                                                      • PCPs represent the majority of finance deals arranged on the forecourt
                                                        • Used car finance is the main growth driver
                                                          • The distribution mix is more fragmented in the used car sector
                                                            • 2019 is expected to see a further decline in new car registrations
                                                              • FCA publishes final report and warns of “conflicts of interest”
                                                              • Market Size and Forecast

                                                                • Sales of consumer POS finance continue to grow
                                                                  • Figure 7: Volume and value of consumer POS car finance contracts, 2013-18
                                                                • Outlook: steady growth forecast
                                                                  • Figure 8: Forecast of the consumer POS car finance market, by volume and value, 2019-24
                                                                  • Figure 9: Volume of consumer POS car finance contracts – Fan chart, 2014-24
                                                                  • Figure 10: Value of consumer POS car finance contracts sold, at current prices – Fan chart, 2014-24
                                                                • Forecast methodology
                                                                • Market Segmentation

                                                                  • Used car segment continues to drive growth
                                                                    • Figure 11: Volume and value of consumer POS car finance, by new and used cars, 2014-18
                                                                  • 91% of new private car sales were funded by dealer finance in 2018
                                                                    • Figure 12: Proportion of new private car sales bought with a POS finance agreement, 2014-18
                                                                  • POS finance also accounts for a growing proportion of used car sales
                                                                    • Figure 13: Proportion of used car sales bought with a car finance agreement, 2014-18
                                                                  • PCPs are currently the preferred choice for both consumers and dealers
                                                                    • Figure 14: Proportional distribution of consumer POS car finance advances, by product type, 2018
                                                                  • Unsecured loans are also available through dealers
                                                                  • Channels to Market

                                                                    • Franchised dealers dominate the new car market
                                                                      • Figure 15: Channel used to purchase last car, November 2018
                                                                    • The used car market faces stiffer competition from non-POS suppliers
                                                                      • The internet is a powerful influencer of buying behaviour
                                                                      • Market Drivers

                                                                        • New and used car sales have fallen in the last two years
                                                                          • Figure 16: Volume of new car registrations and used car sales via dealers, 2013-18
                                                                        • Private sales account for a falling proportion of total new registrations
                                                                          • Figure 17: Number of new car registrations, by type of customer, 2014-18
                                                                        • Around one in five cars on the road are financed
                                                                          • Strong growth in the personal leasing market
                                                                            • Could PCP providers be losing business to leasing firms?
                                                                              • Rising motoring costs encourage shift from car ownership to ‘usership’
                                                                              • Regulatory and Legislative Changes

                                                                                • FCA set to intervene to address “excessive” motor finance costs
                                                                                  • HMRC alters tax treatment of PCPs
                                                                                  • Companies and Brands – What You Need to Know

                                                                                    • Finance is supplied by a mix of specialists and captive operations
                                                                                      • Subsidiaries of two high street banks have expertise in the market
                                                                                        • Good growth prospects attract new entrants
                                                                                          • New innovations have been developed to cater for ‘usership’
                                                                                            • A lot of specific product advertising occurs below the line
                                                                                            • The Main Suppliers

                                                                                              • Most car manufacturers have in-house finance operations
                                                                                                • Figure 18: Share of new car registrations, by manufacturer, 2017 and 2018
                                                                                              • Volkswagen Financial Services is the largest supplier of car finance in the UK
                                                                                                • Ford Credit and Vauxhall Finance
                                                                                                  • Other large captives
                                                                                                    • Santander, Black Horse and Barclays
                                                                                                      • Significant others
                                                                                                      • Competitive Strategies and Innovation

                                                                                                        • Mergers, new entrants and new product launches
                                                                                                          • MotoNovo and Aldermore complete integration
                                                                                                            • BNP Paribas introduces own car finance offering in the UK
                                                                                                              • Admiral launches direct-to-consumer car credit proposition
                                                                                                                • Alphera unveils new online account management portal…
                                                                                                                  • …and introduces an incentive scheme focusing on customer satisfaction
                                                                                                                    • Other recent arrivals: Fintech start-ups, Oodle and Blue Motor Finance
                                                                                                                      • Industry Trends
                                                                                                                        • The rise of subscription services…
                                                                                                                          • …currently still a niche area, but with good growth potential
                                                                                                                            • Finance migrating online
                                                                                                                            • Advertising and Marketing Activity

                                                                                                                              • Above-the-line adspend on car finance increases, albeit from a very small base
                                                                                                                                • Figure 19: Total above-the-line, online display and direct mail advertising expenditure on car finance and personal loan products, 2014-18
                                                                                                                              • Three online operators accounted for roughly two thirds of adspend in 2018…
                                                                                                                                • Figure 20: Top 10 advertisers of car finance products (via above-the-line, online display and direct mail channels only), 2017 and 2018
                                                                                                                              • …hence, the dominance of digital advertising
                                                                                                                                • Figure 21: Share of above-the-line, online display and direct mail advertising expenditure on car finance, by media type, 2018
                                                                                                                              • Car manufacturers invest millions in advertising
                                                                                                                                • Figure 22: Total above-the-line, online display and direct mail advertising expenditure on cars, dealers and related products and services, 2014-18
                                                                                                                              • Nielsen Ad Intel coverage
                                                                                                                              • The Consumer – What You Need to Know

                                                                                                                                • Two in five people obtained their car less than two years ago
                                                                                                                                  • Half of all licence holders would like to get a car this year
                                                                                                                                    • Many people have experience of acquiring a car on finance
                                                                                                                                      • One in four potential borrowers would prefer credit to be pre-approved
                                                                                                                                        • 60% of prospective car finance users are likely to use a price comparison site to find a deal
                                                                                                                                        • Licence Holders and Car Ownership

                                                                                                                                          • 12% of adults aged 17+ have a provisional licence
                                                                                                                                            • Figure 23: Proportion of adults aged 17+ with a driving licence, March 2019
                                                                                                                                          • Mintel estimates that there are 38 million car drivers in the UK
                                                                                                                                            • Figure 24: Type of vehicle driven, March 2019
                                                                                                                                          • 83% of drivers are the registered keeper of their vehicle
                                                                                                                                            • Figure 25: Registered keeper of car driven, March 2019
                                                                                                                                          • People are trading in their cars more regularly
                                                                                                                                            • Figure 26: Length of time ago acquired car, March 2019
                                                                                                                                        • Existing Car – Condition at Purchase and Funding Method

                                                                                                                                          • Nearly half of all drivers say their existing car was ‘new’ when they got it
                                                                                                                                            • Figure 27: Condition of car when acquired, March 2019
                                                                                                                                          • Two thirds of drivers used savings or income to fund or part-fund the purchase of their car
                                                                                                                                            • Figure 28: How paid for car, by condition and length of time ago acquired it, March 2019
                                                                                                                                          • One in four finance users part-exchanged an older car
                                                                                                                                            • Figure 29: How paid for car, by those who used a loan or finance/lease agreement, March 2019
                                                                                                                                        • Car Buying Plans and Expected Method of Finance

                                                                                                                                          • 50% of licence holders are planning to buy or lease a car within the next 12 months
                                                                                                                                            • Figure 30: Plans to buy or lease a car within the coming year, March 2019
                                                                                                                                          • New car buyers are likely to opt for another new car
                                                                                                                                            • Figure 31: Plans to buy or lease a car within the coming year, by condition and length of time ago acquired current car, March 2019
                                                                                                                                          • 27% of prospective car buyers intend to use a loan, finance or lease agreement
                                                                                                                                            • Figure 32: Expected method of funding acquisition of car, by condition of car planning to get, March 2019
                                                                                                                                        • Usage of Car Finance

                                                                                                                                          • More than half of all drivers have taken out finance to pay for a car
                                                                                                                                            • Figure 33: Past usage of types of car finance agreement and willingness to use again, March 2019
                                                                                                                                          • Recent growth in PCP and PCH is evident
                                                                                                                                            • Figure 34: Proportion who have previously used finance type, by drivers who used a loan or finance/leasing agreement to obtain current car, March 2019
                                                                                                                                        • Buying Cars on Finance – Consumer Behaviour and Preferences

                                                                                                                                          • Most consumers still prefer to choose car first before arranging any finance…
                                                                                                                                              • Figure 35: Preferred method of arranging car finance, March 2019
                                                                                                                                            • …especially the over-65s…
                                                                                                                                              • …but there’s still a large minority who favour getting pre-approved before shopping for a car
                                                                                                                                                  • Figure 36: Preferred method of arranging car finance, by status of car expected to buy in next 12 months, March 2019
                                                                                                                                                • Around half would use an online dealer or broker to search for a car and arrange finance
                                                                                                                                                    • Figure 37: Consumer buying behaviours (prospective car finance users only), March 2019
                                                                                                                                                  • 58% would seek advice from friends and family in the process of buying a car
                                                                                                                                                  • Appendix – Data Sources and Abbreviations

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

                                                                                                                                                          • Total market value forecast – best- and worst-case scenarios
                                                                                                                                                            • Figure 38: Forecast of consumer POS car finance advances – best- and worst-case scenarios, 2019-24
                                                                                                                                                          • Total market volume forecast – best- and worst-case scenarios
                                                                                                                                                            • Figure 39: Forecast of consumer POS car finance plans – best- and worst-case scenarios, 2019-24
                                                                                                                                                          • Forecast methodology

                                                                                                                                                          Car Finance - UK - June 2019

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