The State of Play

“Space is big. Really big. You just won’t believe how vastly, hugely, mind-bogglingly big it is,” wrote Douglas Adams in the Hitchhiker’s Guide to the Galaxy.

The same description could be applied to Britain’s used car market — the largest in Europe — with eight million used cars changing hands in 2016, according to the Society of Motor Manufacturers and Traders. It was a rise of 7.3% year on year — and dwarfed the 2.6 million new vehicles registered in 2016.

Nine out of ten of those purchases are now made using credit, according to Britain’s Finance and Leasing association. It’s a stark change from just a few decades ago, where most used car purchases were made in cash — sometimes literally savings in the form of banknotes taken out from under a mattress.

In the early days of Britain’s car boom, in the 50s and 60s, car finance schemes were largely used for new cars, not used ones — and women still had to have hire-purchase credit agreements signed by both their fathers and their husbands. In half a century, the market has seen enormous change.

The transformation of Britain’s used-car market has been driven by several factors — from new technology to the credit crunch, says Adrian Dally, Head of Motor Finance at the FLA.

“In our parents’ generation, people would go to the garage, and if they were buying a used car, it would mainly be cash — they’d see a car and pay the on-the-road price,” Dally says. “Some people would take out an unsecured loan.”

During the Eighties and Nineties, people shifted to buying cars on hire-purchase, Dally says — driven by better interest rates, compared to what was offered for unsecured loans.

But one thing didn’t change: the insistence on the idea of paying off the loan, and then owning the car.

Dally says, “In the Eighties, people opted for those better interest rates — but thought, ‘I’m going to keep this car long-term once I’ve paid off my loan, because ownership is important to me.’”

“I first encountered PCP loans about 20 years ago with new Fords and Vauxhalls,” says Alex Pegg, sales manager of Swift Motors in the Isle of Man. “But here, they’ve really taken off in used cars in just the past 18 months. We still see people paying in cash here — hoping for a best price — but finance is becoming more and more popular.”

Another reason for the inexorable rise of the PCP loan is the sheer amount of data available to companies and purchasers, Dalley says — describing Britain’s car market as “the most data rich in Europe.” In previous decades, people distrusted used cars — but it’s now much easier to find out a vehicle’s dark secrets.

Much has changed since the days when car dealers would look up models in ‘the book’ to work out a price — with instant online checks for a vehicle’s history and probable value.

Philip Nothard, retail and consumer specialist at cap hpi, which offers dealers and buyers near-instant valuations and checks on new vehicles says, “Buying habits have changed massively and there’s been an ever increasing appetite for knowledge and transparency between the seller and buyer.”

Buyers are now so aware of finance that they are thinking of monthly payments — rather than an on-the-road price, before they buy, according to Ian Plummer, Manufacturer and Agency Director at Auto Trader.

Plummer says, “The used car market has gone through a fundamental transformation in the past decade. People are looking to use finance as a key part of their purchase — they’re thinking about the monthly payment, rather than the on-the-road price. We’ve seen growth in prestige brands such as BMW and Mercedes, because the growth of finance has meant customers can jump into a prestige brand.

“That notion of a forecourt where dealers are laying out cars with military precision — they really do put a lot of effort in — and the customer driving off after seeing the sticker with the on-the-road price, it’s not completely over. You still do see it — but it’s changing.

“These days the customer will have already seen the cars online — we call it the digital forecourt — and they might switch from wanting to buy new to wanting to buy used, and back again. The route to success for retailers is to understand the importance of finance in this.”

Words By Rob Waugh