UK Motor Finance 2003 : Market Research Report

UK Motor Finance 2003

Published by: Datamonitor

Published: Sep. 24, 2003 - 182 Pages

TABLE OF CONTENTS

CHAPTER 1 EXECUTIVE SUMMARY 3

Introduction 3

Market context 3

Customer focus 4

First-tier customers - traditional dealers and alternative car retailers 4

Second-tier customers - car buyers 4

Competitive dynamics 4

The future decoded 4

CHAPTER 2 INTRODUCTION 4

What is this report about? 4

Who is the target reader? 4

How to use this report 4

CHAPTER 3 MARKET CONTEXT 4

Introduction 4

The consumer credit market has continued its unprecedented growth 4

Oustanding balances have surged upwards 4

Gross advances mirror the same pattern 4

The POS motor finance market and its sub-markets 4

The new car finance market has fared exceptionally well since 2000 4

Gross advances in used car finance have climbed back after a disappointing year in 2001 4

Trends between PoS motor finance products 4

New car market - hire purchase agreements lead the recovery from the 2000 slump 4

Used car market - hire purchase agreements maintain a commanding position as total gross advances fall 4

Regulatory issues in the POS motor finance market 4

The Supply of New Cars Order 2000: consumers have benefited from falling prices 4

Changes to the company car taxation laws: focusing on smaller, greener cars 4

The new EU Cars Block Exemption rules: the real effects are yet to be felt 4

Consumer Credit Directive: possible effects fueled by speculations 4

CHAPTER 4 CUSTOMER FOCUS 4

Introduction 4

Motor finance providers face two customer tiers 4

First-tier customers: traditional dealers and alternative car retailers 4

Traditional car dealerships are undergoing increasing consolidation 4

New regulations and industry competition are responsible for recent dealer consolidation 4

The threat posed by alternative car retail outlets is as yet uncertain 4

Non-automotive companies are queuing in the wings, but the market could be tougher than expected 4

What do dealers want: identifying trends in the relationship between dealers and their finance providers 4

Speed of credit decisions and financial incentives are on top of dealers’ agendas 4

Second-tier customers: car buyers 4

Profiling the end customer - personal loans and hire purchase agreements 4

CHAPTER 5 COMPETITIVE DYNAMICS 4

Introduction 4

The competitive environment 4

Traditional market players 4

The balance of power between independent and captive finance providers has changed dramatically over the last 15 years 4

Potential threats to POS finance providers 4

Acquiring dealer custom 4

Acquiring dealer custom is becoming progressively harder for most independent finance houses 4

Non-standard lending: a growth area 4

Retaining dealer custom 4

Dealer satisfaction remains high 4

Two factors are the key to providing an excellent service 4

Cross-selling additional products at the point of sale 4

Point of sale providers fail to take full advantage of cross-selling opportunities 4

Cross selling and direct finance providers 4

CHAPTER 6 THE FUTURE DECODED 4

Introduction 4

Datamonitor’s forecasting view 4

Additional forecasting scenario 4

Growth in PoS motor finance gross advances will continue at steady levels 4

Hire purchase will continue to dominate motor finance at the point of sale, but other products exhibit stronger growth 4

Alternative forecasts 4

Pessimistic scenario 4

Optimistic scenario 4

CHAPTER 7 APPENDIX 4

Supplementary data tables 4

Data tables derived from Datamonitor’s UK Motor Finance 2003 B2B survey 4

Data tables derived from Datamonitor’s IMPACT 2002 (Wave 3) survey 4

Additional data tables 4

Further information 4

Datamonitor’s research methodology 4

Datamonitor’s IMPACT 2002 study 4

MORI Financial Services data 4

Datamonitor’s UK Motor Finance 2003 B2B survey 4

Datamonitor’s loans and credit forecasting methodology 4

Definitions of finance options available at the point of sale 4

Useful links 4

Datamonitor’s bespoke research capabilities 4

Additional recommended reading 4

SPP writing team 4

How to contact experts in your industry 4

LIST OF TABLES

Table 1: Outstanding consumer credit balances by sector, 1998-2002 4

Table 2: Gross advances in consumer credit by sector, 1998-2002 4

Table 3: Value of financing extended at point of sale for private car buyers in the UK, 1998-2002 4

Table 4: New and used car prices, 1998-2002 4

Table 5: New car registrations in the UK, 1998-2002 4

Table 6: Point of sale car finance penetration levels in the new car market, 1998- 2002 4

Table 7: PoS finance penetration levels in the used car market, 1998-2002 4

Table 8: Value of point of sale finance extended to private buyers of new cars in the UK, 1998-2002 4

Table 9: Value of point of sale finance extended to private buyers of used cars in the UK, 1998-2002 4

Table 10: Market share of UK franchised outlets by manufacturer, 1995-2001 4

Table 11: Advertised finance options by online car retailer, August 2003 4

Table 12: Point of sale finance arrangements for top twenty manufacturers in the UK, 1993 4

Table 13: Point of sale finance arrangements for top twenty manufacturers in the UK, 1998 4

Table 14: Point of sale finance arrangements for top twenty manufacturers in the UK, 2003 4

Table 15: Gross advances by point of sale and direct providers, 1998-2002 4

Table 16: Direct lenders advertising car finance, 1998 & 2003 4

Table 17: Value of the market for non-standard point of sale motor finance, 1998-2002e 4

Table 18: Forecasting gross advances in the UK PoS motor finance market, 2003f-2007f 4

Table 19: Forecasted motor finance gross advances by product, 2002-2007f 4

Table 20: Forecasting gross advances in the UK point of sale motor finance market, 2003-2007f 4

Table 21: “As a product, which of the following statements best describes your attitude towards PCPs?” 4

Table 22: “What is the most important attribute of a point of sale finance provider?” 4

Table 23: “When contacting your finance provider, how long does it typically take to solve your query/make a lending decision?” 4

Table 24: “How would you most like to be incentivized by the company providing your point of sale finance?” 4

Table 25: “How many finance providers do you currently have a relationship with?” 4

Table 26: “What type of company is your primary finance provider?” 4

Table 27: “How happy are you with your primary finance provider?” 4

Table 28: “In general, over the last 18 months, has the level of service/ sales support and the rate of commission/ bonuses you received from your finance providers increased, decreased or stayed the same?” 4

Table 29: “Have you changed point of sale finance providers in the last 18 months?” 4

Table 30: “If you haven’t changed provider in the last 18 months, why is this the case?” 4

Table 31: “If you haven’t changed provider in the last 18 months, why is this the case?” 4

Table 32: “When contacting your finance provider, how long does it typically take before you are speaking to the right person?” 4

Table 33: “How often do you want to see your finance provider?” 4

Table 34: “Of the customers who take out finance at the point of sale to fund their car purchase, approximately what proportion also take out the following at the same time?” 4

Table 35: Market share of leading independent finance motor finance providers at the point of sale in terms of gross advances, 2002 4

Table 36: Percentage of UK adults who have purchased financial products in the last 12 months, 2002 4

Table 37: Methods used by UK adults to arrange finance or loan during the last 12 months 4

Table 38: Adults who have arranged a personal loan for new and used cars by age bracket, 1998 and 2002 4

Table 39: Adults who have arranged a personal loan for new and used cars by gender, 1998 and 2002 4

Table 40: Adults who have arranged a personal loan for new and used cars by income bracket, 1998 and 2002 4

Table 41: Adults who have arranged a hire purchase agreement for new and used cars by age bracket, 1998 and 2002 4

Table 42: Adults who have arranged a hire purchase agreement for new and used cars by gender, 1998 and 2002 4

Table 43: Adults who have arranged a hire purchase agreement for new and used cars by income bracket, 1998 and 2002 4

Table 44: Number of UK franchised dealer outlets by manufacturer, 1995-2001 4

Table 45: Indexed forecast of gross advances in the UK PoS motor finance market by product, 1998-2007f 4

Table 46: Datamonitor’s UK Motor Finance 2003 B2B survey questions 4

Table 47: Historic and implied unemployment claimant count, 1998-2007f 4

Table 48: Historic and implied nominal GDP, 1998-2007f 4

Table 49: Historic and implied Bank of England base rates, 1998-2007f 4

Table 50: Historic and applied average UK house prices, 1998-2007f 4

Table 51: Historic and implied new car registrations, 1998-2007f 4

LIST OF FIGURES

Figure 1: The number of UK franchised dealer outlets has been steadily declining, 1995-2001 4

Figure 2: Majority of dealers have a relationship with more than 3 finance providers, July 2003 4

Figure 3: The average UK adult owed £3,383 in 2002 4

Figure 4: Outstanding consumer credit balances have surged upwards over the last five years, 1998-2002 4

Figure 5: Over the last five years there have been noticeable variations in growth among the different product sectors in the consumer credit market, 1998-2002 4

Figure 6: Point of sale finance has failed to capitalize on the booming consumer credit market, 1998-2002 4

Figure 7: Credit cards and unsecured personal loans continue to dominate new business, 1998-2002 4

Figure 8: PoS finance continued to lose its share of the consumer credit market, 1998-2002 4

Figure 9: Motor finance continued on the road to modest recovery, 1998-2002 4

Figure 10: Used car sales considerably outnumber new car sales in the UK, 1998-2002 4

Figure 11: Value of financing at the point of sale for new cars in the UK has grown considerably, 1998-2002 4

Figure 12: New car registrations were down by seven per cent in 2003 compared with the previous year, April 2002 - April 2003 4

Figure 13: Growth in gross advances for new car finance has outpaced the rise in new car registrations in the UK, 1998-2002 4

Figure 14: Value of financing at the point of sale for used car buyers has shown signs of recovery, 1998-2002 4

Figure 15: Used car sales in the UK have exhibited a steady growth, 1998-2002 4

Figure 16: The price of an average used car in the UK has fallen sharply, 1998-2002 4

Figure 17: Hire purchase continues to dominate new car finance market, 1998-2002 4

Figure 18: In 2002 market share of hire purchase has declined slightly for the first time since 1998 4

Figure 19: PCPs have seen their market share increase in 2002 for the first time since 1998 4

Figure 20: UK dealers seem to view the future of PCPs in a positive light, July 2003 4

Figure 21: Both personal loans and leasing have increased their market share, albeit insignificantly, 1998-2002 4

Figure 22: Hire purchase agreements dominate point of sale used car finance, 1998-2002 4

Figure 23: Market share of hire purchase agreements in used car finance sector has noticeably fallen since 2001, 1998-2002 4

Figure 24: Personal loans have shown strong growth since 1998, increasing their market share to seven per cent in 2002 4

Figure 25: Finance houses have two customer tiers: the car dealer and the car buyer 4

Figure 26: The number of UK franchised dealer outlets has been steadily declining, 1995-2001 4

Figure 27: Only Honda, Hyundai, Mercedes and Mini have increased their number of franchised outlets, 1995-2001 4

Figure 28: UK dealers highly value the speed of credit decisions, high commissions and the overall package offered to car buyers, July 2003 4

Figure 29: Majority of dealers have to wait 20 minutes or longer for a finance provider to solve their query or make a lending decision, July 2003 4

Figure 30: The overall package value has grown in importance for dealers, July 2002 - July 2003 4

Figure 31: Car purchase accounts for nearly a half of all finance or loans taken out by UK adults in the last 12 months, 2002 4

Figure 32: The average age of a customer most likely to take out a hire purchase agreement to finance a car has fallen slightly since 1998, 1998 and 2002 4

Figure 33: There is still a considerable difference between the number of female and male customers taking out hire purchase agreements to finance a car, 1998 and 2002 4

Figure 34: The average customer taking out a hire purchase agreement in 2002 was more affluent than in 1998, 1998 and 2002 4

Figure 35: The average age of a customer most likely to take out a personal car loan has risen slightly since 1998, 1998 and 2002 4

Figure 36: The number of female customers taking out a personal car loan has increased since 1998, 1998 and 2002 4

Figure 37: The average customer taking out a personal car loan in 2002 was more affluent than in 1998, 1998 and 2002 4

Figure 38: Blackhorse Motor Finance has the biggest individual share of the independent motor finance market at the point of sale, 2002 4

Figure 39: Personal loans have experienced very strong rates of growth in terms of gross advances, 1998 - 2002 4

Figure 40: Traditional high-street lenders are the most popular finance or loan providers for the majority of UK adults, 2002 4

Figure 41: Strong brand image has been driving direct lenders forward 4

Figure 42: Alliance & Leicester and AA are only some of the direct lenders promoting vehicle-specific finance through their web pages 4

Figure 43: Northern Rock’s ‘together’ product, August 2003 4

Figure 44: The majority of dealers chose a captive company as their primary finance provider, July 2003 4

Figure 45: Majority of dealers have a relationship with more than 3 finance providers, July 2003 4

Figure 46: The hierarchy of motor finance, 2003 4

Figure 47: The level of satisfaction with their finance providers has grown among dealers, July 2002 - July 2003 4

Figure 48: Contractual agreements are the main hurdle in dealer’s inability to change their existing finance providers, July 2003 4

Figure 49: The number of dealers unable to switch their finance providers due to a contractual agreement has increased, July 2002 - July 2003 4

Figure 50: For the majority of dealers the service delivered by their finance providers has kept the required standards, July 2002 4

Figure 51: Nearly 60 per cent of dealers interviewed in 2003 were speaking to the right person instantly, compared with 29 per cent in the previous year, July 2002 - July 2003 4

Figure 52: Most dealers would prefer to see their finance provider at least once a month, July 2003 4

Figure 53: Break down cover service packages and extended warranty have out-performed other products in terms of market penetration, July 2003 4

Figure 54: A number of economic factors will be responsible for slow growth of point of sale motor finance to 2007f 4

Figure 55: After recovering from the 1999-2000 market downturn, future growth is expected to be consistent but steady, 1998 - 2007f 4

Figure 56: Hire purchase will continue to dominate the point of sale motor finance market but leasing and personal loans will achieve the best growth rates, 2002-2007f 4

Figure 57: Gross advances in leasing and personal loans will grow fastest over next five years, 1998-2007f 4

Figure 58: A number of economic factors will have a detrimental impact on the point of sale motor finance market under a pessimistic view of the UK economy, 2003f-2007f 4

Figure 59: Under a pessimistic scenario, forecasted growth in the point of sale motor finance stands at only 3.5 per cent, 2002 to 2007f 4

Figure 60: A number of economic factors will have a positive impact on the point of sale motor finance market under an optimistic view of the UK economy, 2003f-2007f 4

Figure 61: Optimistic forecast predicts future CAGR of 4.5 per cent in the point of sale motor finance market, 2002-2007f 4

Figure 62: Product aggregations used within this report 4

Abstract

Introduction:
Spurred on by low interest rates, the consumer credit market has soared in recent years. But while direct lenders have reaped the rewards of this growth, the point of sale motor finance has seen its growth slow. So, what will the market look in five years time and what should finance providers do to guarantee their future survival? UK Motor Finance 2003 provides the answers to these questions.

Scope:
* Sizes the UK's point of sale motor finance market, individually focusing on different product categories.

* Examines two-tiered relationship between finance providers and dealers and car buyers, focusing on historic and future trends.

* Estimates market share of leading independent point of sale motor finance providers in terms of gross advances in 2002

* Provides gross advances forecasts to 2007 under 3 different scenarios for the total motor finance market, as well as individual product categories.

Report Highlights:
In terms of gross advances, the UK motor finance sector stood at £11.7 billion in 2002, growing by 21.3 per cent since the market downturn of 1999-2000. Despite this increase, its share of the total consumer credit market was down to just 6 per cent. Unsecured personal loans, credit cards and overdrafts have all achieved exceptional growth rates.

By the end of 2002, independent finance providers accounted for just 50.5 per cent of the point of sale motor finance market. The independent sector was dominated by the 'big four', with Blackhorse Motor Finance controlling the largest individual market share.

Under Datamonitor's neutral forecast, growth in motor finance gross advances will stabilize at 4.1 per cent per year on average over the next five years, reaching £14.1 billion in 2007. However, should the UK economic situation falter, the motor finance market will face a very different future.

Reasons to Purchase:
* Gain a valuable insight into dealers' attitude towards their finance providers with the help of Datamonitor's Motor Finance 2003 B2B survey.

* Benchmark your company against the major players in the motor finance market and understand the threat posed by direct lenders.

* Plan your future strategy with confidence using Datamonitor's forecasts of the UK's motor finance gross advances in the years to 2007

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UK Motor Finance 2003

Table of Contents

Abstract