Car Finance - UK - May 2015

INTRODUCTION
Product definitions and report coverage
Abbreviations
EXECUTIVE SUMMARY
The market
Healthy demand will continue to underpin new sales growth
Figure 1: Volume of point-of-sale (private) car finance plans – Fan chart, 2009-19
Annual car finance advances predicted to rise to £36 billion by 2019
Figure 2: Value of point-of-sale (private) car finance plans – Fan chart, 2009-19
Market factors
Three in four new car sales were funded by point-of-sale dealer finance in 2014
Booming new car sales
Increased compliance costs
Companies, brands and innovation
Most of the major manufacturers fund their own finance operations
Product innovation
Brand reinforcement
Dealers dominate the sale the cars, with limited transactions being generated online
Figure 3: Channels used to purchase last car, February 2015
The consumer
High levels of car ownership in the UK
18% used dealer finance to fund their last car purchase
Figure 4: Method of financing most recent car purchase, February 2014
Consumers look for affordability and convenience when deciding which credit option to use
Figure 5: Influential factors affecting decision to use particular finance option, February 2015
85% of car finance customers would consider using their preferred credit option again
Figure 6: Agreement with statements regarding most recent car finance or loan, ranked in order of significance, February 2015
48% of households are planning to buy a car within the next three years
Figure 7: Likelihood of buying a car within the next three years, February 2015
What we think
ISSUES AND INSIGHTS
Are we becoming a nation of car renters and how long will the boom last?
The facts
The implications
Greater pricing transparency should lead to higher trust levels and greater loyalty
The facts
The implications
Car finance providers have nothing to fear from competition from high street lenders
The facts
The implications
TREND APPLICATION
Trend: Access Anything, Anywhere
Trend: Why Buy?
Trend: Collective Intelligence
MARKET DRIVERS
Key points
UK car sales boom in 2014…
Figure 8: Volume of new car registrations and used car sales via dealers, 2009-15
… but can it be repeated in 2015?
Nearly half of all new car sales are to private customers
Figure 9: New car registrations, by type, 2009-15
Feel-good factor helps drive demand for finance
Margins on loan rates are falling steadily as competition heats up
Figure 10: Average advertised unsecured loan rate, finance house base rate and three-month LIBOR, January 2008-January 2015
Update on consumer credit legislation and the shift towards full authorisation
The added cost of compliance could force some firms to cease offering credit
MARKET SWOT ANALYSIS
Figure 11: Point-of-sale car finance – Market strengths, weaknesses, opportunities and threats, 2015
WHO’S INNOVATING?
Key points
LBG launches secured car finance proposition in new digital drive
Alphera in push to build on recent success with new CRM propositions
New sub-prime products emerge to target increasing numbers of ‘cash-rich, credit-poor’
MARKET SIZE AND FORECAST
Strong rise in demand for car finance
Figure 12: Volume and value of car finance contracts sold through dealerships (private sector only), 2009-14
More than half of all car finance plans are taken out by used car buyers
Figure 13: Volume and value of private car finance contracts sold via dealerships, segmented by new and used cars, 2009-14
Mintel predicts the market to growth at a healthy rate over the next five years
Figure 14: Volume of point-of-sale (private) car finance plans – Fan chart, 2009-19
Figure 15: Value of point-of-sale (private) car finance plans, at current prices – Fan chart, 2009-19
Figure 16: Forecast of the point-of-sale (private) car finance market, by volume and value, 2009-19
MARKET PENETRATION
Key points
Three in four new cars bought with dealer finance in 2014
Figure 17: Proportion of new private car sales bought with a car finance agreement, 2009-14
The growth of PCPs is helping to drive to new car sales…
…but is there potentially a spoke in the wheel?
Car finance accounts for a much smaller share of used car sales
Figure 18: Proportion of used car sales bought with a car finance agreement, 2009-14
MARKET SHARE
Key points
Most car manufacturers have in-house finance operations
Figure 19: Share of new car registrations, by manufacturer, 2013-14
COMPANIES AND PRODUCTS
Specialist providers
Manufacturer subsidiaries
BRAND COMMUNICATION AND PROMOTION
Key points
Limited above-the-line adspend devoted purely to car finance products
Figure 20: Advertising expenditure on car finance and related loan products, 2011-15
Media mix varies from year to year
Figure 21: Advertising expenditure on car finance, by media type, 2013/14-2014/15
Barclays uses direct mail to promote to its unsecured loan as a financing solution for buying a car
Figure 22: Top five advertisers in the car finance market, 2014/15
CHANNELS TO MARKET
Key points
The vast majority of car finance is sold on the forecourt
Figure 23: Channel used to purchase last car, February 2015
CAR OWNERSHIP
Key points
Survey background
Car ownership is determined as much by need as wealth
Figure 24: Car ownership, February 2015
More car owners buy second-hand than new
Figure 25: Condition of car when bought, February 2015
The majority of both new and used cars are sold through dealers
Figure 26: Where last car was bought, February 2015
One in ten non-car owners drive a car belonging to someone else
Figure 27: Proportion of non-car owners who lease or drive a car they do not own, February 2015
METHOD OF FUNDING CAR PURCHASE
Key points
18% used car finance to fund their last car purchase
Figure 28: Method of financing most recent car purchase, February 2014
9% used their credit card
Car finance customers are more likely to part exchange
Figure 29: Method of financing most recent car purchase – Cross-analysis, February 2014
Rise in serial renters
Figure 30: Method of financing most recent car purchase, by condition of car when bought, February 2014
HP is now as popular with used car buyers as new
Figure 31: Method of financing most recent car purchase, by condition of car and length of time ago bought, February 2014
FACTORS INFLUENCING DECISION TO USE CAR FINANCE
Key points
Most plump for a solution that is affordable, convenient and familiar…
Figure 32: Influential factors affecting decision to use particular finance option, February 2015
…but a recommendation also helps to sway choice
PCP and lease plan holders are more likely to become repeat customers
Figure 33: Influential factors affecting decision to use particular finance option, by method of finance used, February 2015
EXPERIENCE OF AND ATTITUDES TOWARD CAR FINANCE
Key points
Survey results suggest high customer satisfaction levels
Figure 34: Agreement with statements regarding most recent car finance or loan, ranked in order of significance, February 2015
64% of customers opting for a PCP or lease agreement say it enabled them to get a better spec of car
Figure 35: Agreement with statements about arranging most recent car finance or loan – Positive experiences, February 2015
Some small variation in the level of customers reporting negative experiences across the three main product types
Figure 36: Agreement with statements about arranging most recent car finance or loan – Negative experiences, February 2015
All three product types share similarly high levels of endorsement
Figure 37: Agreement with statements about arranging most recent car finance or loan – Future consideration and positive endorsement, February 2015
CAR PURCHASING AND LEASING INTENTIONS
Key points
Nearly half of all UK households have plans to buy at least one car within three years…
Figure 38: Likelihood of buying a car within the next three years, February 2015
…of which a significant proportion will use finance to fund the purchase
Figure 39: Proportion of prospective car buyers who used a loan or car finance to fund their last purchase February 2015
Around 6 million households expect to buy a car within the coming year
Figure 40: When expecting to make next car purchase, February 2015
The gap between new and used narrows when it comes to people’s aspirations
Figure 41: Condition of car likely to buy, February 2015
Results indicate a high level of interest in car leasing
Figure 42: Intentions to lease a new or used car within the next 12 months, February 2015
APPENDIX – MARKET SIZE AND FORECAST
Total market forecast - Best- and worst-case scenarios
Figure 43: Forecast of private car finance plans (volume) - Best- and worst-case scenarios, 2014-19
Figure 44: Forecast of private car finance plans (value) – Best- and worst-case scenarios, at current prices, 2014-19
New car sector forecast – Best- and worst-case scenarios
Figure 45: Forecast of private car finance plans (volume) in the new car sector – Best- and worst-case scenarios, 2014-19
Figure 46: Forecast of private car finance plans (value) in the new car sector – Best- and worst-case scenarios, at current prices, 2014-19
Used car sector forecast – Best- and worst-case scenarios
Figure 47: Forecast of private car finance plans (volume) in the used car sector – Best- and worst-case scenarios, 2014-19
Figure 48: Forecast of private car finance plans (value) in the used car sector – Best- and worst-case scenarios, at current prices, 2014-19
Forecast methodology
Fan chart explanation