UK consumer car-finance market bounces back in 2021
17 February 2022
New car-finance data released by the Finance & Leasing Association (FLA) underlines further trends and developments in the UK, showing consumer car financing saw new business volumes increase by 2% in December 2021 on a year-on-year basis.
When looking at 2021 as a whole, new business volumes rose by 9% year on year to nearly 2.1 million cars financed. However, this figure compares to a low base and is still down 14% when compared to the pre-pandemic levels of 2019. While the data points to a recovery of the UK market, shortages and bottlenecks will likely continue into 2022.
‘The consumer car-finance market rebounded in 2021, but the pace of recovery was hampered by increased economic uncertainty as new waves and variants of COVID-19 emerged, and the global shortage of semiconductors hit vehicle supply,’ said Geraldine Kilkelly, director of research and FLA chief economist.
The FLA is one of the leading trade bodies for the asset, consumer, and motor-finance sectors in the UK, with members including manufacturers, banks, building societies, and retailers. In 2021, FLA members provided £132 billion (€158 billion) of new finance to UK businesses and households. The FLA said £45 billion of this supported the purchase of new and used vehicles.
Business growth expected
A closer look at the data reveals that the consumer new-business figures rose 11% year on year by value, and 8% by volume in December 2021. Yet, data for full-year 2021 paints a more sober picture. While new-business volumes were up 6% last year when compared with 2020, they were still down 21% from 2019. Meanwhile, the percentage of private new-car sales financed by FLA members in 2021 almost reached 92% and is on a par with pre-pandemic levels.
‘Economic and market conditions will remain challenging this year as many households face a significant squeeze on disposable incomes from higher inflation, interest rates and taxes,’ added Kilkelly. ‘However, supply issues are expected to ease and business investment is expected to recover as the year progresses. The FLA’s Q1 2022 industry outlook survey shows that 92% of motor-finance providers expect new-business growth over the next 12 months.’
The FLA also provides statistics on the consumer used-car finance market. This segment reported new business was up 15% by value, while it recorded a drop of 2% by volume in December year-on-year. In 2021 overall, new-business volumes in this market grew 10% year-on-year, but again figures were down 9% when compared with 2019.
Consumers are increasingly turning to second-hand cars, with demand for used vehicles helping to revitalise the health of the automotive sector after two pandemic-hit years. While the market is still hindered by a deficit of semiconductors that has seen consumers waiting months for deliveries of new cars, used-car transactions grew 11.5% year on year in 2021 despite the market volatility.
‘It is good to see the used-car market return to growth, even if activity is still below where we were pre-pandemic,’ said Mike Hawes, chief executive at the UK-based Society of Motor Manufacturers and Traders (SMMT).
With drivers shifting their attention to used vehicles, dealers are benefitting from pent-up demand. One of Europe’s largest used-car sellers, Constellation Automotive, recently acquired a 20% stake in UK dealership Lookers. Constellation, the company behind online platforms such as Webuyanycar, Cinch, and British Car Auctions, bought 78 million Lookers shares, having expanded its business significantly since the pandemic.