One of the most interesting insights from Paragon Car Finance’s recent survey of the UK’s largest motor finance brokers is that drivers are replacing their cars more frequently.
The top line survey results showed that three times as many brokers have seen the replacement cycle shorten for their customers over the past 12 months than those who’ve seen it lengthen. It’s clear that a growing number of customers can see value in replacing their car more regularly, but what’s driving this change in behaviour?
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New car sales and manufacturer finance offers have been a major factor contributing to the change. In August, new car registrations recorded their 42nd month of consecutive year-on-year growth. More than three out of four new car sales are now backed with a finance deal – a record level of penetration, and one that’s increased dramatically since the recession.
The user-friendly PCP, which typically runs over a three-year period, is another factor driving change. Post-recession, budget-conscious consumers have wholeheartedly adopted the certainty and affordability of fixed monthly PCP payments. Some PCPs even come bundled with servicing and insurance, making driving costs yet more predictable. On the back of these deals, regular contact between dealer and customer has become the norm and a call from your dealer to help review your options as your finance deal nears completion is now expected practice. Most importantly though, in terms of the replacement cycle, used cars have so far held their value well. The used car market was starved of new stock in the recession and the market for two and three-year-old cars is strong. This has allowed dealers to structure finance for new car replacements earlier and earlier in the cycle, often at no additional cost to the driver.
Technological innovation is another important piece of the jigsaw, with manufacturers building more and more advanced engineering into their models every year. From satnavs to more efficient engines, there are plenty of reasons for drivers to upgrade to a newer model when they start to look around.
Supporting all this, of course, has been the strengthening economy. Steady growth in output, low interest rates and minimal inflation have all helped consumers feel more positive about purchasing.
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By GlobalDataIt will be interesting to see if the trend for more frequent replacement continues to shorten when interest rates begin to rise or, indeed, when manufacturers start to direct more of their marketing support towards continental Europe. A fall in used car values, as more new-car PCPs are returned into the market, could also potentially reverse the trend, leaving customers with less equity in the vehicle to finance their next purchase.
For the time being, however, while the economy continues to grow, interest rates remain low and manufacturers keep adding more bang for the buck, shorter replacement cycles look as though they’re here to stay.
Julian Rance is head of Paragon Car Finance at Paragon Bank
