Britain Under the Bonnet - Gearing up for a changing market - Close Brothers Motor Finance
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Britain Under the Bonnet Gearing up for a changing market
Foreword by
Rebecca McNeil
CEO of Close Brothers Motor Finance
When we released the first iteration could be the real contributing factor in the decline.
There is the fact that used car sales are at historically
of Britain Under the Bonnet back in high levels, despite having fallen somewhat. And, it’s
January 2017, we did so at a time true, irrespective of Brexit, that the industry has over
recent years been going through a period of profound
when the country was only beginning structural change; change that will arguably be the most
to come to terms with its decision crucial factor in the future prosperity of our sector.
to leave the European Union. As with any industry where there is upheaval afoot,
We produced the report to gauge consumer confusion is a natural consequence,
and this is a vital challenge that must be overcome.
consumer sentiment and to help our The controversy and confusion over diesel cars in recent
dealers navigate their way through years stands testament to this. After the emissions
an uncertain period in the economic scandal of 2015, diesel-fuelled cars were again plunged
into the spotlight in 2017, with the result being a hefty tax
future of the country. increase announced by the government. As the results of
our research for this report will show, these moves have
Fast forward one year, and it could be argued that not had a tangible impact on the appeal and, indeed, sales
much has changed. There is still uncertainty over what of new diesel motors in the last year.
Brexit will mean for the UK on a political and economic
level, and we need to work hard to support our industry
in these volatile times.
Year
By 2040 a ban on the sale
Indeed, if there has been no further clarity on what of new diesel and petrol cars and
the political and economic future of the country looks 2040 vans will be imposed
like, there have been the first tentative signs that the
uncertainty around Brexit is starting to have an impact
on the UK’s automotive industry. Turnover in 2017 Diesel’s so-called “slow death” runs in parallel to the
was down for the first time in seven years, with UK increasing impetus to electrify the UK’s cars. Owing to
manufacturing levels dropping 3%.1 Startlingly, demand growing pressures to improve air-quality and safeguard
from British motorists for UK-made vehicles seemingly the future of the environment, the full switch to electric
collapsed as well, falling over 28%2. And, despite vehicles has been generating speed for the last 10 years;
enjoying a record first quarter, new car registrations the government’s pledge last year to impose a ban
dipped significantly in 2017, ending a five-year golden run on the sale of new diesel and petrol cars and vans by
of consecutive year-on-year growth. The SMMT, the UK 2040 simply placed a deadline on an industry shift that
automotive industry’s trade body, has been particularly is already well underway. Industry and the government
vocal and explicit on the matter: its Chief Executive, Mike now need to work together to ensure the profound
Hawes, insists that the UK must have a free trade deal infrastructural challenges of this change are met.
with the EU for the industry to remain competitive.
So, yes, these are challenging, uncertain times for the
But it’s debatable whether this relative dip in the sector’s industry. But it’s important not to lose sight of the bigger
performance can solely be attributed to the decision picture. The UK automotive industry is unquestionably
to leave the EU. Rising inflation and stagnant wages still a leading light of the British economy, but the
1 http://www.bbc.co.uk/news/business-42876599
2 http://www.telegraph.co.uk/business/2017/12/21/uk-car-manufacturing-suffers-28pc-collapse-domestic-demand/
2 | Britain Under the Bonnet
95% of dealers from
across the country, that
we spoke to, expect their
Contents
business to grow in 2018
Executive summary 04
industry is operating in a more economically uncertain
environment, and one where consumer habits are rapidly
changing. One interesting example of this shift is the
increasing move towards leasing and renting, rather than 01 How has Brexit affected consumer confidence? 06
buying cars. And indeed the growth in buying cars on
finance, rather than outright. And while total sales of new
cars were down by 5%, we must remember that 2017’s
overall figures remained close to the highest on record. 02 The politics of motors 08
Far from the terminal decline that many newspaper
headlines would suggest. What we are actually
experiencing is a softening of new car demand after an
unprecedented 5-year period of month-on-month growth. 03 Shifting consumer trends 12
Despite many warning of post-Brexit gloom, there is
one group in the industry which remains resolutely
optimistic about the future success of the sector – 04 View from the forecourt 18
the UK’s dealers.
95% of the dealers from across the country that we
05 The way forward 22
spoke to as part of this report have said they expect
their business to grow in 2018. This is, encouragingly,
a huge increase from last year, when just 63% said they
expected business growth. This optimism could well be
a result of the slowdown in demand for new vehicles,
with the used market likely to see an increase in activity
over the coming months.
As with last year, this report uses a combination of
Close Brother Motor Finance’s own data, the attitudes
of UK adults from a consumer omnibus research, and
the sentiment of over 200 dealers from across the UK.
This has helped give a comprehensive view of the
UK’s automotive sphere and how it continues to change,
as well as starting to look at what the future may hold.
Close Brothers Motor Finance has a proud 30-year
history of helping dealers across the country prosper.
Now more than ever, we are committed to doing the
same. We hope this report can give dealers across
the country insight that will help them continue to be
successful in the year ahead.
Rebecca McNeil
CEO of Close Brothers Motor Finance
Introduction | 3
Executive summary
01 02 03
How has Brexit Diesel’s decline and Shifting
affected consumer electric’s escalation consumer trends
confidence? 2017 saw the continued The internet became the
Brexit has dampened decline of diesel-powered most-used resource for
consumer confidence cars’ fortunes. researching car purchases,
in the market. eclipsing dealerships for
The significant dip in sales is likely
to continue with the announcement the first time.
With many drivers who plan to buy
of a tax hike coming into force in
a new car in the next three years However, dealers are still increasingly
April 2018 for all diesel cars which
saying they will opt for used and used and valued as a resource prior
do not meet the current Euro 6
cheaper models. to buying, and this is unlikely to change
emissions standards.
in the near future.
The new car market has seen a
Meanwhile, the Ultra Low Emissions
substantial dip that looks likely to The uncertain economic climate
Vehicle (ULEV) sector continued its run
continue throughout 2018, with the is unlikely to materially change
of impressive sales growth, reflected in
used car industry likely to benefit how consumers fund their next
an increase in market share. The sector
as a result. motor purchase, in fact motor finance
received a huge policy boost from the
figures continue to rise.
UK government, which said all new
cars must be electric by 2040.
Consumer buying habits
New
100%
of all new cars
to be electric
Used
by 2040
The new car market looks However, there are considerable
likely to drop in 2018, the used challenges ahead in the bid to electrify
car industry is likely to benefit
the UK car industry.
2% 79%
online at dealership
4 | Britain Under the Bonnet
04 05
View from the The way forward Report Methodology
forecourt – the Key take-outs for dealers: The figures in this report are based
dealer perspective on Close Brothers Motor Finance’s
own data, a telephone survey of
There is likely to be an increase
in customers looking at cheaper over 200 UK car dealers undertaken
Close Brothers Motor Finance
models of cars, and a shift from between November and December
spoke to four dealers to get new vehicles to second-hand cars. 2017, and a consumer survey of
their views. over 2000 UK drivers, weighted
How consumers are going to pay to be nationally representative.
John McDonald for their vehicles doesn’t look like The survey was conducted in
Director, City Cars (Scotland) it’s changing, so it is essential December 2017 by Watermelon.
“Brexit has impacted new car sales that dealers work with a finance All statistics in the report, unless
rather than the market as a whole.” partner who can give them a range stated otherwise, are taken from
of product options and be flexible the aforementioned sources.
Steve Jones with their underwriting approach.
Director, Trade Sales (South Wales)
“The biggest challenge is actually Drivers still look to dealers for
finding the right stock.” advice and support, so dealers
need to be prepared for this and
Robert Burns ensure staff are best-equipped to
Director, Burns Garages (Cheshire) deliver genuine insight and advice.
“There’s an opportunity with used cars
for growth and profit.” Dealers will have to tackle
consumer biases against diesel-
Brian McManus powered vehicles by incentivising
Director, Brian McManus Car Sales customers to purchase their
(Northern Ireland) diesel stock.
“We have the currency benefit in
Northern Ireland, so it gives us more Electric cars will continue to receive
of an incentive to export cars down a significant push in the mainstream
to the Republic of Ireland.” media, so dealers will need to be
on hand to answer questions and
concerns from customers.
It’s important for dealers to work
with partners that can keep an eye
on market trends and use these to
help dealers grow their bottom line.
Introduction | 5
01 How has Brexit
affected consumer
confidence?
The findings from this year’s Britain Under the Bonnet report
make one thing clear: economic uncertainty is weighing
heavy on consumer sentiment.
The good news? 82% of those drivers
surveyed as part of the report said that they 16% said they
are more likely to buy
are planning on buying a vehicle within the
next three years; this equates to nearly 32 a used car
18%
million new or used cars being sold in the
UK by 2021, and could put paid to warnings say they
from some in the industry that there will will be looking to buy
be a pronounced decline in new car sales. a cheaper car
However, almost a quarter (24%) of those
surveyed said that the economic uncertainty
resulting from Brexit has impacted their Interestingly, results from Close Brothers’
decision to buy a car in the next three years, Dealer Satisfaction Survey bear this
effectively meaning that eight million drivers out, with 31% saying they have noticed
have altered their car buying plans because customers looking to purchase cheaper
of the UK’s decision to leave the EU. models in the last 12 months.
This number is also a significant increase
Over a third (35%) of consumers also said
on last year’s findings, when just under five
they are likely to delay or hold off buying
million motorists had said it had altered their
a car altogether. Clearly, such changes to
plans, and clearly suggests that consumer
purchasing decisions will have implications
confidence is dropping the longer the Brexit
for the industry, not to mention the
process goes on.
wider economy.
How exactly the vote has altered consumers
car buying plans varies, but there are clear
trends beginning to emerge.
6 | Britain Under the Bonnet
Brexit isn’t the only thing
dampening consumer
appetite: consumers also
reported other barriers to
purchasing a car in 2018.
32% Increasing vehicle costs
29% Increasing fuel costs
27% Escalating vehicle taxes
21% Rising inflation
What can be inferred from these The remainder (17%) said new vs used Men are far more likely
findings is this: if – as the research isn’t an issue for them. This again
suggests will be the case – appetite for suggests that the drive for new cars
to buy new cars:
vehicles remains stable and demand is something that will see a hit in the 49% of men will likely buy a new car
for new vehicles continues to soften, months ahead. as their next car, compared to just
it’s increasingly likely that the used 35% of women.
market will see an uplift in sales over In fact, this is something that had been
49%
the next few years. widely predicted to happen irrespective
of the wider political situation.
The results from the research suggest Many analysts have suggested over
that desire for new cars still exceeds the last couple of years that the UK’s
35%
desire for used vehicles – but only just. six-year “golden period” of new car sales
41% said they would like to purchase a would soon hit an inflection point, and
used vehicle – just one percentage point that there’d be a gradual consumer shift
below those who said they will be looking from new to old vehicles. With five years
to purchase a new vehicle. of consecutive year-on-year growth, and
a record numbers of new cars on the
road, a natural consequence was the Desire for used vehicles
41% greater availability of “nearly- new” used
vehicles. If the decline in new car sales
highest in under 30s:
of people said is expected to continue in the months Desire
There is a for used
slightly highervehicles
demand
ahead, it would seem only natural that for second hand cars (46%) from
they would like
many consumers would flock instead
highest in under 30s:
younger motorists (18 – 30) in
to purchase comparison to 40% of over 30s.
to the excess of “nearly-new” used
a used vehicle vehicles available on the market.
46%
46%
40%
40%
How has Brexit affected consumer confidence? | 7
The Dealer perspective
Interestingly, the consumer shifts In the last six months, dealers have noticed
suggested in the research are being trends in consumer behaviour:
seen first-hand by dealers on the
45%
forecourt. As part of the report, we
customers had concerns about the
asked over 200 dealers about trends affordability/financing of their car
they have witnessed in consumer
behaviour over the last six months.
34%
Nearly a third (31%) said they had customers were taking longer to make
seen an increase in consumers a decision
actively seeking out cheaper models
of cars; nearly half (45%) dealt with
31%
consumers who had concerns about the increase in consumers actively seeking out
affordability/financing of their car; and cheaper models of cars
over a third (34%) said their customers
were taking longer to make a decision
on which car to purchase.
Rebecca’s view
(Rebecca McNeil, CEO)
For the second year running, our research
suggests that the UK’s decision to leave
the EU is affecting car-buying decisions.
But again, the biggest outtake is that
consumers are likely to opt for used cars
at the expense of new vehicles, instead
of holding off purchasing a car altogether.
Although this will clearly have a knock-on
effect for the sales of new cars – where
demand has been softening in recent
months – it also presents an opportunity
for dealers to capitalise on an increased
demand for used vehicles.
We know from regular surveys with our
dealers that they are confident about their
prospects, and that the key is being able to
adapt to changing circumstances. Having
the right cars on the forecourt, as well as
embracing changing consumer behaviour
(more on this later) will help to drive
continued success in the years ahead.
8 | Britain Under the Bonnet
How has Brexit affected consumer confidence? | 9
02 The politics of
motors: “Toxic”
diesel’s sales fall,
but electric cars are
still a long way from
plugging the gap
The political story of UK cars in 2017 was
dominated by two main characters with wildly
contrasting fortunes: diesel-powered cars and Ultra
Low-Emission Vehicles (ULEV, or hybrid and fully
electric vehicles as they’re colloquially known).
Let’s start with diesel. Going back – introduced at the turn of the century
five years, diesel-powered motors by the then-Labour government –
were the nation’s vehicle of choice, which sought to incentivise diesel cars
commanding 52% of market share to over their petrol counterparts, owing
petrol’s 45%3. This success story can to their less-damaging effects on
partly be attributed to earlier measures the environment.
10 | Britain Under the BonnetAll this changed in late 2015, however, The message from the consumer
starting with the VW emissions scandal. research in this report is clear:
That scandal (in which other prominent the negative publicity of diesel cars
car manufacturers would later become is affecting their desirability. A large
embroiled) dented consumer confidence number (67%) of the drivers researched
not just in car manufacturers, but in for this report said that they were less
diesel cars themselves. The following likely to purchase a diesel car in future,
year, in part due to the extensive media owing to the tax increase. Indeed, when
attention this scandal attracted, diesel asked what type of car they are most
sales plummeted steeply. Last year, the likely to opt for, just 13% said diesel. “The decision to raise
situation hit a low point, as sales took
another 17% hit, meaning diesel sales
A similar sentiment has been expressed
by dealers on the forecourts. Nearly half
tax on diesel has created
total market share for 2017 was down (45%) said their customers are less likely “a backlash [that] has
to 38%.4 to go for a diesel car. made it far harder for
There are, however, many in the us – and the government
Diesel sales industry who are concerned that the – to meet our climate
total market negative publicity and backlash around
share for 2017 diesel cars is unwarranted and unfair. change targets”
38%
The SMMT’s Mike Hawes suggests
Mike Hawes
only that they still are “the best bet” for
many drivers, given their relatively low SMMT, Chief Executive
cost to operate and the fact they have
Considering that these figures for the lower CO2 emissions than petrol.5
most part were recorded before the Hawes also hinted that the government’s
government’s one-off tax hike coming plan may be counterproductive, saying
into force in April 2018 (for all diesel cars its decision to raise tax on diesel has
which do not meet the current Euro 6 created “a backlash [that] has made it
emissions standards in both laboratory far harder for us – and the government
and real-world tests), it’s probable that – to meet our climate change targets.”
the sale of new diesel motors will fall
further in 2018.
67%
of the drivers researched
for this report said they
were less likely to buy
a diesel car in the future
3 http://www.telegraph.co.uk/finance/newsbysector/transport/11913856/Diesel-takes-a-knock-but-new-car-sales-accelerate.html
4 https://www.theguardian.com/business/2018/jan/15/diesel-car-sales-slump-puts-thousands-of-jobs-at-risk-in-uk
5 http://www.bbc.co.uk/news/business-42571828
The politics of motors | 11New registrations
of pure electric
and hybrid cars
rising by
35%
Electric cars had a rather more positive But the actual sales of electric and
2017. After seeing remarkable relative hybrid vehicles is still only a fraction of
growth over the past four years, last the total picture. Just 120,000 were sold
year saw this trend continue in earnest, in 2017, which equates to less than 5%
with new registrations of pure electric of the total number of electric or hybrid
and hybrid cars rising by 35%. Then in vehicles registered for use on the road.
July, the government issued a bold The scale of the challenge is put into
statement of intent by saying that the stark context when you consider that
sale of new conventional diesel and just 13,500 cars registered for use on
petrol cars would be banned from 2040, UK roads were fully electric. So just
effectively firing the starting gun on the
race to electrify the UK’s roads in the
0.5% of new cars on the road are fully
electric, no emission vehicles.
120,000 electric or
next 20 years. And at the start of this hybrid vehicles sold in 2017,
year, ministers warned that three-fifths A major issue with take-up of electric which equates to less than
5% of all vehicles
of vehicles on the road should be vehicles lies with consumer appetite.
electric by 2030.6 Again, this is on the rise – 30% of
drivers surveyed for this report said
Despite the rhetoric, however, a number they would consider buying an electric
of barriers remain. Although the rationale as their next purchase (double the
for a full switch to electric vehicles is number who responded the same
undoubtedly good for the environment,
the implementation requires a profound
way when we asked the question last
year). However, there are still some 41% said they
infrastructure change, and one that will major barriers ahead, mostly due to would consider
require more than headline grabbing the perceived shortcomings of electric buying an electric
targets. Certainly, 35% growth is an cars – 41% said they would consider
impressive percentage increase, and it buying an electric car, but not as their
car, but not as their
is true that ULEV have seen a sustained next vehicle. next vehicle.
period of increase in market share.
6 http://www.bbc.co.uk/news/science-environment-42709763
12 | Britain Under the BonnetDrivers still not sold on autonomous vehicles
Another major development in 2017 The research conducted from this
was the government’s pledge to have report seems to bear this out: just one
fully autonomous (self-driving) vehicles in 10 (10%) of drivers surveyed said they
1 in 10
on the road by 2021. The announcement would be interested in a car with total
received much public and media self-driving features. Safety seems to be Only of drivers
attention, not least because of the the key reason for this, with one in five surveyed said they would be interested
proposed speed of the transition and (19%) saying they do not trust driverless in a car with total self-driving features.
concerns about job losses. Even car technology, and a further fifth (19%)
Chancellor Hammond admitted that saying they do not like the idea of self-
British workers will need to retrain driving vehicles. A quarter (26%) said Some of the reasons...
ahead of the “very challenging” race to they would need to see more evidence
revolutionise the industry, and despite
the technology being expected to
that they are safe before considering
them. Interestingly, appetite for cars with
19% Don’t trust them
develop rapidly, legislation is moving at partial self-driving features was similarly
a slower place. This affects the speed
of consumer adoption given the trust
low (just less than 9% indicated they’d
be interested in these type of vehicles),
19% Don’t like the idea
that comes from clear safety standards proving that the government has an
for instance. uphill battle in getting the public on
side of the total automation.
Those who won’t be
purchasing an electric car
as their next vehicle said
this because: Rebecca’s view
(Rebecca McNeil, CEO)
Crucially, nearly half (46%) said there would
need to be significant improvements to the More than just changing the perceptions of
technology before they could be won round. the public, the move to electric vehicles will
Worryingly, well over a quarter (28%) said cost money and requires radical changes
they would not consider buying an electric to infrastructure. For this to happen, the
car in the future. If electric car technology is industry generally and dealers specifically
to be adopted by the British public at a rate will need to be brought on this journey.
that would mean the ambitious government As a result of low tax charges, the majority
targets are achievable, these concerns will of electric cars on the roads are currently
need to be adequately addressed. company cars, but dealers will need to get
ready for this as these cars will likely start
coming back into the second hand space in
47% Initial outlay is too expensive the next couple of years.
Dealers must be given support to
embrace changes in both consumer
43% Range of cars too limited buying behaviour and government policy,
and ensure they have the right cars on
their forecourts.
36% Long charging times
The politics of motors | 1303 Shifting
consumer trends
The internet:
threat to dealers
or opportunity?
Last year’s Britain Under the Bonnet noted the
increasing reliance on the internet as the first port
of call for car-buying advice. This year’s research
suggest that the internet is the most common
source for researching a car.
Internet usage by consumers
57% To help inform their choice of car
32% Used an independent car website
15% Visited an auction site
10% Used social media
14 | Britain Under the BonnetConsumer buying habits
2% 79%
online at dealership
While it is true that the internet has
revolutionised the way we research our
vehicle purchases, almost 4 out of 5
(79%) consumers actually bought their
last vehicle via a dealer, against the 2%
who purchased online. Interestingly, this
has not changed since last year’s report
(where 78% purchased from a dealer).
executives, led with the bold claim
that up to half of the UK’s physical
Encouragingly, the vast majority of those
car dealerships will be gone by 20257.
who bought their car from a dealership
Our findings suggests this simply isn’t
were happy with the experience.
the case. Even at the initial consumer
Well over two thirds (71%) of people
who have bought from a dealer said they
were “very happy” with the experience;
research stage, dealers are still playing
an important part of that process, just Over two thirds
four percentage points behind those who of people (71%) who bought
encouragingly, just 1% of those surveyed
use the internet as their main source
said they were not happy with the
of research. And with good reason –
from a dealer said they
experience. The key factors behind a were ‘very happy’ with
outside of buying a property, a car is
positive experience were the sense of
for many people the largest “big ticket the experience
getting a good deal/price (67%), being
item” they will purchase in their lifetime.
given good advice within the available
And as a high value product, it’s not
price range (36%), and helping finalise
unreasonable to assume that the
the decision (35%).
majority of consumers will seek “expert
Moreover, dealers are still seen as an advice” before making a final decision. The key factors behind a positive
invaluable source of research. 53% of
This “death of the car salesman”
experience were:
consumers actively went to a dealer to
67%
argument – that e-commerce will
do first-hand research on the purchase Getting a good deal/price
effectively render dealers surplus to
– interestingly, this is the same number
requirement – is always framed as
as in last year’s report.
though it’s a competition: that the
Being given good advice
Much has been made in recent years
of the effect that the internet would have
consumer will increasingly gravitate to
one avenue (the internet) at the expense
of the other (the dealer). However,
36% within price range
on the role of dealers, with some in the
instead of it being a mutually exclusive
35%
industry speculating that the role of the
dealer will be greatly diminished, if not relationship, it seems increasingly clear Helping finalise the decision
made redundant. A recent report by that consumers are using the internet
KPMG, which surveyed 907 motoring and dealers in combination, not isolation.
7 https://www.thesun.co.uk/motors/5377914/half-of-car-dealers-will-disappear-by-2025-and-youll-all-be-
buying-cars-online-instead/
Shifting consumer trends | 15Rebecca’s view
(Rebecca McNeil, CEO)
Undoubtedly, dealers face challenges
with the ever-increasing use of the
internet. With so many buyers now
carrying out online research before
entering a forecourt, chief among
those challenges is encouraging those
online researchers to take the next step
and walk into a dealership. In order
to do this effectively, dealers need to
make sure that their digital forecourt
has as compelling an offering as their
physical forecourt.
More than a challenge though,
dealers should be looking at this as an
opportunity – the internet is a way to get
substantially more eyes on their stock
than ever before, and having a strong
digital presence, operating on all relevant
social channels, and engaging with their
customers online is a way to ensure they
can take advantage of these shifting
consumer behaviours.
Utilising Facebook to increase consumer engagement
Pickwick Performance, a dealership The results of the trial speak
in Aberdeen, wanted to build brand for themselves:
awareness and grow their Facebook
116%
audience in order to reach more
consumers. We worked with Pickwick
to come up with two campaigns to
meet these objectives:
increase in page likes
over the campaign period
• A page like campaign (posts to
encourage page likes) to run for
4 weeks
• A post like campaign (increased
119%
increase in followers over
engagement in posts) to run for
the campaign period
4 weeks.
“It’s certainly been an education and it’s down to
us now to keep up the momentum. I’m pleased with
the response and the support from Close Brothers
Motor Finance and delighted that we now have a
new platform to sell cars.”
Nev Wood
Founder of Pickwick Performance
16 | Britain Under the BonnetWhat consumers want from their cars
As with last year’s report, consumers
were asked about their main 71% Affordability
considerations when it comes to
purchasing a car. Perhaps unsurprisingly
given the wider economic situation, cost 56% How economical it is to run
far outweighs any other factors, with
affordability and how economical the car
is to run being the key considerations. 55% Fuel type
In last year’s study, affordability was the
key concern for 38%. This year sees a
significant increase, with 71% saying it is 49% Engine size
their main concern. How environmentally
friendly the vehicle is was classed as a
major consideration for just under one 47% Number of doors
in five (18%) drivers, though this is the
same figure as in last year’s report, and
it again misses out on the top 10. This 43% Existing mileage
suggests that the political emphasis
placed on electric cars in 2017 has had
no tangible effect on consumers priorities, 40% Manufacturer
with more drivers concerned about the
colour of their vehicle than the effect it
has on the environment. 34% Safety rating
33% Boot size
29% Colour
28% Ease of
getting in
Only 18%
of drivers consider
how environmentally
friendly the vehicle
is as a consideration
Shifting consumer trends | 17How consumers are paying for cars
Since 2012, annual A key trend in the automotive industry of some sort. The split between the
in recent years has been the rise of types of car financing was roughly equal:
growth rate of
car financing agreements, which have Hire Purchase and PCP accounted
dealership finance grown in popularity as the relative cost for 7% each, whereas 6% took out
has been around of owning a car outright has increased. a personal lease agreement.
20% Indeed, lending on car loans is the
fastest-growing part of the consumer When looking ahead to their next
purchase, the results are remarkably
finance market, with the Bank of
England saying the annual growth rate similar: the majority of drivers (56%)
of dealership finance has been around said they would pay the full amount
20% since 2012. As the research from for their next vehicle upfront, with 27%
the previous chapter clearly shows, saying they’d use finance instead.
a majority (82%) of current drivers The chief reasons for opting for finance
will be looking at purchasing a new were the ability to spread payment and
or used vehicle within the next three giving drivers the means to afford the
years. It also shows that a significant model that they want.
proportion of these prospective buyers
The one area where we can expect
have altered their plans somewhat there to be increased interest in
due to the uncertainty of Brexit. One financing is the under 30s age bracket.
Rebecca’s view of the questions this poses is whether
this economic volatility will significantly
40% said they’d likely use some form of
finance for their next purchase, and 35%
(Rebecca McNeil, CEO) affect how people pay for their next of those aged 30 – 40 said they’d prefer
vehicle? Specifically, are we likely to to use finance. This contrasts sharply
It’s not surprising that the number one see an increase in appetite for car with the over 40-65 category, where just
concern for consumers is set to be financing agreements? 19% said they’d prefer to use finance.
the price and affordability of buying
a car; this is a real opportunity for Our research suggests no. Interestingly, despite there being
dealers, so long as they are mindful Looking at those who have recently speculation that long-term car rental
of this when speaking to prospective bought a vehicle, nearly three fifths will begin to become more mainstream
customers. They should look to use (57%) purchased it with cash or savings. in the years ahead, just 4% of our
their unique insight of the industry to One in 10 (9%) took out a personal loan, sample said they would prefer this route
give genuine guidance to a customer. and nearly a quarter (23%) used finance to “ownership”.
With many drivers now set to look at
used vehicles, highlighting the fact that
the current stock is in this “nearly new”
category help the dealer show the Vehicles recently bought via these methods:
customer they’re getting a great deal.
Of course, the wider economic 9% 57%
uncertainty comes at a time when personal loan
consumer habits are already shifting. cash/savings
The rise of finance and move towards
leasing or renting vehicles have been
23%
increasing in recent years, and the
POS car finance market generally
continues to show significant growth, finance
with a recent study by the Finance
and Leasing Association showing an
increase of 7% by volume and 13%
by value in February 2018. This poses
a distinct opportunity for dealers, who
can help ensure they have the stock
available that reflects the trends in 6% 7% 7%
private car sales and have ensured PCP Hire Personal lease
their staff are trained in the benefits Purchase agreement
of offering point of sale finance to
relevant prospective customers. The split between the types of car
financing was roughly equal.
18 | Britain Under the BonnetConsumers preferred payment methods
0 20% 40% 60%
Full amount upfront
Finance – to
spread payments
Finance – so can
afford to buy the
model they would like
Rent
Don’t mind
Key
18 – 21 years
22 – 30 years
Don’t plan to 31 – 45 years
purchase own car 46 – 65 years
66+ years
Proportion of people who said
they’d prefer to use finance:
40% Aged under 30 years
35% Aged 30 – 40 years
19% Aged 40 – 65 years
Shifting consumer trends | 1904 View from the
forecourt – the
dealer perspective
We used the latest iteration of our Dealer
Satisfaction Survey to track the sentiment of
dealers about the year ahead. The key takeout
is that dealers are optimistic.
20 | Britain Under the BonnetThe vast majority (95%) of dealers Dealer positivity has Dealers see the main
we asked said they expect their
business will perform significantly increased significantly threats as:
or slightly better in 2018 than in 2017.
What’s most interesting about this is
that this figure is a huge increase on
Dealer performance expectation –
comparison between 2017 and 2018 24% Brexit
the 63% who said the same last year.
17%
So while consumer confidence may Potential economic downturn
have dipped, dealer positivity has
increased significantly, something that
perhaps reflects the softer demand for
new vehicles in favour of used cars.
In terms of the main threats to their
business, dealers still see Brexit (24%)
and a potential economic downturn
(17%) as the factors that could hurt
their business prospects over the 2017 2018
63% 95%
next year.
John McDonald
Director, City Cars (Scotland)
“Brexit has impacted new car sales rather than the market
as a whole.
The industry was already volatile and the cars is rolled out across the UK and not
uncertainty around Brexit has just added just the big cities, people will be afraid to
to that. The longer it takes to come to make the switch.
a decision, the longer consumers hold
back on purchasing. New car stock is Finance is still a huge part of the used
fierce and new cars aren’t being bought, car market; 85% of customers either
therefore fewer people are selling off finance or part-finance their vehicle,
their old vehicles. So what we’re seeing whether it is through the dealer or
is the ripple effect. personal funding through the bank.
Opportunities come through working
Consumer buying behaviour has with providers like Close Brothers
also changed, particularly as talks Motor Finance as they offer a range of
on electric cars and the diesel ban finance packages which means dealers
increase. Consumers aren’t going out can give customers all of the payment
and buying electric cars right now, and options available.”
until infrastructure to support electric
85% of customers either finance or
part-finance their vehicle, whether it is through
the dealer or personal funding through the bank.
View from the forecourt – the dealer perspective | 21Steve Jones
Director, Trade Sales (South Wales)
And although consumers are starting Finding the right cars can be expensive,
to get a bit wary about diesel, the particularly at events like auctions, as
demand hasn’t dropped too much. so many dealers attend and so the
People who are driving a substantial prices increase. You have to find other
number of miles per gallon need a diesel outlets and other means to find stock.
car. As a dealer, we do have a bigger Talking to other traders can help. It’s
selection of petrol cars than diesel in not just dealers travelling hundreds of
stock, just to err on the side of caution. miles for cars, customers are doing the
People are waiting for the government same thing. People even come from
to make more announcements, however abroad to purchase a car because they
there is only so much they can do are cheaper.
because there are so many diesel cars
and lorries on the road. As a dealer, you just have to move with
the times, be as versatile as you can
The biggest challenge and ensure you have different types of
vehicles on the forecourt. Without the
is actually finding the right stock and prices you won’t attract
right stock. customers. The demand is there, but it
is the supply which is the biggest issue.”
Robert Burns
Director, Burns Garages (Cheshire)
“We haven’t really seen the impact of the residual value of a consumer’s used
Brexit yet, as it hasn’t actually happened. car. It has also realigned the stock they
Any issues with supply or movement are now buying and that we have on our
of parts won’t be felt for a couple of forecourts. Although it’s early days and
years. The main challenge is consumer we haven’t seen demand for electric
confidence and the cost of living. cars or hybrids, we would like to see
Many people haven’t seen their income more of these vehicles as they have zero
increase, and as a result, customers are emissions. But without improvements to
either holding off buying or lengthening the charging time and the range, uptake
their finance terms, meaning the trade is likely to remain low.
cycle is lengthening.
The internet is a concern in some ways
That said, there’s an because it brings a lack of customer
to dealer contact. Previously, dealers
opportunity with used cars would see customers a few times before
for growth and profit. they would purchase a car, but now
dealers are not given the opportunity
However quality used cars are hard to see people and build relationships.
to come by and they turn over quickly. However, the internet can give dealers
The government’s decision to increase more exposure and a bigger pool
tax on fossil fuelled cars has impacted of customers.”
22 | Britain Under the BonnetBrian McManus
Director, Brian McManus Car Sales (Northern Ireland)
“We have the currency But the ongoing uncertainty around
Brexit has started to affect things.
benefit in Northern Ireland, Customers are shaken because of
so it gives us more of an the uncertainty, and this has impacted
incentive to export cars directly on sales – it’s not just a
conversation we have in the dealership.
down to the Republic People feel they lack security in their
of Ireland. jobs, and this obviously causes them
to take stock and assess their financial
When Brexit happened and the pound decisions. As dealers, we are aware that
plummeted, it actually did wonders for consumers are likely to be thinking about
our sales. During that initial period, this before they enter the dealership.”
Brexit was a pro for us rather than a
negative, as we found a lot of Southern
Ireland buyers moved their purchasing
plans around the exchange rate e.g. if
they were going to buy a car last year,
they bought it earlier to take advantage
of the exchange rate.
View from the forecourt – the dealer perspective | 2305 The way forward
Another year on, another year of change.
Consumer behaviour continues to evolve, and
dealers are having to adapt to these shifting
patterns as well as the changing economic
circumstances. There are some key take outs
from this report that provide insight into the
way forward and will be useful to dealers when
navigating the uncertain waters ahead.
24 | Britain Under the BonnetLikely to be a shift from new Electric cars will continue
to second-hand vehicles to recieve media coverage
While Brexit and the resultant economic Electric cars will continue to receive
uncertainty has dampened consumer a significant push in the mainstream
confidence, appetite for cars remains media as a result of policy and
stable. However, one of the consequences manufacturer movement. Even though
of this is likely to be an increase in customer appetite is still relatively low,
customers looking at cheaper models dealers will need to be on hand to
of cars, and a shift from new vehicles answer their questions and concerns
to second-hand cars. about the technology, as well as work
with partners to ensure they are fully up
to speed with the latest developments
that could affect their business.
The ways consumers The dip in demand for
pay for their vehicles diesel-powered vehicles
are not changing is likely to continue in 2018
Despite the underlying economic The dip in demand for diesel-powered
uncertainty, how consumers are going vehicles is likely to continue in 2018,
to pay for their vehicles doesn’t look like with a majority of consumers saying they
it’s changing. Although the majority of are less likely to purchase diesels owing
consumers still buy cars using savings, to the government’s one-off tax hike and
a significant minority will look to use continual negative publicity. Despite this,
some form of finance to purchase their they remain for many the most cost-
car. This is likely to be particularly true for effective option out there, and dealers
the younger generations, so it is essential will have to tackle consumer biases
that dealers work with a financing partner against these vehicles by incentivising
who can give them the flexible options their customers to purchase their diesel stock.
customers are looking for.
Drivers still look to dealers Keeping up to date with
for advice and support market trends is key
It is now the norm for buyers to walk into a With the economic picture as uncertain
dealership and have a solid understanding as it is, it is also going to be important
of what they’re looking for. However, for dealers to work with partners who
drivers still look to dealers for advice can keep an eye on market trends so
and support, even if they are spending they have the right insight when planning
more time researching online and less future stock.
time in the showroom. Dealers need
to be prepared for this. Ensuring that
their staff are best-equipped to deliver
genuine insight and advice to prospective
customers is going to be crucial.
Additionally, there are real opportunities
on offer to those dealers who can adapt
and maximise their online presence.
The way forward | 2526 | Britain Under the Bonnet
Notes
| 27Call us on 01302 646 464 Visit closemotorfinance.co.uk Close Brothers Motor Finance Roman House, Roman Road, Doncaster, DN4 5EZ
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