Table of Contents

UK Car Loans 2004 - This briefing provides a comprehensive overview of the unsecured car loans market in the UK. It sizes the market, examines marketing techniques employed by providers and forecasts the development of the market over the next five years

Product Code: BFFS0247

Publication Date: 18-Feb-2004

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Overview

Introduction

The range of credit options available to the private motorist has expanded considerably in recent years, and a number of direct lenders have been targeting this sector by offering specially packaged car loans. However, the number of providers operating in this sub-market remains small and their products have so far had only limited success. This brief examines the reasons behind this.

Scope

· Provides a comprehensive assessment of recent growth in the unsecured car loans market and examines performance of market drivers

· Assesses different marketing techniques employed by unsecured car loan providers currently operating in the market

· Draws on the data from a number of secondary and primary sources, including industry interviews

· Provides two scenario-based forecasts for the future performance of the unsecured car loans market

Highlights

New car registrations and used car sales have been buoyant in recent years, but the market has also witnessed dramatic falls in prices of vehicles. As a result, despite the increasing number of cars being sold, the potential value of the total new and used car market has fallen since 1999

The UK motor finance market is very competitive. In addition to the traditional point of sale motor finance, an emerging competitive force in the form of secured lending has also been encroaching on unsecured car loan providers' customer base. As a result, gross advances in unsecured car loans have decreased since 1999

Currently, unsecured car loan providers employ two different marketing techniques in the promotion of their products. However, the extremely commodified nature of the unsecured personal loan marketplace has made differentiation on feature other than price problematic for lenders.

Reasons to Purchase

· Comprehensive evaluation of the unsecured car loans market and its drivers enables you to assess the potential of this sector

· Analysis of competitors' marketing techniques provides you with tools to design your own strategy

· Datamonitor's five-year scenario-based forecasts give you an insight into the future of the unsecured car loans market

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ABOUT DATAMONITOR	2
TABLE OF CONTENTS	3
CHAPTER 1 INTRODUCTION	6
What is this brief about?	6
Who is the target reader?	7
How to use this brief	7
CHAPTER 2 MARKET CONTEXT	8
Introduction	8
Definition of unsecured car loans used in this chapter	8
Strong new and used car sales have driven the motor finance market in recent years	8
New car registrations and used car sales have been buoyant	9
Another record year in 2003 underlined the market's resilience	10
At the same time, average car prices have fallen	11
Falling prices have led to a shift in car buyers' preferences	14
Increased demand for diesel-powered cars provides the cornerstone to the market's growth	16
Despite record sales, the total value of new and used car markets has fallen since 2001	16
Gross advances in unsecured car loans have declined since 1999	18
Methodology used for estimating the size of the car loans market	18
Despite a fall in gross advances, car purchase remains the single most popular reason for taking out an unsecured personal loan...	19
...although debt consolidation lending has been gaining ground in recent years	20
Point of sale motor finance and secured lending competed with unsecured car loans for car buyers' business in 2003	22
Point of sale motor finance poses a traditional competitive threat to unsecured car loans...	24
...but the growth of secured lending has made competition even tougher	26
Unsecured car loan providers are being squeezed on both fronts and face an uncertain future	27
Introduction	29
Lenders offer two different car loan products to target car buyers	29
The unsecured car loans market is contested by only a handful of mainstream lenders	30
Unsecured car loan providers employ different promotional strategies	32
A few lenders have adopted a 'one-stop-shop' strategy to capture borrowers before they reach the point of sale	32
Alliance & Leicester - 'Smarter motoring'	33
AA Financial Services - 'Car loans from car people'	34
But some lenders prefer a simpler marketing approach	35
Co-operative Bank - 'Get more mileage from your loan'	36
Marks & Spencer Money - 'Car Buying Plan'	36
Halifax - 'Halifax car finance'	36
'One-stop-shop' providers are competing in an already crowded market niche, leaving other lenders little choice	37
The majority of unsecured car loan providers are spending less on advertising their products	38
Mass advertising channels, such as television and press, dominate advertising spend	40
Unsecured car loan providers find it hard to differentiate their products purely on price	41
Extras provide an important ingredient in the marketing of unsecured car loans and help to differentiate these products	43
Datamonitor Retail Banking Team view	45
CHAPTER 4 THE FUTURE DECODED	46
Introduction	46
Scenario one: the unsecured car loans market will slow	47
Car sales will struggle to maintain their current record levels	48
Secured lending will continue to grow strongly, as point of sale motor finance makes steady gains	50
The unsecured car loans sub-market will continue to decline	51
Scenario two: worsening economic conditions will inadvertently benefit the unsecured car loans sub-market	52
Car sales take a knock as a result of a worsening economic environment	53
Forecasted growth of competing credit products will be disappointing	55
The unsecured car loans market will grow as a result of weaker competition	56
Datamonitor Retail Banking team view	58
CHAPTER 4 APPENDIX	59
Supplementary data	59
Tables not included in the main body of the brief	59
Definitions of motor finance options available at the point of sale	63
Research methodology	64
Datamonitor's loans and credit forecasting methodology	64
Scenario forecasting	64
Further information	64
Relevant links	64
Relevant reports	66
Datamonitor Financial Services Consulting	66
Datamonitor Retail Banking team	68
How to contact experts in your industry	69
List of Tables
Table 1: New car registrations and used car sales, 1998 - 2002	9
Table 2: Change in average new and used car prices, 2001 - 2003e	13
Table 3: New diesel car registrations in the UK, 2000 - 2003	16
Table 4: Estimated total value of new and used car markets, 2001-2003	17
Table 5: Gross advances in unsecured personal loans by loan usage, 1999-2003e	20
Table 6: Gross advances for unsecured personal car loans and point of sale motor finance, 1999-2003e	24
Table 7: Gross advances in unsecured personal loans for car purchases and secured lending, 1999-2003e	26
Table 8: Car loan products offered by direct providers in 2001 and 2003	31
Table 9: Advertising expenditure dedicated to the promotion of unsecured car loans by top direct lenders, 2001 - 2002	38
Table 10: Advertising expenditure on the promotion of unsecured car loans by media channel, 2002	41
Table 11: Forecasted gross advances in point of sale motor finance and secured lending under neutral scenario, 2003e - 2008f	50
Table 12: Gross advances for unsecured personal loans for car purchases under a neutral forecasting scenario, 1999-2008f	52
Table 13: Forecasted consumer credit gross advances by product under pessimistic forecasting scenario, 2003e - 2008f	55
Table 14: Forecasted gross advances for unsecured personal loans for car purchases under pessimistic forecasting scenario, 1999-2008f	57
Table 15: Monthly new car registrations, Jan-02 - Dec-03	59
Table 16: Used car sales and new car registrations by car type, 2002	59
Table 17: Percentage change in new car registrations by manufacturer, 2002-2003	60
Table 18: Consumer credit gross advances by product, 1999-2003e	60
Table 19: Total value of new and used car markets and gross advances in point of sale new and used car finance, 1999-2003	61
Table 20: Typical APRs for standard unsecured personal loans and unsecured car loans, by selected providers, Jan-03 - Nov-03	61
Table 21: Typical APRs for standard unsecured personal loans and deferred car loans for selected providers, Jan-03 - Nov-03	62
Table 22: Forecasted new car registrations and used car sales under neutral and pessimistic forecasting scenarios, 2003e - 2008f	63
List of Figures
Figure 1: Used car sales significantly outnumber new car registrations in the UK, 1998 - 2002	9
Figure 2: Seasonal trends in new car registrations underline another record performance of this market, January-02 to December-03	11
Figure 3: Used car market has experienced biggest price falls over the last three years, 2001-2003e	12
Figure 4: The majority of growth in 2003 was accounted for by the rise in registrations of more expensive cars, 2002-2003	15
Figure 5: Estimated total value of new and used car markets has fallen since 2001 as a result of falling prices of vehicles, 2001-2003	17
Figure 6: Despite a fall in gross advances, car purchase remains the most common reason for taking out an unsecured personal loan, 1999-2003e	19
Figure 7: The proportion of the unsecured personal loan market accounted for by car purchases has declined since 1999, 1999-2003e	21
Figure 8: Gross advances in point of sale motor finance have struggled compared with impressive growth of secured lending, 1999-2003e	23
Figure 9: Point of sale motor finance has increased its share of new and used car markets, while their total value has fallen, 2001-2003e	25
Figure 10: Alliance & Leicester offers a wealth of motoring services on its website, 2003	33
Figure 11: The marketing strategy employed by the AA Financial Services is designed to promote the notion of a well-known motoring brand, 2003	35
Figure 12: Majority of the providers have cut back on their advertising of unsecured car loans, 2001-2002	39
Figure 13: Providers favor television and press as the preferred advertising channels for unsecured car loans, 2002	40
Figure 14: In the majority of the cases, prices of unsecured car loans have mirrored those of standard loans, Jan-03 - Nov-03	42
Figure 15: Lenders offer a number of packaged extras to differentiate their car loan products from their standard offerings, Nov-03	44
Figure 16: Unsecured car loans will grow at a slower rate over the next five years under a neutral forecasting scenario	47
Figure 17: New car registrations are forecasted to resume steady growth after struggling in 2004, while used car sales will perform well, 2004f-2008f	49
Figure 18: Gross advances in the unsecured car loans market are forecasted to decrease on average by 0.6 per cent over the next five years, 1999-2008f	51
Figure 19: Unsecured car loans are forecasted to perform relatively strongly under more pessimistic forecasting scenario	53
Figure 20: New car registrations and used car sales will both decline under a pessimistic forecasting scenario, 2003e-2008f	54
Figure 21: Gross advances in the unsecured car loans market are forecast to grow on average by 0.5 per cent each year to 2008 under pessimistic forecasting scenario	57

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