The Car Market - Out of Recession - UK - April 2011

8/6/2019 The Car Market - Out of Recession - UK - April 2011

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Car Market and the Recession

April 2011



• The closure of the government-funded scrappage scheme willhave made the end of 2010 feel like a recession for carmakers.

Following a brief recovery in sales, new car registrations beganslipping back last year.

• With inflation rising, record fuel prices and a hike in VAT, six inten people have no plans to buy a car in the next 12 months.Those who do will spend as little as possible and probablychoose a second-hand car.

• This report updates the research published in Mintel’s CarMarket – Into and Out of Recession – UK, January 2009 toassess whether consumers are feeling more or less positiveabout their prospects for buying a new car in the coming 12months.

Issues in the Market



Key Themes

• The recent revival in new car sales halted in the second half of 2010 as theend of the Scrappage Incentive Scheme resulted in a fall in demand for newcars. Other factors hampering demand include:

• Petrol price rises

• Rising cost of insurance

• Rise in VAT from 17.5% - 20% in January 2011

• Government spending cuts and interest rate rises will impact on sales of new cars.

Executive Summary

“The short answer to the question posed by this report is ‘not by along chalk’. Despite the Scrappage Incentive Scheme holding back the extent of the sales decline in 2009 and prompting a small

increase in new car sales in 2010, research for this report findslittle comfort for the car industry for 2011-15. If consumersbehave the same way as in 2009, Mintel believes car sales could fall by as much as 25% this year.”

Michelle Strutton, Senior Consumer Analyst



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Market Background

• Sales of cars follow a similar trend to consumer confidence and a further fall in confidencein March 2011 points to weakened demand for all big-ticket items, including new andsecond-hand cars.

• This recession has been particularly bad for the car market as it affected the sector’sbiggest purchasers of new cars, high-earning white-collar workers. Spending cuts in thepublic sector seem sure to see a further rise in numbers of unemployed.

• Interest rates are also expected to rise as the government tackles rising inflation.

Consumer confidence index and percentage change in new registrations, 2005-11

Source: GfK NOP/SMMT/Mintel



Market Size and Forecast

• The government-funded Scrappage Incentive Scheme and an end of recession bounce-back has coincidedwith a recovery in new car registrations. However, given the economy’s current fragility, a return to thelevel of pre-recession new car registrations is not expected any time soon.

• Used car sales, an expected beneficiary of a recession, have been disappointing and remain below pre-recession levels. Nevertheless, sales look promising following the demise of the scrappage scheme. For carbuyers re-entering the market, used cars are a less risky option in an uncertain post-recession climate.

Best- and worst-case forecast of new registrations, 2005-15

Source: Mintel

2,500

3,000



Segment Performance

• The vast majority of private car purchases are of used cars. Used car volumes reachedover 7 million in 2010 as compared to fewer than 1 million for new sales.

• Within the new car segment of the market, private and other sales are dominated by

small to medium-sized cars. However, recent years have seen growth in the smallesttwo car segments (mini and supermini) with this growth to the detriment of largermodels. Improvements in socio-economic status have also assisted in slowly growingthe share of executive cars in the market.

• Diesel cars are growing their share of new car sales. The rising cost of fuel overall, andthe greater efficiencies offered by diesel as well as the wider range of diesel modelsavailable, all help explain this increase.

• However, as yet there has been no significant increase in the profile of so-calledalternative-fuelled vehicles (AFVs), which account for only around 1% of new car sales.

Sales of new and used vehiclesby segment 2011 (fore)

Source: SMMT/ Mintel

Sales of new vehicles by type(2006-10)

Source: SMMT/ Mintel



Advertising and Promotion

• The onset of the recession saw sales fall and thisled to a dip in spend on advertising andpromotion of new vehicles. Support fell back by22% between 2006 and 2009 and only began torecover in 2010.

• However, not all companies slashed theiradvertising budgets; luxury brands (BMW andMercedes-Benz), as well as lower-cost brands(Seat), continued with strong support.

• The heaviest advertisers are larger players(volume), and mass-market rather than luxurynames. Ford and Vauxhall dominatedsupport between 2006 and 2010.

• Ford is the highest-spending advertiser(cumulative spend 2006-10) and is also the

number one player in sales terms and is themost desired marque according to Mintel’sresearch for this report.

• Small cars are proving the most popularmodels to receive support, with this mirroringdevelopments in the wider market where smalldefinitely appears to be beautiful.

Source: Nielsen Media Research/ Mintel

Main media advertisingexpenditure on cars, 2006-10



The Car Owner – Trends in Ownership

• New car ownership is more affordable once financial andfamily commitments are reduced. ABC1 third age andABC1 retired own the highest proportion of new cars.

• The recession has increased penetration of used carsamong all socio-economic groups as motorists look forcheaper options.

21% 25% 45% 53%

2008 2010 2008 2010

New Car Used Car

23% 27% 50% 57%

2008 2010 2008 2010

• New car ownership leans towards over-65s and wealthyABs who are more likely to have funds readily available topurchase a car. By contrast, new car ownership is lowestamong those whose household budgets are likely to havebeen stretched the most during the recession, ie DEs.

• Baby Boomers (aged 45+) have increased theirownership of second-hand cars as projectedretirement investments and interest income from nesteggs have dwindled throughout the recession.

New Car Used Car



Purchase Intentions – New or Second-hand

• With consumers still feeling the pinch, the number of people who plan to buy a car in 2011 is lower than in2008.

• Mintel estimates that 18% of those who said theyintended to buy a new car in 2009 actually did so (basedon new car sales) but a far higher 52% of those whointended to buy second-hand went through with apurchase.

Source: Mintel estimates

Conversion of intention to buy into purchase,2009 and 2011



The Consumer – Potential Cost of Next Car

• Currently two price point clustersexist within the used and new carmarkets, these being less than

£4,000 and between £8,000 and£15,000. Purchasers of newvehicles are more likely to residein this latter cluster.

• Three distinct buying groups withrespect to price can also beidentified; price-conscious, ie

paying less than £4,000; indirectcost-conscious, ie focused onthose paying £12,000-14,999;and non-price-conscious, iepaying in excess of £15,000.

Base: 1663 internet users aged 16+ who have a car in the household

Source: GMI/ Mintel

Total cost of the car, 2008 and 2011

Ranked order of importance of top FIVE featureswhen choosing a car to buy, 2008 and 2011



£8,000£9,000

£15000

£20,000

£25,000

The Consumer – Brand Perceptions

• Potential purchasers with

budgets of over £15,000 tospend on a new car aremost interested inMitsubishi, Saab, or Volvo.

• Those with the largestbudget available for asecond-hand car are

looking at brands such asJaguar, Subaru, andMercedes-Benz.

• Alfa Romeo, Audi, BMW,Jaguar, Jeep, Mercedes-Benz all score well aboveaverage for brand image.

• Fiat, Jaguar, Saab, Skodaare poorly thought of interms of their resalevalues.

Base: 274 internet users aged 16+ who intend to buy a new car

Source: GMI/ Mintel

Makes of new car seriously considered, by average price prepared to pay, February 2011

Base: 274 internet users aged 16+ who intend to buy a new car

Source: GMI/ Mintel

Makes of second-hand car seriously considered, by average price prepared to pay, February 2011



The Consumer – How to Finance Next Car Purchase

• The most likely methodsused to pay for a new carare cash and part-exchange, with purchasingwith the assistance of credit more limited.

• Credit does have a market,nevertheless, amongmiddle-aged adults, whopresumably have otheroutgoings, and amongpurchasers of new vehicles,possibly because of theirhigher purchase price. Base: internet users aged 16+

Source: GMI/ Mintel

Trends in financing next car purchase,2008 and 2011



Your contact

tel: +44 (0)20 7606 4533

email: [email protected]

mintel.com

Head of UK Beauty, Fashion, Household & Automotive Research

Michelle Strutton

Documents

The Car Market - Out of Recession - UK - April 2011