Car Finance - UK - September 2009

Abstract

About this report

The car market has been hit hard by the recession – as a big-ticket purchase, and one that can often be delayed, the industry has always been vulnerable to economic slowdowns. Car finance providers have been hit even harder, not only by falling car sales, but also by the turmoil in the credit markets, and a growing reluctance among consumers to take on new credit commitments.

There are some positives, however. The government’s car scrappage scheme helped support the new car market, while rises in unsecured personal loan rates have made specialist car finance loans appear more competitive. Manufacturers have also been keen to reduce stock levels and clear inventories, meaning that many are more prepared to subsidise finance in order to boost sales.

This report examines the market for specialised car loans, as well as other forms of lending commonly used for car finance – chiefly unsecured personal loans, but also further advances and mortgage equity release. It looks at the underlying market for new and secondhand cars, and the implications of market conditions on car finance providers. The market size is assessed, and key firms profiled, covering not only providers of dealer credit, but also major players in the broader credit market.

Consumer research reveals the proportion of people who rely on loans to fund their car purchase, and the number who simply draw on savings. The research also examines the degree to which customers trust car finance providers, and highlights the continued belief that those who can pay in cash can get a better deal when buying a car – a belief that is no longer necessarily correct, especially when it comes to sales of new cars.

Key issues

• The impact of the slowdown on car sales in both the new and second-hand car markets.
• Availability of car finance in light of the credit crunch.
• The impact of interest rates on car finance, and the shift in the competitive environment caused by the combination of restricted lending and low base rates.
• The strategic value of dedicated car finance products to motor manufacturers.
• Consumers’ willingness to take on new debt to finance car purchase.