Insight Behind Popularity of Personal Contract Purchases as Automotive Financing Choice in the UK

At a recent meeting with the finance arm of a major European car manufacturer, one subject that was discussed was the varying degree of success across Europe of Personal Contract Purchases (PCP). The widely reported healthy uptake of PCP in the UK was confirmed, with PCP actually accounting for a staggering three-quarters of the financing of this particular OEM’s car sales to private customers. However, I was very intrigued to learn that the PCP share of financing for private consumers is only around 35% in France and as low as 5% in Italy. This naturally led to questions as to why this is the case.

One point that was raised was the maturity of the used car market in the UK, whereby the network is arguably better placed to cope with the sheer volume of cars that need to be moved on with such high PCP uptake. To quantify this, the Society of Motor Manufacturers and Traders (SMMT) increased its 2013 forecast for car sales in the UK to 2.25 million units in early November, “driven by robust private demand”. Undoubtedly, the popularity of PCP itself is partly fuelling the growth in car sales to private consumers, which accounted for 48% of the car market in the first 10 months of 2013, according to SMMT data. Assuming that private demand accounts for 48% of the new car registrations forecast for calendar year 2013, up from 45% in 2012, this equates to 1.08 million cars, and, moreover, based on the 75% uptake rate, over 800,000 cars bought using PCP.

The second point discussed was that there is an ownership culture in France and across Southern Europe and contract purchases are therefore simply not as popular. Intriguingly, Euromonitor International data reveal that as far as mobile phone sales in the big five countries in Western Europe are concerned, pay-as-you-go contracts have the lowest share in France. However, monthly subscriptions account for half of mobile phone sales in Italy and the UK but over 70% in France.

Mobile Phone Sales by Contract Type in the Big Five Western European Markets, Percentage Share, 2012

Source: Euromonitor International

Finally, UK consumers arguably have a greater fixation with possessing the latest goods, but, in the case of cars, I wonder if this isn’t simply more pronounced because, unlike in France and Italy for example, registration plates are age-related and so everyone can tell how old your car is – or rather how new it is. This arguably transcends ownership culture, and, in conjunction with the developed used car network, may help to explain the far greater uptake of PCP in the UK. I do wonder, however, what negative impact the proposed harmonisation of car number plates across the EU would have on the uptake of PCP in the UK, assuming they would no longer be age-related.