About UK Motor Finance Market Profile and Forecasts 2016
This report focuses on the UK market for motor, or car finance. It refers to finance packages provided by specialist finance companies – most of which are owned either by car OEMs or by financial institutions – which are offered to retail buyers to enable them to purchase a new or used car.
The report quantifies the market size and historical growth rates. It also includes an in-depth analysis of the relevant drivers of industry growth setting out historical trends and available forecasts. Our forecast for industry growth is based on this analysis of historical trends and growth drivers.
This report explains what has happened in the UK car and car finance markets and how the headline numbers, such as numbers of cars sold and value of finance offered, have come about.
Key questions it answers include:
– What are the different forms of finance, how do they compare, and how widely used are they?
– Who are the main companies offering it?
– What is the role of brokers in the market?
– Why have UK car sales grown so rapidly in recent years and are current levels of sales growth likely to be sustainable?
– What role has motor finance had in the growth of the overall car market?
– What has been the role of the OEMs in growing motor finance?
– How important has the sub-prime segment been in the growth of the market?
– Are car clubs a threat?
– How does the behaviour of UK retail buyers of cars compare to that of buyers elsewhere in Europe?
– How does car finance fit in with overall UK consumer credit patterns?
Who is it useful for?
– Car OEMs
– Car finance providers
– Car dealership chains and others who act as brokers
– Investors in the industry
– Advisors including consulting firms, investment banks, lawyers and accountants
– Industry regulators and policymakers
What are the sources and methodology?
This report is based on:
– Extensive research into published industry sources
– In-depth analysis of the macroeconomic environment and relevant market drivers
– Financial analysis of the accounts of and loans data provided by companies in the industry
– Interviews with industry experts
Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions. Forecasts are based on our model which incorporates the key levers which drive the market and makes explicit assumptions regarding each, supported by evidence.
UK Motor Finance Market
The motor finance market involves:
– A range of finance providers, owned by banks, vehicle manufacturers (often called captive finance providers) and other parties.
– Brokers who refer buyers to the finance providers. In most cases the garage selling the car acts as the broker, although there are also independent brokers.
In this report we focus primarily on finance providers rather than brokers. The offering and arrangement of finance is such an integral part of the car retail process that it is generally not possible to isolate the activity, or revenue, of dealers which relates to broking versus other parts of the sale process. Our definition of the market covers hire purchase, personal leases, PCPs and personal loans which are offered by dealers acting as brokers and financed by a motor finance company. PCPs have been the main area of market growth in recent years. Given that they are not specialist products, and that there is no way of tracking to what extent they are used for car purchase, we exclude personal loans obtained independently by a consumer from a bank, further advances or purchases via credit card from our definition of the motor finance market.
Competitive landscape
The market is supplied by two main types of providers:
– Captives, which are the in-house finance companies of the vehicle OEMs
– Independent, or bank-owned finance providers
Captives dominate the sale of new cars via main dealer network while Independent finance houses are more prominent in the used car market – although captives have a large share here as well, in particular via ‘approved used car’ schemes which allow them to focus on the highest priced used cars. The leading captives are those associated with the major volume car companies: Ford Credit, GMAC (Vauxhall) and Volkswagen Financial Services. Leading independents include Black Horse (owned by RBS Group), Barclays Partner Finance, Close Brothers and Hitachi Capital.
Market size and growth
The UK Motor Finance Market has grown strongly in recent years to reach a market size of around £4bn. Growth has come as a result of both strong growth in car sales and increased take-up of finance packages as consumers have increasingly become comfortable with the idea of a car as a being something to access via a monthly contract rather than to own via a capital purchase. Car companies, and their finance arms, have played a key role in driving market growth by offering very attractive finance packages.
Sub-prime has also been an important area of market growth. The market is larger for new cars but usage to finance used car purchases is also increasing – with the focus being on higher quality, and price, used cars bought from dealers. Alternatives to car ownership, such as membership of car clubs, is likely to have reduced the number of cars purchased in the UK but we believe the impact has so far been modest, at less than 1% of car volumes. Overall economic performance and consumer confidence are key drivers of demand for cars. The UK car market has performed significantly better than markets in other European countries. UK buyers tend to trade their cars more frequently than is the case elsewhere in Europe.
Outlook
The outlook for the market remains positive, although there are risks. We expect to see further market growth as finance continues to be widely used for new cars and becomes increasingly important in the used segment. Key market risks relate to the sustainability of the UK car market and whether recent rates of growth can continue, in particular, if, or when:
– Interest rates inevitably start to rise
– Sterling strengthens against the Euro