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Motor FinancePublished by: Key Note Publications Ltd Published: Sep. 1, 2005 - 166 Pages Table of ContentsExecutive Summary 1. Introduction BACKGROUND OBJECTIVES METHODOLOGY DEFINITION Personal Loans Hire Purchase Personal Contract Plans Cash 2. Strategic Overview MARKET DYNAMICS AND SEGMENTATION Market Drivers New and Used Car Sales Table 1: New Car and Commercial Vehicle Registrations in the UK by Volume, 2000-2004 Figure 1: New Car and Commercial Vehicle Registrations in the UK by Volume, 2000-2004 Table 2: The Apparent UK Market for Motor Vehicles and Components by Sector by Value (£m at msp), 2000-2004 Car Prices The Current Status of the Market Total Industry Value and Growth Table 3: New Business for Motor Finance in the UK by Value (£m), 2000-2004 Figure 2: New Business for Motor Finance in the UK by Value (£m), 2000-2004 Table 4: New Business for Motor Finance for New Cars by Method of Purchase by Value (£m and %), 2000-2004 Table 5: New Business for Motor Finance for Used Cars by Method of Purchase by Value (£m and %), 2000-2004 The Largest Sector The Sector with the Highest Growth Rate The Sector with the Lowest Growth Rate The Smallest Sector DISTRIBUTION Regional Distribution Table 6: Breakdown of UK VAT-Based Enterprises Engaged in the Motor Trade by Region (number and %), 2004 COMPETITIVE STRUCTURE Finance Companies Table 7: Total Lending to Individuals (£m), 2000-2004 Manufacturers Subprime Lenders Aggregators FRAUD AND MONEY LAUNDERING ADVERTISING THE CONSUMER Who is the Consumer? Table 8: Number of Cars Licensed in the UK (000), 2000-2004 Table 9: Age of Only or Most Recently Purchased Car (% of households), 2004 Factors Affecting the Consumer Gross Domestic Product Table 10: UK Gross Domestic Product at Current and Chain-Linked Prices (£m), 2000-2004 Unemployment Table 11: Actual Number of Unemployed Persons (million), 2000-2004 Household Disposable Income Table 12: Household Disposable Income per Capita (£), 2000-2004 Inflation Table 13: UK Rate of Inflation (%), 2000-2004 Equity Withdrawal Table 14: Mortgage Equity Withdrawal in the UK (£m and %), 2000-2004 and Quarter 1 2005 MARKET FORECASTS Table 15: Forecast New Business for Motor Finance by Value (£m), 2005-2009 3. New Cars BACKGROUND Table 16: UK New Car Registrations by Volume (000), 2000-2004 MARKET SIZE Table 17: New Business for Motor Finance for New Cars in the UK by Value (£m), 2000-2004 MAJOR SUPPLIERS Manufacturers Table 18: Selected Leading UK-Registered Motor-Vehicle Manufacturers by Turnover and Pre-Tax Profit (£m), 2003/2004 Table 19: New Car Registrations in the UK by Manufacturer (number and %), 2003 and 2004 Car Models Table 20: The Top Ten Car Models in the UK by New Registrations (number and %), 2004 MARKETING ACTIVITY ADVERTISING Table 21: Main Media Advertising Expenditure by Motor Manufacturers (£000), Years Ending March 2004 and 2005 DISTRIBUTION Table 22: Selected Leading UK-Registered Motor Dealerships by Turnover and Pre-Tax Profit (£m), 2003/2004 4. Used Cars BACKGROUND MARKET SIZE Table 23: New Business for Motor Finance for Used Cars in the UK by Value (£m and %), 2000-2004 DISTRIBUTION 5. Personal Loans BACKGROUND MARKET SIZE Table 24: Personal Loans to Finance New-Car Purchases in the UK by Value (£m), 2000-2004 Table 25: Personal Loans to Finance Used-Car Purchases in the UK by Value (£m), 2000-2004 MARKET SHARE Table 26: Typical Offerings for Unsecured Loans (% and £), August 2005 CONSUMER TRENDS ADVERTISING Table 27: Main Media Advertising Expenditure on Secured Personal Loans (£000), Years Ending March 2004 and 2005 Table 28: Main Media Advertising Expenditure on Unsecured Personal Loans (£000), Years Ending March 2004 and 2005 DISTRIBUTION INSURANCE 6. Hire Purchase BACKGROUND MARKET SIZE Table 29: Hire Purchase to Finance New-Car Purchases in the UK by Value (£m), 2000-2004 Table 30: Hire Purchase to Finance Used-Car Purchases in the UK by Value (£m), 2000-2004 CONSUMER TRENDS MARKETING ACTIVITY DISTRIBUTION 7. Personal Contract Plans BACKGROUND MARKET SIZE Table 31: Personal Contract Plans to Finance New-Car Purchases in the UK by Value (£m), 2000-2004 Table 32: Personal Contract Plans to Finance Used-Car Purchases in the UK by Value (£m), 2000-2004 CONSUMER TRENDS MARKETING ACTIVITY ADVERTISING Table 33: Main Media Advertising Expenditure on Personal Contract Plans (£000), Years Ending March 2004 and 2005 DISTRIBUTION 8. An International Perspective MARKET DEVELOPMENTS The Global Car Industry Table 34: Global Production of Passenger Cars and Commercial Vehicles by Country by Volume (number and %), 2002 and 2003 Figure 3: Global Production of Passenger Cars and Commercial Vehicles by the Top Ten Countries by Volume (number), 2002 and 2003 Europe — Block Exemptions EUROPEAN CAR MARKET By Volume Table 35: New Registrations of Passenger Cars and Commercial Vehicles in Europe by Country (number), 2000-2004 CONSUMER BEHAVIOUR 9. PEST Analysis POLITICAL FACTORS ECONOMIC FACTORS SOCIAL FACTORS TECHNOLOGICAL FACTORS 10. Consumer Dynamics INTRODUCTION Table 36: Summary of Results (% of respondents), 2005 OWNERSHIP OF CARS "Owning A Car Outright Is Important To Me" "I Use My Car As A Means Of Getting From A To B, Rather Than As A Status Symbol" Table 37: Importance of Outright Car Ownership, and Cars as a Means of Transport Rather than a Status Symbol (% of respondents), 2005 FEW REPLACE THEIR CAR REGULARLY "I Replace My Car Regularly" "I Intend To Finance My Next Car In The Same Way As My Last Car" Table 38: Regularly Replacing Cars, and Financing the Next Car in the Same Way as the Last Car (% of respondents), 2005 CASH PAYMENT MORE POPULAR THAN LOANS FROM A CAR DEALER "The Next Time I Buy A Car I Will Pay For It Outright In Cash" "I Expect To Finance My Next Car Through A Loan Arranged Through A Car Dealer" Table 39: Importance of Outright Car Ownership, and Financing the Next Car Through a Loan Arranged Through a Car Dealer (% of respondents), 2005 FEW PLAN TO PURCHASE A CAR USING FINANCE ARRANGED ONLINE "I Expect To Finance My Next Car Through Finance Arranged Online" "I Expect To Finance My Next Car Through A Car Manufacturer Direct" Table 40: Expectations of Financing Cars Through Finance Arranged on the Internet, and Direct Through a Car Manufacturer (% of respondents), 2005 SLIGHTLY MORE PLAN TO BORROW TO PURCHASE A USED CAR THAN A NEW ONE "I Expect To Borrow To Buy A New Car" "I Expect To Borrow To Buy A Used Car, Which Will Be Up To 1 Year Old" Table 41: Expectations of Borrowing Money to Buy a New Car, and a Used Car Less Than 1 Year Old (% of respondents), 2005 "I Expect To Borrow To Buy A Used Car Over 1 Year Old" "I Do Not Drive/Have A Car" Table 42: Expectations to Borrow to Buy a Used Car Over 1 Year Old, and Do Not Drive/Have a Car (% of respondents), 2005 HIRE PURCHASE HAS LITTLE APPEAL "I Intend To Lease My Next Car" "The Next Time I Buy A Car I Will Use Hire-Purchase Finance" Table 43: Intention to Lease the Next Car, or to Use Hire Purchase to Finance the Next Car (% of respondents), 2005 LITTLE ENTHUSIASM FOR DEFERRED PAYMENT PLANS "I Will Finance My Next Car By A Deferred Payment Deal" "I Expect To Finance My Next Car Through A Loan From My Bank" Table 44: Financing the Next Car Using Deferred Payment, and Through a Bank Loan (% of respondents), 2005 FEW PLANNING TO TAKE OUT A LOAN FROM THEIR BUILDING SOCIETY "I Expect To Finance My Next Car Through A Loan From My Building Society" Table 45: Expectation of Financing the Next Car with a Building Society Loan (% of respondents), 2005 11. Company Profiles INTRODUCTION ALLIANCE & LEICESTER PLC Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Innovations Research Appointments Advertising Profitability Future Company Developments AUTOMOBILE ASSOCIATION Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Innovations Research Appointments Advertising Profitability Future Company Developments BARCLAYS PLC Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Innovations Research Appointments Advertising Profitability Future Company Developments FORD MOTOR CREDIT Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Research Appointments Advertising Profitability Future Company Developments GE CAPITAL WOODCHESTER LTD Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Innovations Research Appointments Advertising Profitability Future Company Developments GMAC FINANCIAL SERVICES Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Innovations Research Appointments Advertising Profitability Future Company Developments HBOS PLC Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Innovations Research Appointments Advertising Profitability Future Company Developments HSBC HOLDINGS PLC Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Innovations Research Appointments Advertising Profitability Future Company Developments LLOYDS TSB GROUP PLC Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Innovations Research Appointments Advertising Profitability Future Company Developments NATIONWIDE BUILDING SOCIETY Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Innovations Research Appointments Advertising Profitability Future Company Developments PARAGON CAR FINANCE Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Innovations Research Appointments Advertising Profitability Future Company Developments THE ROYAL BANK OF SCOTLAND Group PLC Corporate Strategy Strengths and Weaknesses New Product Development Brand Development Innovations Research Appointments Advertising Profitability Future Company Developments 12. The Future THE ECONOMY Gross Domestic Product Table 46: Forecast UK Growth in Gross Domestic Product in Real Terms (%), 2005-2009 Inflation Table 47: Forecast UK Rate of Inflation (%), 2005-2009 Unemployment Table 48: Forecast Actual Number of Unemployed Persons (million), 2005-2009 Other Economic Indicators Demographics Table 49: The Projected UK Population by Age, 2002, 2006 and 2011 MERGERS AND ACQUISTIONS FORECASTS 2005 TO 2009 Table 50: Forecast New Business for Motor Finance in the UK by Value (£m), 2005-2009 Figure 4: Forecast New Business for Motor Finance in the UK by Value (£m), 2005-2009 MARKET GROWTH Figure 5: Forecast New Business for Motor Finance in the UK by Value (£m), 2000-2009 13. Consumer Confidence METHODOLOGY THE WILLINGNESS TO BORROW Table A: The Average Amount Consumers Are Willing to Borrow in Order to Purchase Expensive Items at Current and Constant May 2003 Prices (£ and £bn), May 2003, November 2004, February 2005 and May 2005 Consumers Willing to Borrow Table B: The Number of Adults Willing to Borrow in Order to Purchase Expensive Items (000 and %), May 2003, November 2004, February 2005 and May 2005 THE WILLINGNESS TO SPEND FROM SAVINGS Table C: The Average Amount Consumers Are Willing to Spend from Savings in Order to Purchase Expensive Items at Current and Constant May 2003 Prices (£ and £bn), May 2003, November 2004, February 2005 and May 2005 Table D: The Average Amounts Adults Are Confident Spending To Purchase Expensive Items (£ and %), May 2003, November 2004, February 2005 and May 2005 14. Further Sources Associations Publications General Sources Government Sources Other Sources Bonnier Information Sources AbstractThis report focuses on car purchases by private buyers. The market is divided into two main sectors — the new and used car markets — and four main types of lender: finance companies, manufacturers, subprime lenders and aggregators. Various types of finance are available to car buyers: personal loans, hire purchase (HP) and personal contract plans (PCPs). The right option depends on individual circumstances, and the market is increasingly competitive.The motor finance market enjoyed strong growth between 2000 and 2004. The UK's strong economic background and price falls that have boosted the affordability of cars have supported sales of cars. Growth in the motor finance industry has been helped by declining borrowing costs and an increasingly competitive industry, which results in lower borrowing costs for consumers. However, considerable changes are being experienced. Direct lenders are entering the market aggressively, consumers are tending towards cash purchases and distribution channels are diversifying. HP remains the main method by which consumers purchase new cars, while the proportion accounted for by personal loans continues to dwindle. PCPs appear to have reached a plateau after experiencing significant growth in the 1990s. Equity withdrawal is also now one of the main ways in which homeowners financed new car purchases between 2000 and 2004, although it is impossible to put an exact figure on how much consumers have spent on new cars by borrowing against their homes. The motor finance market in the UK is highly competitive and no single player dominates. Consumers are able to arrange their finance through a plethora of companies, ranging from the high-street banks and building societies, to independent finance companies, credit unions and car companies' affiliated finance arms. Many of the high-street supermarkets, including Tesco and Sainsbury's, also offer personal loans.
Key Note expects overall demand for new and used cars to slow significantly between 2005 and 2009, with new car sales falling in 2005 and 2006. Key Note does not expect the market to recover significantly until 2008. This reflects the likelihood that UK consumers will experience much tougher economic conditions over the next 5 years. Consumers have built up very large debts since 2000 and rising interest rates in 2004 and increasing unemployment in 2005 appear to have convinced many people to start paying off old debts rather than acquire new ones. Inevitably, this background will affect the market for motor finance and Key Note expects the market to contract in 2005 and 2006.
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