More to buy a new car in 2012

... but people are still spending less

5 March 2012

AA savings accounts

As the first shiny '12' plate cars roll out of showrooms this March, car dealers can expect to see improved sales compared with this time last year as buyers raid their savings to buy them, according to the latest Car Purchase Index for AA Financial Services.

Nearly a fifth (18%) of respondents in the AA/Populus study will buy a car over the coming year, up 2% from last year. Buyers are most likely to use their savings, ready cash or investments to fund their next car – 44% say they will use their savings, 5% more than last year and an 8% increase from three years ago.

The AA's study also shows that the number of buyers who will finance their car with a personal loan (13%), has increased slightly over last year's 11% low. But it is still considerably less than the fifth (20%) of those who planned to borrow for a car in 2009.

... the study gives grounds for optimism that the car market is slowly recovering

Mark Huggins, director of AA Financial Services

Interest in new car purchase is increasing

Mark Huggins, director of AA Financial Services, says that the study of over 16,500 AA members* gives grounds for optimism that the car market is slowly recovering. "Interest in buying cars appears to be reawakening since the successful scrappage scheme ended two years ago; and since the VAT increase of last year added around £500 to the typical price tag of a new car," he says.

"Continuing low interest rates and people nervous about building up too much personal debt means that using savings, or other ready cash is still by far the favoured way of buying. But recent small interest rate falls from many lenders, including the AA, is leading more people to think about taking out a car loan."

What are people buying?

Despite the cost of diesel fuel reaching record levels,** diesel powered cars are still the nation's favourite – 48% of those planning to buy a car saying this is what they will choose compared with 44% going for petrol. Diesel became the favourite fuel for the first time last year. Hybrid cars still attract around 3% of buyers, and have done since 2009.

"New car technology is still being treated with caution," Mr Huggins says. "But a new question in the study showed that nearly a third (31%) say they are attracted to the concept of hybrid or electric cars, provided the cost falls and technology improves.

"In fact, 11 buyers say they'll buy an electric car this year. While that's hardly a rush, it's 10 more than last year!

"The idea of cheap-to-run cars has high appeal," he suggests. "'Low running costs' (39%) is second only to 'present car too old' (45%) as the main considerations for changing a car, which augurs well for emerging car technologies."

AA Financial Services offers a range of savings plans including fixed rate savings bonds (an ideal way to save for a car); ISAs and internet accounts. In addition, it offers car loans while the AA Reward Credit Card offers generous rewards on fuel purchases.

Key facts and figures from the AA Car Purchase Index*

  • Overall, buyers are less likely to keep their existing cars beyond two years, falling from 34% in 2009 to 17% now.
  • Those aged between 18 and 24 are most likely to spend less than £1,000 (5%). More than half of that age group will spend between £1,000 to £5,000 (52%).
  • The number of people expecting to spend over £15,000 has increased markedly since 2009 (16%) to 23% now.
  • Those aged 65 and over are most likely to spend over £10,000.
  • Buying with available money, either from savings, from a bank account or cashing in investments (total 67%) is overwhelmingly the most likely way to finance a car purchase, although fewer than in 2009 (70%).
  • The number opting for a personal loan (13%) has fallen significantly since 2009 (20%).
  • Young women are twice as likely to benefit from a gift (4%) as men (2%) – this has been a consistent pattern over the past four years.
  • Those choosing a hybrid car has remained fairly constant. However, those opting for an electric car has increased markedly, albeit only 11 buyers in the survey compared with just one last year and none before then.
  • However, 31% of those planning to buy a car in the next year said they would consider an electric or hybrid car in the future if prices came down and technology improved.
  • Numbers opting to buy a new car has remained fairly constant.
  • Those choosing an under-three year old used car (36%) is increasing after a low point (32%) last year.
  • 'Car too old' was a similar consideration among all age groups and has remained fairly consistent.
  • 'Reliability' and 'green' considerations have fallen steadily over four years.
  • Young drivers (18 to 24) were most likely to put reliability at the top of their wish list (38%); and were also more likely to opt for a faster/more powerful car (29%).
  • Women were more likely to want a 'run-around' (7%) across all age groups.
  • Over 65s were most likely to want a more comfortable car (27% of all in that age group) and choose one with better safety features (10%).

* The AA Car Purchase Index study was carried out by AA/Populus which interviewed 16,647 AA members in December 2011.
** The average price of diesel as at 28 February is 144.21p and unleaded petrol 136.85p according to the AA Fuel Price Index.