IntroductionThe motor finance market was in decline up to 2006. However, lending volumes soared in 2007 in both new and used car finance and have started to decline since then but have outperformed the overall consumer credit market. The dynamic between risk and reward has shifted with finance houses looking to build stronger relationships with dealers as the market has become smaller.Scope*Illustrates the performance of new and used car sales, both at the overall level and broken down into the different types of motor finance product.*Gives an insight into the market penetration for motor finance products among consumers using Datamonitor's proprietary Retail Banking Survey.*Provides forecasts for new and used motor finance over the next five years, with a consideration of the likely prevailing economic conditions.HighlightsGross lending in the motor finance market grew in 2007 and 2008, arresting the decline seen over the previous few years. Despite the fall in 2009, motor finance has increased its share of the overall consumer credit market during the past few years from around 5.5% in 2004 to 6.6% in 2009.The UK motor finance market can be split into two main groups of players, the independent players and the captive finance houses. The major independent players are Black Horse and Santander. However, it is the captive finance houses such as Ford Finance and Volkswagen Finance that dominate the motor finance market.Regulation is an important factor in the motor finance market. Previous consumer finance regulatory measures have had an impact on the costs incurred by finance houses as they look to ensure that they comply with all the latest requirements. The Consumer Credit Directive will have a further impact when it is fully implemented in 2011.Reasons to Purchase*Enables finance houses to see how their competitors are doing and gauge their overall performance in terms of gross lending and balances outstanding.*Builds up a profile of the typical motor finance user to allow finance houses to get a better idea of who they should be targeting.*Provides forecasts for new and used motor finance over the next five years.

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Dreaming of the Fast Lane: UK Motor Finance 2010
Published on May 2010
Report Summary
Introduction
The motor finance market was in decline up to 2006. However, lending volumes soared in 2007 in both new and used car finance and
have started to decline since then but have outperformed the overall consumer credit market. The dynamic between risk and reward
has shifted with finance houses looking to build stronger relationships with dealers as the market has become smaller.
Scope
*Illustrates the performance of new and used car sales, both at the overall level and broken down into the different types of motor
finance product.
*Gives an insight into the market penetration for motor finance products among consumers using Datamonitor's proprietary Retail
Banking Survey.
*Provides forecasts for new and used motor finance over the next five years, with a consideration of the likely prevailing economic
conditions.
Highlights
Gross lending in the motor finance market grew in 2007 and 2008, arresting the decline seen over the previous few years. Despite the
fall in 2009, motor finance has increased its share of the overall consumer credit market during the past few years from around 5.5%
in 2004 to 6.6% in 2009.
The UK motor finance market can be split into two main groups of players, the independent players and the captive finance houses.
The major independent players are Black Horse and Santander. However, it is the captive finance houses such as Ford Finance and
Volkswagen Finance that dominate the motor finance market.
Regulation is an important factor in the motor finance market. Previous consumer finance regulatory measures have had an impact on
the costs incurred by finance houses as they look to ensure that they comply with all the latest requirements. The Consumer Credit
Directive will have a further impact when it is fully implemented in 2011.
Reasons to Purchase
*Enables finance houses to see how their competitors are doing and gauge their overall performance in terms of gross lending and
balances outstanding.
*Builds up a profile of the typical motor finance user to allow finance houses to get a better idea of who they should be targeting.
*Provides forecasts for new and used motor finance over the next five years.
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Table of Content
DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
The motor finance market is intricately linked to the overall motor market 2
Motor finance providers are presented with two different customer tiers 2
A variety of different motor finance products are available for consumers to consider 4
Hire purchase is the most common motor finance agreement 4
Personal contract purchases offer customers the opportunity to avoid losing out on depreciation 4
Leasing is a good option for those not looking to purchase a car outright 5
Lenders also offer POS personal loans 5
Other variations of the main types of finance are offered by some lenders 5
There tends to be less of a variety in the types of used car finance 5
The motor finance market was in decline prior to 2007 but performed robustly during the recession 6
Gross lending in the motor finance market has become a more important constituent of consumer finance 6
Used car finance was eclipsed by the new car market in 2009 7
PCPs have become a more important part of the total market for motor finance 8
Since 2007 PCPs have been the most popular motor finance product for new cars 9
New car registrations and used car sales declined between 2004 and 2009 10
Motor finance has seen a moderate decline in its share of the consumer market for new cars 11
Consumer expenditure has constituted a larger percentage of the overall new car market since 2007 12
The use of unsecured loans to purchase new cars has declined the most, for both businesses and consumers 13
Unsecured personal loans remain more popular than motor finance for consumers purchasing used cars 14
The majority of private motor vehicle purchases are not done on motor finance 15
Concerns about a lack of funding following the recession 16
The market has seen improvements in the first quarter of 2010 but this may be premature 16
Competition in the market is currently weak, with two players dominating the independent sector 17
The independent motor finance market is highly concentrated among a few large players 17
Most vehicle manufacturers now have in-house finance providers 19
Some independent providers exist purely in the niche sub-prime market 19
The broker market has suffered as a result of weakness in the overall motor finance market 20
Direct lenders have lost share to other players such as independent providers 20
Car dealerships have had to reassess their options during the economic downturn 20
The recession has meant that dealers are looking for a reliable source of income 21
In order to improve their relationship with dealers, some lenders are dealing with them face-to-face 21
The credit crunch almost brought one of Britain's largest motor dealers to its knees 21
Franchised dealers remain highly satisfied with their finance house relationship 22
Females, the young and those on low incomes are most likely to have motor finance 22
Motor finance holders are more likely to be female and within the young to middle-aged demographic 22
Females and the youngest age band are more likely to have a motor finance arrangement 23
Motor finance is more popular among the lower income bands 24
A larger proportion of consumers in the highest social grades hold motor finance 25
Consumers are more likely to honor motor finance repayments 26
Motor finance is most likely to be applied for in the branch 27
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Regulation continues to have an intrusive impact on the motor finance market 28
Motor finance providers have had to deal with a raft of regulatory measures over the past few years 28
The OFT's Irresponsible Lending Review sets out some key guidelines on what is expected from lenders 29
The Consumer Credit Directive will have implications for the motor finance market 29
The FLA introduced the Specialist Automotive Finance initiative to maintain standards in the product 31
The FLA has set up a website to help consumers to understand the different types of finance available 31
Motor finance fraud has been on the rise 32
The motor finance market is likely to witness slow growth over the next four years 33
Datamonitor's view is that the economy will remain weak in 2010 33
The motor finance market will decline in 2010 despite a strong start 33
Under Datamonitor's optimistic scenario, both markets will show an earlier and more robust recovery 34
Under Datamonitor's pessimistic scenario, both markets will continue to decline over the forecast period 35
Hire purchase looks set to remain the most popular motor finance product over the period of the forecast 36
APPENDIX 37
Supplementary data 37
Definitions 44
Balances outstanding 44
CAGR 44
Gross advances 44
POS 44
Secured personal loan 44
Unsecured personal loan 44
Methodology 44
Further reading 46
Ask the analyst 46
Datamonitor consulting 46
Disclaimer 46
List of Tables
Table 1: Competitor shares of total motor finance market, 2010 19
Table 2: Motor finance gross lending and balances outstanding in relation to consumer credit market, 2004-09 37
Table 3: Gross lending in new and used car finance (£m), 2004-09 37
Table 4: Total motor finance by type of finance, 2004-09 38
Table 5: New car registrations, used car sales and motor finance as a percentage of the overall consumer credit market, 2004-09 38
Table 6: New car finance as a percentage of total new car expenditure, 2004-09 38
Table 7: New car expenditure for businesses and consumers (£m), 2004-09 39
Table 8: Total car purchases split by consumers and business (£m), 2004-09 39
Table 9: Used car market comparison of motor finance and unsecured personal loans (£m), 2004-09 40
Table 10: Percentage of cars with motor finance 40
Table 11: Motor finance penetration by age and gender 40
Table 12: Number of motor finance deals by age and gender 41
Table 13: Motor finance penetration by income band 41
Table 14: Motor finance penetration by social grade 41
Table 15: Repayment history by type of loan 42
Table 16: Motor finance penetration by channel of arrangement 42
Table 17: Datamonitor view: New and used car finance (£m), 2009-14f 43
Table 18: Optimistic view: New and used car finance (£m), 2009-14f 43
Table 19: Pessimistic view: New and used car finance (£m), 2009-14f 43
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List of Figures
Figure 1: Vehicle funding can come from a variety of different sources 3
Figure 2: Motor finance gross lending has expanded its share of the overall consumer credit market 7
Figure 3: Motor finance for new cars was higher than for used cars in 2009 8
Figure 4: PCPs have increased in popularity at a CAGR of 11.4% since 2004 10
Figure 5: New and used car sales have decreased but motor finance gross advances have increased their share of the consumer
credit market 11
Figure 6: Motor finance has taken a larger share of new car purchases than unsecured personal loans 12
Figure 7: Consumer expenditure on new cars made up 66.4% of the overall new car market in 2009 13
Figure 8: The most popular mode of purchase for new cars was outright purchase/other in 2009 14
Figure 9: Unsecured personal loans remain more popular than motor finance in the used car market 15
Figure 10: More than three-quarters of cars are not purchased using traditional motor finance 16
Figure 11: Black Horse has close to half of the independent finance house market in terms of lending, 2009 18
Figure 12: Females and the younger age bands are more likely to have motor finance 23
Figure 13: Females and those in the age group 18-24 are most likely to have at least one motor finance product 24
Figure 14: Motor finance is most popular in the £30,000 to £49,999 household income band 25
Figure 15: Consumers in the highest social grade are most likely to have motor finance 26
Figure 16: Almost 85% of consumers are up-to-date on their motor finance repayments 27
Figure 17: Two thirds of motor finance is applied for at the POS 28
Figure 18: The FLA's car finance website gives consumers a better idea of what they should expect to pay 32
Figure 19: The motor finance market is expected to return to growth from 2011 34
Figure 20: New and used car finance will grow strongly from 2011 onwards in the optimistic scenario 35
Figure 21: New and used car finance will continue to decline during the forecast period in the pessimistic scenario 36
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