The Growth of UK Motor Finance Richard Jones Managing Director Black Horse, Lloyds Banking Group 8 April 2016
ABOUT BLACK HORSE Introduction Overview Market Position Key Partners UK market leading non-captive motor finance provider, #1 independent provider) Provide point-of-sale finance to >600k end consumers Sold by >2,600 motor dealers operating through 6,000 dealerships 300k new customers and > 4bn of lending in 2015 10Bn total customer lending Motor Finance via Dealers 1 Motor Finance via JVs 4 Leisure & Bike Finance 1 Dealer Wholesale Stocking 2 Fleet Company Finance 1 External recognition Motor Finance Performance 2015 New Business, bn 30% CAGR W I N N E R 2012 2013 2014 2015 2
A PERIOD OF TREMENDOUS GROWTH FOR NEW CAR SALES GD DP YonY % - UK vs Europe Eurozone weakness favouring supply to UK helping significant growth in car sales New Car Sales, m 30% growth 2010-2015 Increasing subsidisation of finance deals Subsidisation by Manufacturer +2% +7% +28% 4k 2012 2013 2014 2015 New Car Registrations, m & Release of pent up demand Pent up demand 3
BENIGN ECONOMIC CONDITIONS UNDERPINNED THE MARKET GROWTH Interest rate remains at all time low with a strong 0.5% BoE base rate for 7 years is 11% cheaper than it was in 2010 Car Market follows GDP trend YonY Growth 15% 10% 5% 0% -5% -10% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Scrappage Scheme -15% GDP Used Car Volumes New Car Reg (#m) Relatively benign period for residual values, some growth and no shocks in recent years Residual value k 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 4
USED CAR SALES GROWTH NOT AS STRONG BUT MARKET REMAINS BUOYANT YoY growth of used car sales not as strong as new car sales YoY growth New vs Used car sales Used Car Sales, m 6.6m Volumes remain high 7.9m 19% growth 2010-2015 Only half of used car sales through a dealer Half of dealer sales are of cars over 4 years old Used Car Sales, m Private Dealer 2.9 3.1 3.4 3.7 4.1 4.5 2010 2014 2015 Dealer car sales by age, 2015 5
FINANCE PENETRATION IS AT ITS HIGHEST LEVEL EVER New Car Finance penetration peaked Consumer car lending is at its highest 28bn 13bn Subsidisation and finance penetration have grown hand in hand New car finance penetration and subsidisation levels Finance penetration Subsidisation 58% 49% 68% 55% 59% 80% 79% 71% 74% 76% 81% 79% 2010 2011 2012 2013 2014 2015 6
RECENT INFLUENCES 1) Personal Contract Plan growth = higher reliance on residual values PCP has tripled over a 5 year period RVs forecast to fall 1,018 20% peak-to-trough fall? 397 820 1,111 2015 2016 2017 2018 2019 2020 + Residual value risk on car manufacturer Balance sheets 7
RECENT INFLUENCES 2) FCA has taken over regulation of motor finance Conduct regulation Affordability and creditworthiness FCA Focus areas Remuneration models Plus: Smarter consumer communications Treatment of vulnerable customers Principle-Led Regulation 8
RECENT INFLUENCES 3) Customer digital adoption accelerating and enabling market disruption Removes f2f sales pressure Removes difficult finance conversations Reduces time spent at dealership 9
WHAT THE FUTURE HOLDS 1) Ownership to User-ship DriveNow live in London Ford Credit Link car sharing - pilot live Volvo Virtual Key - 2017 10
WHAT THE FUTURE HOLDS 2) Technology and digital disrupts the traditional model 1 In 5 vehicles on the road will be a connected car by 2020 Use of customer data will allow personalisation and through-life engagement Disrupting car sales Customer ownership Relationship with manufacturers / dealers, and lenders 11
WHAT THE FUTURE HOLDS 3) Can the UK car park keep growing?!! 31m <2m scrapped Vs 2.5m new per yearaverage vehicle life growing Partly offset by 500k new drivers annually Fall in used car values PCP reliance + + Slows new car purchases 12
WHAT THE FUTURE HOLDS 4) Demand for AFV is expected to continue Residual values for battery technology Reliability Impact on valuation of traditional fuels 13
MARKET FUNDAMENTALS FOR 2020 How consumers wish to do business Who is carrying the risk How and where customers buy Impacts growth in car & car finance sales Influence of economy Influence of regulation 14
TWO SCENARIOS WHICH ONE WILL PLAY OUT? Scenario A Scenario B New car sales growth Keeps current pace Small / negative Role of dealer Role of lender Role of manufacture r Central to car & finance Traditional POS lending Subsidisation & Financier Car & Financing split Multi channel D2C, Cars not Banks Regulation + Economy + Trust + Digital + Customer experience 15
QUESTIONS? 16