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Car Finance - UK - June 2018

Car Finance - UK - June 2018

“The number of car finance contracts for new cars decreased in 2017, in the first period of real struggle since the market exploded at the start of the decade. In part, this is due to the cyclical nature of the product, with recent customers mid-contract and likely to return to market in the next few years. However, wider economic concerns could lead to consumers holding onto older cars for longer. Lenders need to ensure car finance continues to appeal to existing customers, while also addressing the issue of residuals by maintaining the expansion of PCP in the used car segment.”

– Rich Shepherd, Senior Financial Services Analyst

This Report looks at the following areas:

Use of consumer credit to access car finance is a worrying sign
Understanding is high but there’s room for better education
Subscriptions can satisfy young drivers’ demand for convenience


What you need to know
Products covered in this Report
EXECUTIVE SUMMARY
The market
Figure 1: Forecast of value of car finance contracts sold through dealerships (private sector only) – Fan chart, 2012-22
Figure 2: Sales of new and used car volumes, by channel, 2013-17
Companies and brands
Figure 3: Car finance providers used, March 2018
Figure 4: Total above-the-line, online display and direct mail advertising expenditure on car finance and leasing products,
2015/16-2017/18
The consumer
Figure 5: Car ownership, March 2018
Figure 6: How people paid for the last car they bought or leased, March 2018
Figure 7: Type of car finance used, March 2018
Figure 8: Sources of information used to research most recent car finance product, March 2018
Figure 9: Attitudes towards current car finance product, March 2018
Figure 10: Attitudes towards car finance, March 2018
What we think
ISSUES & INSIGHTS
Use of consumer credit to access car finance is a worrying sign
Understanding is high but there’s room for better education
Subscriptions can satisfy young drivers’ demand for convenience
THE MARKET
What You Need to Know
Growth in car finance contracts plummeted in 2017
Car finance accounts for 88% of private new car sales
Car sales fell in 2017, while the FCA is continuing to investigate the car finance market
Almost half of all sales are arranged through franchised dealers
Market Size and Forecast
Growth in car finance contracts fell in 2017…
Figure 11: Volume and value of car finance contracts sold through dealerships (private sector only), 2013-17
…but the average value grew by 6%
Lending forecast to reach £49 billion in 2022…
Figure 12: Forecast of value of car finance contracts sold through dealerships (private sector only) – Fan chart, 2012-22
Figure 13: Forecast of value of car finance contracts sold through dealerships (private sector only), 2012-22
…supported by steady growth in volume
Figure 14: Forecast of volume of car finance contracts sold through dealerships (private sector only) – Fan chart, 2012-22
Figure 15: Forecast of volume of car finance contracts sold through dealerships (private sector only) – Fan chart, 2012-22
Forecast methodology
Market Segmentation
The market was reliant on used car sales for growth last year
Figure 16: Volume and value of private car finance contracts sold via dealerships, segmented by new and used cars, 2013-17
Small increase in penetration of car finance
Figure 17: Proportion of new private car sales bought with a car finance agreement, 2013-17
Figure 18: Proportion of used car sales bought with a car finance agreement, 2013-17
Market Drivers
Car sales fell in 2017
Figure 19: New and used car market volumes, 2012-17
Figure 20: UK new and used car sales, by volume, 2012-22
FCA investigation into car finance continues…
…but a March 2018 update was encouraging
Half plan to buy a car in the next three years…
Figure 21: Intention of purchasing a car/s in the next three years, 2015-17
…and new cars are most in demand
Figure 22: Likelihood of new or used purchase, December 2017
A base rate rise, but borrowing conditions remain favourable
Channels to Market
Almost half of all sales are arranged through franchised dealers
Figure 23: Sales of new and used car volumes, by channel, 2013-17
COMPANIES AND BRANDS
What You Need to Know
Ford is the biggest manufacturer of new cars in the UK
Companies are improving online and used car propositions
PCPs account for the vast majority of adspend
Market Share
Dealerships dominate the car finance point of sale
Figure 24: Car finance providers used, by sources of information used to research most recent car finance product, March 2018
Ford is the biggest manufacturer of new cars in the UK
Figure 25: Manufacturer shares of new car registrations, 2017
Competitive Strategies
Firms focus on developments in online services…
…and used car solutions
More competition in comparison
Santander signs deals to provide finance for some British classics
Drover and Drive-Hive introduce differing subscription models
Advertising and Marketing Activity
PCPs account for the vast majority of adspend
Figure 26: Total above-the-line, online display and direct mail advertising expenditure on car finance and leasing products, 2015/16-2017/18*
CarFinance 247 is the highest spending advertiser in car finance
Figure 27: Top 10 advertisers of above-the-line, online display and direct mail advertising expenditure on car finance and leasing products, 2015/16-2017/18*
Digital advertising is the dominant promotions channel
Figure 28: Total above-the-line, online display and direct mail advertising expenditure on car finance and leasing products, by media type, 2017/18*
Alternative credit products benefit from far higher, if falling, adspend
Figure 29: Total above-the-line, online display and direct mail advertising expenditure on credit cards, unsecured loans and
secured loans, 2015/16-2017/18*
Nielsen Ad Intel coverage
THE CONSUMER
What You Need to Know
Two thirds of consumers own a car
22% used car finance to buy their last car
Car dealerships have a stranglehold on distribution of car finance
Consumers are very confident that they understand their finance deal
Borrowing for cars is still taboo for many
Car Ownership
Two thirds of consumers own a car
Figure 30: Car ownership, March 2018
Used cars are slightly more common than new ones
Figure 31: Car acquisition, March 2018
38% of those who don’t own a car can drive
Figure 32: Car access among non-car owners, March 2018
How People Paid for Last Car Purchase
A quarter bought their last car with car finance, but savings are still key
Figure 33: How people paid for the last car they bought or leased, March 2018
Some signs of confusion over car finance arrangements
Younger drivers and higher earners most likely to use car finance…
Figure 34: Use of car finance/lease agreement to fund most recent car purchase, by age and annual household income,
March 2018
…which was used for 44% of new cars bought in the last two years
Figure 35: Use of savings and car finance/lease agreement to fund most recent car purchase, by type of car purchase,
March 2018
A fifth used more than one source of funding
Figure 36: Number of sources of funding used to purchase last car, March 2018
HP and PCP dominate the car finance sector
Figure 37: Type of car finance used, March 2018
Car Finance Research
Just 23% consulted a PCW to research finance options
Figure 38: Sources of information used to research most recent car finance product, March 2018
Recommendations can have a big impact
Figure 39: Sources of information used to research most recent car finance product, by age, March 2018
Half used just one source of information
Figure 40: Number of sources of information used to research most recent car finance product, March 2018
Attitudes towards Current Car Finance Product
Understanding of terms is strong…
Figure 41: Understanding of current car finance product, March 2018
…but is everyone getting the best deal?
Figure 42: Response to the statement “I think that my current car finance contract is the cheapest way I could buy my car”, by socio-economic group, March 2018
22% used unsecured credit to pay for a finance deposit…
Figure 43: Considerations when arranging last car finance product, March 2018
…but fewer than one in three considered it to buy their car outright
Repeat business to drive future growth
Figure 44: Response to the statement “I plan to use the same type of car finance that I have now to buy my next car”, by age, March 2018
Attitudes towards Car Finance
Borrowing for cars is still taboo for many
Figure 45: Attitudes towards car finance, March 2018
An opportunity to push packaged deals
Is car ownership on its way out?
Figure 46: Agreement with the statement “I would be happy to lease rather than own a car if it meant I could afford a better car”,by age, annual household income, and type of car owned, March 2018
New car owners have greater affinity for car finance
Figure 47: Agreement with attitudes towards car finance, by type of car owned, March 2018
Open Banking could appeal to some car shoppers
APPENDIX
Data Sources, Abbreviations and Supporting Information
Abbreviations
Consumer research methodology
Market Size and Forecast
Figure 48: Forecast of private car finance plans (value) – Best- and worst-case scenarios, 2017-22
Figure 49: Forecast of private car finance plans (volume) – Best- and worst-case scenarios, 2017-22
Forecast methodology
RESEARCH METHODOLOGY
UK Research Methodology
Sampling and weighting
Brand & Social Media Research
Trade research
Desk research
Statistical Forecasting
The Mintel fan chart

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