UK Car Dealer Point of Sale Finance: Market Insight 2017
This report focuses on the UK market for consumer car finance arrangements offered at Point of Sale (POS) by car dealerships.
– It refers to finance arrangements offered to help individuals to hire or purchase new or used cars.
– It includes individuals buying cars that may be used for business purposes, but not company purchases.
– It includes hire arrangements for periods of over 1 year, not short-term hire.
We cover three main types of industry participants:
1. The car dealers themselves, which may either be:
– Franchised, i.e. holding an agreement with a manufacturer that allows them to purchase stock directly and sell new cars
– Independent, not holding purchase and sale agreements with manufacturers
2. Finance companies offering hire or credit agreements, which may be:
– Owned by car manufacturers (“captives”)
– Non-bank finance companies.
3. Specialist finance brokers which may help match car dealers’ customers to finance companies.
– Quantifies the overall car finance POS market size and historical growth rates.
– Includes an in-depth analysis of the key car finance market participants, including car dealers, specialist finance brokers and finance companies, and their relative market shares.
– Reviews drivers of car dealer POS finance growth, setting out historical trends and available forecasts.
– Provides our forecast for the market to 2021, supported by evidence from market drivers and industry interviews
Objectives of the report
This report aims to get behind the publicly available high-level numbers on the number and value of car finance agreements arranged at POS to provide insight into the size and characteristics of the many different distribution channels that exist within the market.
Key questions it answers include:
– What are the different ways in which car dealer POS finance is offered in the UK?
– What are the different forms of finance, how do they compare, and how widely used are they?
– How does the process of providing POS finance vary between prime, near-prime and sub-prime customers?
– Who are the main finance companies and how do they work with different types of car dealers?
– What is the role of brokers in the market?
– What alternatives are there to car dealer POS finance?
– How does the UK car dealer POS market compare to other geographical markets?
– How could new regulation change the market?
– Taking these factors into account, how do we expect the market to grow in the future?
Car dealer POS finance market
The market includes all consumer hire and credit products sold by car dealers at Point of Sale (POS) such as:
– Personal Contract Purchase (PCP) plans,
– Hire purchase
– Personal leases
It excludes short-term hire (up to 12 months).
The market is served by:
– Car dealers, including franchised dealers which have agreements with manufacturers to purchase and sell new cars, and independent dealers that specialise in selling used cars.
– Specialist brokers serving the car dealer market, who place deals introduced by dealers with finance companies.
– Finance companies offering products to customers introduced by car dealers and brokers, including ‘captive’ firms owned by the car manufacturers, banks and non-bank finance companies.
This report reviews all three segments of the market, profiling the major participants. It identifies market share splits for the different types of firms at dealer, broker and finance company levels. It reconciles the high-level industry statistics produced by trade associations with the accounts of the firms in the market and other available information.
Market size and growth
UK new car sales have recovered to pre-recession levels but have recently dipped, however used car sales are still rising and the UK remains the largest used car market in Europe.
UK consumers trade their cars more frequently than elsewhere in Europe and the hold periods have been coming down, to a large extent as a result of greater availability of finance
Most new cars are now sold with finance arranged at POS, but only around 1 in 5 of total used cars, or 1 in 4 used cars sold via dealers.
POS Motor finance has grown strongly in recent years and new lending in 2016 was over £30bn. The report breaks down the point of sale car finance market into the segments in the chart using detailed analysis of company accounts and our experience of the market.
As a significant component of the UK’s £190bn total unsecured consumer credit, the car finance market has attracted significant regulatory attention. It has been the biggest contributor to the growth in consumer credit in recent years with some fears of a bubble.
PCPs, often supported by car manufacturer subsidies, have been the predominant method of financing new cars in recent years and are also growing in importance for higher-value used cars.
The franchised dealers sector accounts for virtually all new car sales to consumers and a growing proportion of used cars.
With the high finance penetration rates for new cars, and the sector’s focus on higher-value used cars, the franchised sector accounts for most of the POS finance market.
Independent dealers sell around 1 in 4 used cars. Both the average value of cars sold and finance penetration rates are lower than in the franchised sector. Nevertheless, finance sales account for a significant proportion of profits for some of the leading independent ‘supermarket’-type dealers.
Captive finance companies have played a key role in driving market growth by offering subsidised finance packages, often 0% finance.
Captives also fund some used cars through franchised dealers, but most POS used car finance comes from other lenders. These include
– UK banks (eg Lloyds Bank’s Black Horse, Santander, Close),
– MotoNovo, owned by the South African bank, FirstRand Bank
– A range of non-bank owned companies that tend to specialise in non-prime lending.
Brokers account for a small proportion of the market but some dealers use them to find finance for their customers.
– Smaller independents may use brokers for all their customers
– Larger dealers tend to use them for customers ineligible for finance from the main providers the dealer works with.
Demand for POS finance is clearly linked to volumes of new car sales, which has recently turned down and is expected by SMMT and others to decrease over the next two years.
The outlook for used cars is less clear as, in the short term, they may receive a boost from being regarded as cheaper substitutes to new cars but, in the longer term, availability will suffer as the fall in new car volumes feeds through to fewer used models.
Finance penetration rates for new cars are unlikely to grow from their already high base, but we believe there is potential for further growth in the used car segment as the larger dealers, who are more likely to use finance, gain share from smaller dealers.
We expect that actions of regulators, such as the FCA, will affect the types of products offered, and also broking and lending practices, but have only limited impact on overall car finance market volumes.
Who is the report intended for?
Car dealership groups
Car dealer finance 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 and other financial information of car finance market participants.
– Interviews with industry experts and particiants.
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 market model which incorporates the key levers which drive the market and makes explicit assumptions regarding each, supported by evidence.