Table of Contents
Executive Summary
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- The Market
- Value of car finance contracts grew by 3% in 2019…
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- Figure 1: Volume and value of new consumer POS car finance contracts, 2015-19
- …but COVID-19 deals a heavy blow to a struggling market
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- Figure 2: Forecast of value of new consumer POS car finance contracts, 2015-25
- Used car sales drive the market
- 2019 proved to be a better year than 2018 and 2017 for car sales
- Emergency measures amid long-term changes
- Legislative changes will increase demand for green vehicles
- Impact of COVID-19 on car finance
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- Figure 3: Expected impact of COVID-19 on car finance, short, medium and long term, 9 June 2020
- Short term
- Medium term
- Long term
- Companies and Brands
- Premium brands increasingly popular in the new car market
- In-house finance divisions are the norm among large manufacturers
- Providers strive to attract buyers
- Online channels gain importance
- Buy-now-pay-later solutions explored
- Barclays Partner Finance withdraws from the car finance market
- The consumer
- 84% of adults have a driving licence
- 28% used loans or car finance to purchase their car
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- Figure 4: How paid for car, 2019 and 2020
- 43% plan to buy a new car in the next 12 months, down from 50% in 2019
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- Figure 5: Plans to buy or lease a car within the coming year, 2019 and 2020
- Prospective funding methods largely unchanged since 2019
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- Figure 6: Expected method of funding acquisition of car, by condition of car planning to get, 2019 and 2020
- People with experience of car finance likely to use it again
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- Figure 7: Proportion who have previously used finance type, by drivers who used a loan or finance/leasing agreement to obtain current car, May 2020
- Manufacturer dealerships are the most trusted type of provider
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- Figure 8: Trust in providers of car finance, May 2020
- Consumers set to be increasingly price-sensitive
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- Figure 9: Most important features when choosing car finance, May 2020
- What we think
The Impact of COVID-19 on Car Finance
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- Short, medium and long-term impact on the industry
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- Figure 10: Expected impact of COVID-19 on car finance, short, medium and long term, 9 June 2020
- Short term
- Medium term
- Long term
- Opportunities and Threats
- Lockdown and social distancing restrictions cause extreme disruption to the market
- Recession will result in falling car sales
- Online channels can cut costs and extend the reach of providers
- Competition and low margins likely to result in market withdrawals
- Consumers will be price-driven but will also seek flexibility
- Support, sustainability and responsible lending are key
- Impact on the market
- Sales will plummet in 2020, but recovery is expected from 2021
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- Figure 11: Forecast of the consumer POS car finance market, by volume and value, 2020-25
- Even prior to COVID-19 growth was expected to be modest
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- Figure 12: Forecast of volume of new consumer POS car finance contracts, 2015-25
- Figure 13: Forecast of value of new consumer POS car finance contracts, 2015-25
- Government and industry-wide intervention is likely
- Payment holidays and extensions can result in cashflow challenges…
- …and unsustainable debt
- Shifts in consumer behaviour
- Significant numbers of households have seen their finances affected
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- Figure 14: Impact of COVID-19 on household finances, 21-28 May 2020
- 30% have put off making major purchases
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- Figure 15: Impact of COVID-19 on consumers’ plans, by age, 21st- 28th May 2020
- Confidence will take time to recover
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- Figure 16: The financial confidence index, January 2015-May 2020
- Lockdown and social distancing will change consumer perceptions
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- Figure 17: Impact of COVID-19 on consumer behaviours, February-April 2020
- Impact on key consumer segments
- Higher-income households are worried, but some will receive a financial boost
- Parents are more likely to see the need for a car
- Attracting new and young drivers presents opportunities and challenges
- People who need cars for work are key in the short and mid-term
- How a COVID-19 recession will reshape the market
- Rising unemployment will hit confidence and long-term lending
- What can we learn from previous slowdowns?
- A different type of recession for consumer credit
- COVID-19: Market context
Issues and Insights
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- Fierce competition is expected in the short term…
- The facts
- The implications
- …but a long-term move towards sustainability and profitability is key
- The facts
- The implications
The Market – What You Need to Know
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- COVID-19 deals a heavy blow to a struggling market
- Used car sales drive the market
- 2019 proved to be a better year than 2018 and 2017 for car sales
- Emergency measures amid long-term changes
- Legislative changes will increase demand for green vehicles
Market Size and Forecast
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- Value of car finance contracts grew by 3% in 2019…
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- Figure 18: Volume and value of new consumer POS car finance contracts, 2015-19
- …but COVID-19 has dealt a heavy blow
- Outlook: Sales will plummet in 2020…
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- Figure 19: Forecast of the consumer POS car finance market, by volume and value, 2020-25
- …but a bounce-back is expected from 2021
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- Figure 20: Forecast of volume of new consumer POS car finance contracts, 2015-25
- Figure 21: Forecast of value of new consumer POS car finance contracts, 2015-25
Market Segmentation
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- Used car sales drive the market
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- Figure 22: Volume and value of consumer POS car finance contracts, by new and used cars, 2015-19
- Vast majority of new private sales were funded by dealer finance in 2019
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- Figure 23: Proportion of new private car sales bought with a POS finance agreement, 2015-19
- Used car sales increasingly funded by POS finance
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- Figure 24: Proportion of used car sales bought with a car finance agreement, 2015-19
Market Drivers
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- 2019 proved to be a better year than 2018 and 2017 for car sales…
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- Figure 25: Volume of new car registrations and used car sales via dealers, 2015-19
- …but 2020 expected to be worst year in decades
- Proportion of private registrations remains unchanged
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- Figure 26: Number of new car registrations, by type of customer, 2015-19
- Car parc grew by 1.2% in 2019…
- …with electric vehicles showing strong growth
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- Figure 27: Number of licensed cars in the UK, by fuel type, 2014-19
- Cost of car ownership continues to increase…
- …which encourages hiring and sharing schemes
- Competition and innovation stemming from unsecured loans market…
- …but demand for new consumer credit falls as cautious consumers repay debt
The Regulatory Environment
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- COVID-19: FCA introduces temporary relief measures
- FCA announces plans to tackle commission concerns
- Legislative changes will increase demand for green vehicles
- Changes in the way UK Road Tax (VED) is calculated
- New restrictions on petrol and diesel cars announced
- London congestion charges and passenger fares to help cover TfL bailout
Companies and Brands – What You Need to Know
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- Premium brands increasingly popular in the new car market
- In-house finance divisions are the norm among large manufacturers
- Providers strive to attract buyers
- Online channels gain importance
- Buy-now-pay-later solutions explored
- Barclays Partner Finance withdraws from the car finance market
The Main Suppliers
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- Premium brands increasingly popular in the new car market
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- Figure 28: Share of new car registrations, by manufacturer, 2018 and 2019
- In-house finance divisions are the norm among large manufacturers
Competitive Strategies
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- Providers strive to attract buyers
- Online channels gain importance
- Buy-now-pay-later solutions explored…
- …even before COVID-19
- Barclays Partner Finance withdraws from the car finance market
- Santander Finance partners with MG Motor UK
- Mazda introduces scrappage incentive
- Closure of dealerships likely to continue
- Moneybarn fined for ‘unsustainable’ repayment plans and practices
Advertising and Marketing Activity
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- Pre-COVID-19 above-the-line adspend on car finance products falls
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- Figure 29: Total above-the-line, online display and direct mail advertising expenditure on car finance products, 2015/16-2019/20
- Digital advertising is the dominant channel
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- Figure 30: Total above-the-line, online display and direct mail advertising expenditure on car finance products, by media type, 2019/20
- Top 10 advertisers account for 72% of adspend
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- Figure 31: Top 10 advertisers of above-the-line, online display and direct mail advertising expenditure on car finance products, 2019/20
- Nielsen Ad Intel coverage
The Consumer – What You Need to Know
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- 14% of licence holders don’t currently drive a vehicle
- 28% used loans or car finance to purchase their car
- 43% planning a new car in next 12 months, down from 50% in 2019
- People with experience of car finance likely to use it again
- Manufacturer dealerships are the most trusted type of provider
- Consumers set to be increasingly price-sensitive
Licence Holders and Car Ownership
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- 84% of adults have a driving licence
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- Figure 32: Driving licence ownership, May 2020
- 14% of licence holders don’t currently drive a vehicle
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- Figure 33: Type of vehicle driven, May 2020
- Majority of drivers are key decision-makers
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- Figure 34: Registered keeper of car driven, May 2020
- Nearly two fifths of cars acquired less than two years ago
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- Figure 35: Length of time ago acquired car, May 2020
Funding Method at Last Arrangement/Purchase
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- 28% of drivers used loans or car finance to purchase their car
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- Figure 36: How paid for car, 2019 and 2020
- Part-exchange of an older vehicle could help drive sales of new cars
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- Figure 37: How paid for car, by condition and length of time ago acquired it, May 2020
Car Buying Plans and Expected Method of Finance
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- 43% of licence holders are planning to buy/lease a car within the next year…
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- Figure 38: Plans to buy or lease a car within the coming year, May 2020
- …significantly less than in 2019
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- Figure 39: Plans to buy or lease a car within the coming year, 2019 and 2020
- Prospective funding methods largely unchanged since 2019
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- Figure 40: Expected method of funding acquisition of car, by condition of car planning to get, 2019 and 2020
- 28% of potential buyers plan to use a loan, car finance or lease agreement
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- Figure 41: Expected method of funding acquisition of car, by condition of car planning to get, May 2020
Use of and Interest in Car Finance
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- 55% have used some form of car finance
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- Figure 42: Use of car finance, May 2020
- Consumers point to HP and personal loans as most widely used products
- People with experience of car finance likely to use it again
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- Figure 43: Proportion who have previously used finance type, by drivers who used a loan or finance/leasing agreement to obtain current car, May 2020
Trust in Providers of Car Finance
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- Manufacturer dealerships are the most trusted type of provider
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- Figure 44: Trust in providers of car finance, May 2020
- Current bank has privileged access to customers
- A time for innovative partnerships
Interest in Car Finance Features
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- Consumers to be extremely price-driven
- Opportunity for providers to customise deals
- Transparency is key, especially post-COVID-19
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- Figure 45: Most important features when choosing car finance, May 2020
- TURF analysis: a combination of flexible features can appeal to 91% of potential customers
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- Figure 46: Interest in car finance features, TURF Analysis, May 2020
Appendix – Data Sources, Abbreviations and Supporting Information
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- Abbreviations
- Consumer research methodology
- TURF analysis methodology
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- Figure 47: Interest in car finance features – TURF analysis table output, May 2020
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