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UK Retail Car Finance 2009 press release

By Katie Watson,2014-05-18 20:44
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UK Retail Car Finance 2009 press release

    News from Trend Tracker Limited

23 April 2009

For immediate release

NEW RESEARCH SHOWS DEARTH OF DIRECT LOANS HITTING CAR SALES

The latest report from the automotive research specialist Trend Tracker - The UK Retail Car

    Finance Market 2009 - shows just how hard the financing of car purchases has been hit by the

    credit crunch.

? The value of the UK retail car finance market has fallen by 58% in real terms in the last five

    years.

    ? Direct lending has fallen faster than dealer finance.

    ? The weakness of the car market may combine with their weakened balance sheets to

    encourage some banks to exit car finance.

    ? With low interest rates already in place, the return of consumer confidence will be key to

    the recovery of demand.

    ? Car finance demand will return over the next five years, but not to its peak level of 2003.

Trend Tracker’s analysts estimate that the total UK retail car finance market, including dealer point of

    sale (POS) and direct lending, halved in value between 2003 and 2008 to a total of ?22.8 billion.

    Taking inflation into account, the fall has been an even steeper 58%.

In terms of the volume of finance agreements in this same period, dealer POS finance sales declined

    by 26%, but the direct car finance market - comprising unsecured and secured personal loans

    witnessed a massive 60% fall. This discrepancy shows how the dearth of credit available from direct

    lenders has been a major cause of the decline in the UK’s new and used car markets. Registrations of new cars to private buyers fell by 15% in 2008 compared to 2007, and dropped by almost one-third

    from their peak of 1.25m in 2003.

Problems for car finance suppliers

The number of independent finance companies operating in the UK motor finance market has

    declined with mergers and acquisitions over the past decade, and the weakness of their bank parents’ balance sheets and the scarcity of long-term funds in the money markets now raises questions over

    the viability of some finance companies. Trend Tracker believes the need for banks to strengthen their

    balance sheets and profits could see some of the major banks seeking to dispose of their automotive

    finance subsidiaries as non-core assets.

Some carmakers’ captive finance companies also need government help to access money market

    resources, but have so far been denied it. And the faster the carmakers’ vehicle sales fall, the harder

    they and their finance subsidiaries will find it to borrow. Limited lending capacity may lead to a loss of

    captives’ market share to independent finance houses.

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Renewed confidence key to recovery

Recovery of the new and used car markets, particularly retail, clearly depends on the availability of

    finance and the willingness of consumers to borrow. Trend Tracker’s analysts estimate that the total

    number of loans and finance transactions for both new and used retail car purchasing fell by 52%

    between 2003 and 2008. And although their forecast for the next five years is for an increase of 38%,

    this still falls well short of 2003 levels and represents a market volume similar to 2006/07.

The record low Bank of England base rate has given consumers with variable rate mortgages - half of

    all mortgaged households - a significant increase in disposable income. If this contributes to a

    recovery in consumer confidence, demand for new and used cars and car finance - may pick up, although fears of job losses will continue to limit the desire to take on new debt.

Trend Tracker forecasts that the retail car finance market will show regrowth over the coming five

    years, but to a value still lower than that of 2005. Recalling past lessons, if the decline of the early

    1990s recession were applied to 2007 new car sales, this year’s registrations would tumble to 1.66m,

    and new car and finance demand could take as long as 12 years to recover.

Finance distribution channels set to shrink further

In 2008, there were 30,510 physical outlets in the UK from which car finance could be sold, 15%

    fewer than a decade earlier. Banks account for the largest proportion of these, at 34% with 10,400

    outlets, followed by the 9,120 new and used dealers which account almost exclusively for the sale of

    POS hire purchase and PCP car finance.

The longer term trend in the distribution structure for motor finance is for the number of outlets

    available to decline. In the last five years 19% of franchised dealer sites closed down and in the next

    five years Trend Tracker forecasts that another 21% will go.

Background information for editors

    Trend Tracker is publishing The UK Retail Car Finance Market on 29 April at ?1,450 (+VAT). The report is the second study completed since 2004. Full details of the report’s extensive content, with over 100 pages of charts, tables and analysis are available to download from www.trendtracker.co.uk.

For any further information, contact Toby Procter of Trend Tracker Ltd. on 07974 453911 or email

    tprocter@trendtracker.co.uk.

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