Daily Research News Online no. 1599 - Consumer Scepticism over Car Buying

Consumer Scepticism over Car Buying

May 3 2002

A new report from Mintel on car retailing highlights widespread consumer scepticism over the UK car retailing market. The latest research finds that although sales of cars are set to outpace population growth, nevertheless the majority of British consumers remain convinced they are being ripped off by high car prices.

The research highlights strong support for using public transport. Some 45% of consumers agree that people should try to use public transport whenever possible, with 28% remaining neutral and only 16% disagreeing. Nevertheless, the trend towards multiple car ownership among UK households continues to boom.

The UK car parc increased by almost 15% between 1995 and 2001, whereas the UK adult population rose by just 3% over the same period. Between 2001 and 2005, the UK car parc is expected to continue to grow at a faster rate than the UK population. While the population will grow by 2.5% over this period, the number of cars on the road will increase by 6.7% to over 30 million. This increase will cause the number of people per car to fall from 1.71 in 2001 to 1.64 in 2005.'It seems that consumers appreciate the importance of using public transport but are not prepared to leave their cars at home' according to Mr Dominique Allport, Retail Consultant.

The Competition Commission report in April 2000 concluded that British car buyers were paying on average a 10% premium on their vehicles compared to buyersin continental Europe. As a result, the Government's Order on the Supply of New Cars requested major car manufacturers offer car dealers the same discounts as were being made available to fleet buyers. This way, dealers could pass the discounts on to the general public, and a target was set of a 10% reduction in retail prices.

Recent research found list prices on a basket of popular cars having fallen by just 2.1 % rather than the Order's 10% target. Some manufacturers reduced prices but simultaneously withdrew cashback offers and other financial incentives, so that the customer ended up paying virtually the same amount as before. 'In overall terms, it appears that prices have come down, although not equally on all car models, and not by the stipulated target of 10%. However, the introduction of the Euro will mean greater transparency over car pricing and lead to closer harmonisation of pre-tax car prices. This could lead to lower UK prices later this year or by the beginning of next year' added Dominique.

According to Mintel research questioning 1,505 adults, the predominant attitude, expressed by 56% of adults (55% in 2000), is that they feel they are being 'ripped off' by high prices of new cars in the UK. 'This is an emotive term which has been used by many organisations and different forms of media to apply pressure to the ongoing debate regarding car prices. Although some car prices have fallen, it seems that consumer perceptions are slow to change or that they feel they have not fallen enough' comments Dominique.

In terms of new car prices, the percentage of men who feel that they are being 'ripped off' has increased from 58% in 2000 to 63% in 2002. This attitude peaks among the 25-34 age group (62%) who probably have a strong desire to buy new cars but lack the disposable income and capital to fund the purchase. Concern about used car prices has also increased since 2000, with 34% of respondents agreeing that used car buyers were being 'ripped off', compared to 27% in 2000.

The fact that consumers believe they are being charged such a high premium on car purchases, particularly new cars, means that a significant number of consumers would happily consider buying an imported new (42%) or used car (32%) if it could save them money. Those most likely to consider new car imports are at the younger end of the age spectrum, peaking in the 20-34 age group, with a high penetration of better-off AB socio-economic group members (50%).

Just under one third of consumers feel confident buying a new car on their own in a car showroom or buying a new car on their own from a used car dealer, which indicates that dealers have some way to go in overcoming negative customer perceptions. Only 14% of respondents feel that they need independent advice when buying a new car, where mechanical faults would not be expected, whereas 22% felt they needed independent advice when buying a second-hand car, probably because of uncertainties surrounding its condition and history.

Men are almost twice as confident as women about purchasing both new and used cars. Dealers and used car retailers have some way to go in winning the trust of female motorists. Only one fifth of women felt confident in buying a second-hand car from a used car dealer.

'Manufacturers have recently attempted to make the car-buying experience more pleasurable by improving the showroom environment and including children's areas, cafes and in some cases introducing a non-threatening 'greeter' who makes the initial approach to the customer rather than the salesman. However, the showroom experience has some way to go in making all customers feel comfortable' comments Dominique.

Despite a slight dip in sales of new and used cars for 2002, the value of car sales will increase by 22% between 2001-06 to reach little under £72 billion. When the effects of inflation in the motoring sector are stripped out this represents growth of 6% in the 2001-06 period. Growth in the market will be driven by sales of new cars, which will grow by 44% at current prices, which represents 25% growth in real terms. 'Worries of being 'ripped off' by the higher new car prices in this country when compared to other European countries may still limit growth, but government intervention will continue to allay these concerns. As consumers look to buy new cars, used car sales will continue to be affected, with sales in this sector falling by 2% at current prices and 15% in real terms' notes Dominique.

The EU has issued a draft directive outlining proposed changes to Block Exemption as a way of introducing a greater degree of competition into the car retailing market across the EU. In the absence of a final version of the proposed changes it is hard to make predictions as to the likely implications, but some aspects already seem clear: this will be a process of gradual evolution in car retailing rather than outright evolution. In many ways the status quo will be unchanged because manufacturers will still control franchise agreements and (very importantly) the supply of cars coming into the UK market through UK manufacturers. Although dealers in mainland Europe will be able to sell cars in the UK they will experience costs in terms of establishing sites and sourcing cars, which could erode some, if not all, of their competitive advantage.

The four main areas of proposed change in the EU directive draft are: the end of exclusive dealer territories, multi-brand sales in the same showroom, the opening up of the after-sales market to independent repairers and new entrants being permitted to be franchised dealers. 'In theory, this will mean that supermarkets can sell cars, but in reality car manufacturers will still be calling the shots - something that supermarkets may not like. Realistically, cars are very different products to say tomatoes or baked beans, in that they need after-sales support' concludes Dominique.