Car Finance - UK - December 2007

SUMMARY

Abstract

The market for car finance has been a difficult one in recent years. Competition on margins, falling rates on rival lending products, and a fall in demand for new cars have all hit the market size for dedicated car finance products. Over the last year or so, people have also started to show signs of a falling appetite for consumer credit in general - again, making this a difficult market in which to operate.

There are still opportunities, with used car finance a relatively untapped market when compared to the deals available on new cars. A steadily rising population, too, means that while the number of new car sales might have ebbed, the overall size of the car parc is increasing - the UK is not yet ready to give up its love of motoring, and as long as there are cars to be sold, people will be looking for finance to help cover the costs of what is almost always a major purchase.

As well as the overall market size for dedicated car finance products, this report looks at some of the competitor products and they way in which the likes of personal loans fit into the wider market. The economic trends that shape demand for cars - and, thereby, for car finance - are examined, while the consumers

TABLE OF CONTENTS

Table of Contents

• Issues in the Market
• Key issues
• Abbreviations
• 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
• 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
• 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 billionFigure 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