Car Finance - UK - December 2007

ISSUES IN THE MARKET
Key issues
Abbreviations
INSIGHTS AND OPPORTUNITIES
New lending products for the used car market
Discounted finance on used cars?
Change consumer attitudes to cash purchasing
POS finance suppliers may consider going direct
MARKET IN BRIEF
Car finance – a rate sensitive market
Figure 1: Value and volume of the car finance market, 2001-07
An uncertain outlook
Polarisation in consumer credit quality
Withdrawal of some direct lenders
Car dealers need profit, finance companies need penetration
More product innovation required
Unsecured lenders start worrying about rising debts
An opportunity for car manufacturers and dealers?
Used cars – a missed opportunity
FAST FORWARD TRENDS
 WIKI WORLD
What's it about?
What we've seen
Specifics
What next?
 NO MIDDLEMAN
What's it about?
What we've seen
Specifics
What next?
INTERNAL MARKET ENVIRONMENT
Key Points Summary
Cars – a depreciating asset
Rising number of cars on the road
Figure 2: Number of cars in use (car parc) in the UK, 2001-07
Figure 3: Cars in use (car parc), 2001-07
New car registrations
Figure 4: Trend in private, business and fleet new car registrations, 2001-07
Used car sales
Figure 5: Used car sales, 2001-07
Figure 6: Retail new and used car sales (units), 2001-07
Over-production, residual values and nearly-new cars
Part exchange and the funding gap
Car pricing and car finance
Discounted manufacturer finance
Captive finance market
Rate headlining
Figure 7: Actual personal loan rates paid compared with advertised rates, Feb-June 2005
Figure 8: Direct lender personal loan headline APR rates, 13 November 2007
Changes to the Consumer Credit Act
Treating customers fairly
BROADER MARKET ENVIRONMENT
Key Points Summary
GDP, consumer expenditure and savings
Figure 9: Forecast economic indicators, 2007-12
Figure 10: Comparison of trend in new car sales and interest rates, 2001-07
Rising debt levels
Figure 11: Consumer credit outstanding and secured borrowings, 1997-2006
The increasing burden of debt
Figure 12: Degree to which consumers are able to cope with bills and credit commitments, 2007
The distribution of debt
Figure 13: Percentages of households with secured and unsecured debt, 1995-2006
Attitudes towards debt and further borrowing
Figure 14: Attitudes towards current and future borrowing, 2005 and 2007
Figure 15: Attitudes towards current and future borrowing, by gender, age and socio-economic group, March 2007
Changing consumer attitudes towards debt
Figure 16: Agreement with selected financial lifestyle statements, 1993-2006
Number of IVAs rises sharply
Confidence linked to interest rates
Figure 17: Bank base rate and consumer confidence, 1982-2007
Sub-prime threat to motor finance
Decline in acceptance rates
COMPETITIVE CONTEXT
Key Points Summary
Car purchasing methods
Figure 18: Car financing, July 2007
Remortgaging and mortgage equity release
Figure 19: Reasons for releasing equity, February 2007
Secured lending
Figure 20: Reasons for taking out a secured loan, December 2006
Cash savings and investment products
Figure 21: Individual trusts’ private sector holding of Sterling assets, 2001-05
Figure 22: Current account and savings product ownership, October 2006
Figure 23: Savings product ownership, by gender, age and socio-economic group, October 2006
STRENGTHS AND WEAKNESSES IN THE MARKET
Strengths
Weaknesses
WHO’S INNOVATING?
Key Points Summary
A lack of product innovation
Motor loans and voluntary termination
Pay-for-use finance
Innovation in personal loans
Cash-back loans
Figure 24: Annual moneyback payment, according to loan size, November 2007
Speed and convenience
Flexibility becoming more important
Social lending
Training to arrest decline in dealer finance
Risk-based pricing on the way
TRADE PERSPECTIVE
Motor finance – an uncertain future
The general market outlook
Fears about the consumer
Fears about the trade
Low margins cannot be sustained
Direct lenders suffering too
MARKET SIZE AND FORECAST
Key Points Summary
How cars are financed
Figure 25: Car financing method by new and second-hand car ownership, July 2007
Total car finance market worth £30.8 billion
Figure 26: Car finance market size by value and volume, 2001-07
Figure 27: Car finance market average agreement value, 2001-07
Figure 28: Comparison of trend in car finance agreements and interest rates, 2001-07
Market segmentation
Car dealer finance
Figure 29: Car dealer finance market size by value and volume, 2001-07
Figure 30: Car dealer finance average agreement value, 2001-07
Direct lending – secured and unsecured finance for car purchasing
Figure 31: Direct lending car purchase finance (secured and unsecured) market size by value and volume, 2001-07
Figure 32: Direct lending car purchase finance (secured and unsecured) average agreement value, 2001-07
The balance is shifting
Figure 33: Proportion of car finance agreements/transactions accounted for by secured and unsecured lending, 2007
Unsecured finance products
Secured finance products
Finance penetration
Figure 34: Trend in private, business and fleet new car registrations and finance penetration, 2001-07
 FORECAST
Market set to stagnate over the next five years
Figure 35: Forecast car finance market segments and total Car finance  market, 2001-2012
Factors used in the forecast
SEGMENT PERFORMANCE
Key Points Summary
Share of market volume
Figure 36: Market share of dealer finance and other lending for car purchases (number of agreements), 2001-07
Share of market value
Figure 37: Market share of dealer finance and other lending for car purchases (market value), 2001-07
MARKET SHARE
Key Points Summary
Personal loans
Figure 38: Personal loan market share by company, August 2007
The ‘big five’ cater for half of the market
Car dealer finance
Figure 39: Estimated manufacturer and independent finance company share of new and used car finance market (number of cars financed), 2007
New car finance
Figure 40: Estimated finance company brand shares of the new car finance market (unit sales), 2007
Used car finance
Figure 41: Estimated finance company brand shares of the used car finance market (unit sales), 2007
COMPANIES AND PRODUCTS
Key Points Summary
Vehicle manufacturer finance companies
FCE Bank plc
GMAC Financial Services
Figure 42: GMAC’s retail car finance products, by vehicle brand, 2007
Volk Volkswagen Financial Services (UK)
Other leading players
Independent motor finance companies
Black Horse Motor Finance
Capital Bank Motor
GE Money Motor Finance
Direct lenders
High street banks
Figure 43: Top five major British banking groups and selected subsidiaries, 2006
Recent entrants
Market developments
BRAND COMMUNICATION AND PROMOTION
Key Points Summary
Overall personal loan adspend
Figure 44: Personal loan adspend, 2003-07
Vauxhall top the list of advertisers
Figure 45: Car manufacturer finance adspend, 2003-07
Contract plan adspend slumps
Figure 46: Personal Contract Plans adspend, 2003-07
TV the key medium
Figure 47: Media types used (personal contract plans and car manufacturer finance), year to June 2007
CHANNELS TO MARKET
Key Points Summary
Larger number of outlets for unsecured personal loans
Figure 48: Number of outlets for car finance and personal loans, 2007
Growing use of Internet for personal loans
Figure 49: Use of remote channels in arranging a loan, 2005 and 2006
THE CONSUMER – CAR OWNERSHIP AND FINANCING
Key Points Summary
Car ownership
Figure 50: Car ownership, July 2007
Figure 51: Car ownership, by gender, age, socio-economic group and marital status, July 2007
Treating yourself to a new car
Figure 52: Car ownership, by lifestage, special group, working status and gross annual household income, July 2007
Londoners letting the train take the strain
Figure 53: Car ownership, by TV region, technology usage, Internet usage and newspaper readership, July 2007
A discount for cash?
Figure 54: Car financing methods, July 2007
Money goes to money
Figure 55: Car financing, by gender, age, socio-economic group and marital status, July 2007
Cash popular at the margins
Figure 56: Car financing, by lifestage, special group, working status and gross annual household income, July 2007
Retirees driving the South West’s cash market?
Figure 57: Car financing, by TV region, technology usage, Internet usage and newspaper readership, July 2007
Figure 58: Car financing method, by new and second-hand car ownership, July 2007
THE CONSUMER – KEY PRODUCT FEATURES
Key Point Summary
Reluctance to turn to finance
Figure 59: Important features of finance arrangement/borrowing for car purchase, July 2007
Traditional attitudes live on
Figure 60: Important features of finance arrangement/borrowing for car purchase, by gender, age, socio-economic group and marital status, July 2007
Pre-family look for predictability
Figure 61: Important features of finance arrangement/borrowing for car purchase, by lifestage, special group, working status and gross annual household income, July 2007
Internet users – picking and choosing
Figure 62: Important features of finance arrangement/borrowing for car purchase by TV region, technology usage, Internet usage and newspaper readership, July 2007
Paying more interest to the rates
Figure 63: Important features of car finance by new, second-hand and intended car ownership, July 2007
THE CONSUMER – ATTITUDES AND TARGETING OPPORTUNITIES
Key Point Summary
Scoping the market
Figure 64: Consumer attitudes towards car finance, July 2007
Borrowing – but not from the dealers
Figure 65: Most popular attitudes towards car finance, by gender, age, socio-economic group and marital status, July 2007
Getting the discounts from the dealers
Figure 66: Next-most popular attitudes towards car finance, by gender, age, socio-economic group and marital status, July 2007
Finance a commodity product for high earners
Figure 67: Most popular attitudes towards car finance, by lifestage, special group, working status and gross annual household income, July 2007
Pre-family – the new targets?
Figure 68: Next-most popular attitudes towards car finance, by lifestage, special group, working status and gross annual household income, July 2007
The limitations of selling online
Figure 69: Most popular attitudes towards car finance, by TV region, technology usage, Internet usage and newspaper readership, July 2007
Scope for Scotland?
Figure 70: Next-most popular attitudes towards car finance, by TV region, technology usage, Internet usage and newspaper readership, July 2007
Making the most of the dealership
Figure 71: Attitudes towards car finance arrangements by new, second-hand and intended car ownership, July 2007
From Conservative to Not Bothered
Figure 72: Attitudes towards car finance arrangements by new, second-hand and intended car ownership, July 2007
Figure 73: Attitudes towards car finance arrangements by target group, July 2007
Prospects for new sales among the Conservatives
Figure 74: Car ownership, by target group, July 2007
A fifth of Happy Borrowers turn to personal loans
Figure 75: Means of funding car purchase, by target group, July 2007
Engagement high among Happy Borrowers
Figure 76: Key product features, by target group, July 2007