Manufacturers will need to work hard to improve the favourable opinion of their brand to combat the commoditisation of new cars.
More than 80% of 142 industry dealer and fleet finance professionals in a recent survey believe the purchase of new vehicles will become increasingly commoditised, with car buyers shopping around on the internet and choosing the cheapest option.
“It isn’t simply a case that the cheapest option will win. The product and offer that best fit customer demand will also play a strong role,” one respondent said.
The survey, conducted by International Auto Finance Network, also showed that almost a quarter see a move away from dealer point of sale into online, which will be driven by the Financial Conduct Authority (FCA) regulatory considerations.
The consensus of the car becoming more of a commodity and Personal Contract Purchases (PCP) is supported by 76% of respondents saying they intend to offer used car PCP finance.
The survey asked whether PCPs offer further growth opportunities for funders: 77% agreed; 30.8% of which said it’s because of the buying trend shift from ‘ownership’ to ‘usership’, with PCPs facilitating this move.
48% of 29 respondents said that demand for ex-PCP cars will come from buyers of 3-5 year old cars.
“These cars will become attractive to people who traditionally would’ve bought even older used cars, but who will now be able to afford to upscale. As funders relax product conditions that impose penalties on older vehicles, we will see used cars go through second and even third phases of ownership funded by PCP. Indeed the average period at inception for mainstream captives is around 42 months, but expired term only around 24,” a respondent said.
In terms of values of those used cars coming out of PCPs, 45% said that a PCP would affect its value, 45% said it wouldn’t, while 10% were unsure. One respondent said: “There is a risk on used values, but it’s not PCPs that are the issue, it’s artificial inflation of the market by self-registrations.”
The survey, sponsored by Grant Thornton, also showed that nearly 20% of respondents believe that Personal Contract Hire will grow strongly, with employee car ownership schemes seeing a decline. “ECOs will grow only if the industry correctly sells that product to its consumers (which at present only a couple of suppliers are doing),” one respondent added.
Grant Thornton automotive director Paul Burrows said: “Whilst concerns do exist around the factors making PCP currently so attractive, many respondents see PCP as a natural gateway to the mobility solution of the future where ‘usership’ becomes more important than ownership.”
66% of respondents said sources and structure of funding will change in the next few years, with 40% saying this will be down to there being more new funders entering the market.
85% of 47 participants said they hadn’t made any significant changes to meet the needs of female buyers when buying a car, despite 50% of the new car buyer market being represented by women. Last year, a Frost and Sullivan report revealed that the number of women with driving licences in the US overtook men, with the UK expected to follow.