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Car Finance - UK - May 2016

Published By :

Mintel

Published Date : May 2016

Category :

Banking

No. of Pages : N/A

Car finance has benefitted from a dramatic expansion in its popularity in recent years. Fuelled by innovations such as PCP (Personal Contract Purchase) as well as the development of retail leasing products, both the volume and value of car finance contracts sold have seen unprecedented expansion. With car market volumes and the prospects for the UK economy set to remain favourable, further growth in this market is forecast.

Overview

What you need to know
Products covered in this report

Executive Summary

The market
Expansion of the market is set to continue
Figure 1: Value of car finance contracts sold through dealerships (private sector only) – Fan chart, 2010-20
Figure 2: Volume of car finance contracts sold through dealerships (private sector only) – Fan chart, 2010-20
Use of finance growing in both new and used car markets
PCP dominates market with leasing recording strong growth for new car sales
Figure 3: New and used private car finance by product type (value), 2016*
Companies and brands
Small number of companies dominate the market
Figure 4: Leading finance providers for new cars (Dealer sales)*, 2015
PCP, HP and leasing are offered by many of the leading car finance companies
Upward trend in advertising expenditure
The consumer
A third of buyers are interested in leasing a car
Figure 5: Car finance, February 2016
Savings are the most popular method of paying for a car
Figure 6: Car payment methods, February 2016
Many users have a conservative approach towards car finance
Figure 7: Use of loan or finance agreements, February 2016
Not all organisations offered car finance are viewed the same
Figure 8: Performance of organisations offering loans/finance by value for money, February 2016
Mixed viewed towards statements associated with car finance
Figure 9: Statements about car finance, February 2016
What we think

Issues and Insights

Potential offered by the used car sector
The facts
The implications
Evolution of car finance market will continue
The facts
The implications
Preparing for the worst
The facts
The implications

The Market – What You Need to Know

Strong growth reported in car finance …
… with new cars a more valuable market
Strong car sales vital for market
PCP dominates the car finance market
Dealers account for two thirds of car sales

Market Size and Forecast

Car finance outperforms car sales
Figure 10: Volume and value of car finance contracts sold through dealerships (private sector only), 2010-15
Further expansion of the market expected
Figure 11: Volume and value of car finance contracts sold through dealerships (private sector only) – 2010-20
Figure 12: Value of car finance contracts sold through dealerships (private sector only) – Fan chart, 2010-20
Figure 13: Volume of car finance contracts sold through dealerships (private sector only) – Fan chart, 2010-20
Forecast Methodology

Market Segmentation

Strong growth for both new and used finance
Figure 14: Volume and value of private car finance contracts sold via dealerships, segmented by new and used cars, 2010-15
Finance penetration surpasses 80% of new car sales
Figure 15: Proportion of new private car sales bought with a car finance agreement, 2010-15
Limited, if growing presence, for used car finance
Figure 16: Proportion of used car sales bought with a car finance agreement, 2010-15
Leasing and PCP are proving important drivers for the market …
Figure 17: New and used private car finance by product type (value), 2015-16*
… although both have their limitations

Channels to Market

Franchised dealers dominate within the overall market
Figure 18: Sales of new and used cars by channel (by volume), 2013-15
Main dealers dominate the consumer market
Figure 19: Where was last car purchased, February 2016

Market Drivers

Car market records upward trend in sales
Figure 20: New and used car market volumes, 2010-15
New car market showing signs of slowdown
Figure 21: Best- and worst-case forecasts for UK new and used sales, 2010-20
Private sales represent an important market
Figure 22: UK new registrations of motor vehicles, 2010-15
Performance of the UK economy proving helpful
Figure 23: Mintel’s wellbeing index, February 2009 - November 2015
Over half of adults plan to buy a car in the next three years
Figure 24: Intention to purchase a car/s in the next three years, February 2016
No obvious preference for buying new or used
Figure 25: Intention to purchase a car/s in the next three years, by new or second-hand purchase, February 2016
Falling interest rates on unsecured loans suggests stronger competition for finance providers
Figure 26: Monthly percentage values of selected interest rates. January 2009-February 2016
PCP injects new life into the market
FCA consumer credit regime continues to evolve

Companies and Brands – What You Need to Know

Most car manufacturers have their own in-house finance company
Product and partnership strategies are both important
Technology and flexibility dominate innovations
Promotional expenditure is increasing

Market Share

Manufacturers take a leading role in the market
Figure 27: Manufacturer shares of new car registrations, 2015
VW and Ford account for a third of dealer finance
Figure 28: Leading finance providers for new cars (Dealer sales)*, 2015

Competitive Strategies

A tale of two markets
Use of partnerships
Offering a range of products
Figure 29: Finance products offered by leading players in car market (manufacturer subsidiary and specialist providers), 2016
Developing new services and markets

Launch Activity and Innovation

Ford looks towards group ownership of a vehicle
Close Brothers introduces referral service for dealers
Alphera also looking to help the dealer market
Black Horse streamlines applications with SignIt …
… while Halifax customers benefit from a new online finance facility
Scrappage and finance
Honda working with Arval to develop contract hire

Advertising and Marketing Activity

Upward trend in advertising expenditure
Figure 30: Total above-the-line, online display and direct mail advertising expenditure on car finance and related loan products, 2012-16
Majority of expenditure directed towards loans
Figure 31: Total above-the-line, online display and direct mail advertising expenditure on car finance and related loan products, 2012-16
PCP grows to dominate activity within car finance sector
Figure 32: Total above-the-line, online display and direct mail advertising expenditure on car finance (motor manufacturer finance and personal contract plans), 2012-16
Two companies dominate the market
Figure 33: Top five advertisers in the car finance market (above-the-line, online display and direct mail advertising) 2016
Television advertising increasing its profile
Figure 34: Total above-the-line, online display and direct mail advertising expenditure on car finance, by media type, 2015- 16
Nielsen Ad Intel coverage

The Consumer – What You Need to Know

Two thirds of adults own a car
A third of buyers are interested in leasing a vehicle
Savings are the preferred method of paying for a car
Familiarity with a finance product is important for many
Banks, building societies and dealerships all perform well
Fixed monthly payments are popular

Car Ownership

Two thirds of adults own a car
Figure 35: Car ownership, February 2016
Older cars dominate the market
Figure 36: Statements about car ownership, February 2016
New cars popular with men
Young adults are more likely to be recent purchasers
Income plays a major factor in choice of vehicle
New cars popular with urban buyers
Many of those without a car also do not hold a driving licence
Figure 37: Statements about car use by those not owning a car, February 2016
Low earners and women are least likely to drive

Car Finance

Around a third of buyers are interested in leasing a car
Figure 38: Car finance, February 2016
Leasing is popular with high income earners
Young adults have a strong interest in leasing a used car
Lease appeal is strong amongst those living in urban areas
Families find leasing of interest

Methods of Paying for a Car

Savings dominate as a method of payment
Figure 39: Car payment methods, February 2016
Different age groups prefer different payment methods
Wealthy are more likely to opt for loan or lease agreement …
… although contract hire and PCP have broad appeal
Car finance popular with other groups
Age and income both impact on number of payment methods used

Use of Loan and Finance Agreements

Past use and research are important factors affecting choice of finance
Figure 40: Use of loan or finance agreements, February 2016
Men and women have different perspectives on car finance
Demands of ABC1s force their use of particular finance products
Families are more likely to plan ahead

Performance of Lending Organisations

Financial institutions score well where the buyer has an account
Figure 41: Performance of organisations offering loans/finance by value for money, February 2016
Banks and building societies fail to appeal strongly with women

Statements about Car Finance

Views on car finance suggest interest in a variety of different package types
Figure 42: Statements about car finance, February 2016
Car finance of interest to young adults …
… with many wanting the flexibility it offers
Fixed and reduced payments are important for ABC1s
Parents appear worried about costs

Appendix – Data Sources, Abbreviations and Supporting Information

Abbreviations
Consumer research methodology

Appendix – Market Size and Forecast

Forecast Data
Figure 43: Forecast of private car finance plans (value) – best and worst case scenarios, 2015-20
Figure 44: Forecast of private car finance plans for new cars (value) – best and worst case scenarios, 2015-20
Figure 45: Forecast of private car finance plans for used cars (value) – best and worst case scenarios, 2015-20
Figure 46: Forecast of private car finance plans (volume) – best and worst case scenarios, 2015-20
Figure 47: Forecast of private car finance plans for new cars (volume) – best and worst case scenarios, 2015-20
Figure 48: Forecast of private car finance plans for used cars (volume) – best and worst case scenarios, 2015-20
Forecast Methodology

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