The automotive finance market

Over the past 50 years the automotive industry has opened up vehicle ownership to the vast majority of the population to the extent that, at the end of 2018, there were 38.2m vehicles licensed for use on the roads in Great Britain. Of which 82.5% were cars; with 35% of households in England having two cars or vans registered to the same address. 57.3% of all new car registrations were made by companies in 2018.

Uptake of vehicle ownership can also be linked directly with the availability of finance.

For example, in 2019 Finance and Leasing Association (FLA) members provided £48bn in new finance to help individuals and businesses acquire cars. Additionally, over 91% of all private new car registrations in the UK were financed by FLA members.

There are many economic factors that affect the availability and cost of vehicle finance including:

  • Interest rates – the cost of finance - see section 11 here.
  • Inflation – increases in the prices of goods and services.
  • Growth in wages and job security – the affordability of finance and risk of the customer not repaying
  • Economic growth and stability – determined by all the factors above. A stable and growing economy results in consumers and businesses having the confidence to spend.

How automotive finance is offered

Automotive finance is primarily sold as part of the vehicle sale, typically through a dealership. A customer will discuss the vehicle with a sales executive, and their budget and financial requirements will form part of the conversation. Customers may also gain access to finance directly from finance companies and brokers.

The majority of automotive finance providers fall into these categories:

  • manufacturers which lend through their own captive finance company;
  • independent finance companies some of which may be wholly owned subsidiaries of major banks; and
  • contract hire and leasing companies that specialise in the provision of leasing agreements for a range of customers and vehicles.

Finance offers are commonly used as a part of manufacturers’ marketing strategies. Attractive terms such as low deposits, low interest rates, free servicing and deposit contributions are designed to attract customers to visit dealerships, with a view to turning that initial interest into a purchase.

Customers can also approach banks and other high street/direct lenders independently of the purchase to obtain finance. This leads to funds being paid to customer’s bank accounts which are used for the purchase of vehicles and other goods.