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Consumer Automotive Financial Services in Canada

  • October 2015
  • -
  • Finaccord
  • -
  • 72 pages

Consumer Automotive Financial Services in Canada investigates the market for automotive financial services linked to sales of new and used passenger cars to individual buyers in Canada. In addition to analysing the market for finance and leasing services, the study also covers creditor insurance, motor insurance, GAP insurance, road assistance, extended warranties and prepaid service contracts, plus three niche protection products, namely excess wear and tear, scratch and dent, and tire and rim.

Using survey results for average take-up rates for finance and leasing propositions at the point of sale, data for the size and growth of the automotive finance and leasing market for consumers in Canada is provided in terms of gross advances and assets leased for 2011 to 2015 with splits between finance for new and used cars and between finance organised through dealerships at the point of sale and directly with banks or other lending institutions.

Moreover, also by means of data for average take-up rates, the markets for creditor insurance, motor insurance, GAP insurance, road assistance, extended warranties, prepaid service contracts and the three niche protection products mentioned above are sized in terms of gross written premiums and other revenues sold through the automotive trade (i.e. via dealers and manufacturers) in 2015. These markets, estimated to be worth CAD 2.51 billion in total in 2015, are broken down between new and used cars, and between new contracts sold during 2015 and in-force business sold in previous years but still being renewed in 2015.

The report draws on a survey of 65 leading car dealerships as well as an analysis of the approach to consumer automotive financial services of 32 car manufacturer brands in Canada. The PartnerBASE™ dataset that accompanies the report details each of the marketing initiatives for consumer automotive financial services traced by Finaccord for both dealers and manufacturers.

In addition to captive finance companies owned by manufacturer brands, organisations covered by the report include BMO Financial Group, Club Auto Roadside Services, Co-operators, Desjardins, Diamond-Kote, First Canadian, General Bank of Canada, Groupe PPP, iA-SAL (Industrial Alliance), LGM, Lubrico, RBC, Safe-Guard, Scotiabank, SSQ Financial Group, Sykes Assistance Services, Sym-Tech, TD Canada Trust, Tricor and Walkaway. Together, the report and database will provide you with the definitive guide to current and future opportunities in consumer automotive financial services in Canada.

Table Of Contents

Consumer Automotive Financial Services in Canada
TABLE OF CONTENTS
00 EXECUTIVE SUMMARY 1
10 INTRODUCTION 3
What is this report about? 3
The focus of the report is on financial services related to the sale of passenger cars to individuals 3
Rationale 3
The provision of financial services is essential to support both car sales and profitability 3
This report offers a detailed and updated analysis of the subject in Canada based on primary research 3
Methodology 4
Survey of dealers and manufacturers 4
Market data 5
Computation of market data is based on a complex set of assumptions and variables… 5
…in order to provide market segmentations in unrivalled detail 5
External sources 6
Definitions 6
Finance and leasing products 6
Insurance, warranty and assistance products 6
Operating models 7
Tied and non-tied providers 8
Abbreviations 8
Exchange rate 8
PartnerBASE and market data annexe 8
Finaccord 9
20 MARKET ANALYSIS 11
Introduction 11
Passenger vehicle data 11
Sales of both new and used passenger cars hit a five-year high point in 2015 11
No single manufacturer group takes a share of more than 20% of the new light vehicle market 13
Consumer automotive finance and leasing market 14
Market size and growth 14
Used cars make up the majority of the finance and leasing market by volume 14
with the total market value having risen at a compound annual rate of 74% between 2011 and 2015 15
Types of finance and leasing product 17
Car loans remain the dominant form of point-of-sale finance… 17
… and have increased slightly in popularity in recent years 17
Consumer automotive insurance, warranty and assistance markets 18
Market sizes 18
The total value of insurance, warranty and assistance products sold by the automotive trade is substantial… 18
… and estimated by Finaccord at more than CAD 25 billion in 2015 18
Survey of automotive dealers and manufacturer brands - overview 21
Introduction 21
Provision of consumer automotive financial services 21
Four types of automotive financial services are offered by the vast majority of dealerships 21
Weighted manufacturer provision rates exceed dealer provision rates in four cases 21
Number and nature of dealer schemes 23
Dealers typically work with more than five providers for finance and leasing

Types of creditor insurance policy sold by dealers 25
Creditor insurance policies in the automotive sector always comprise comprehensive cover… 25
Types of motor insurance policy sold by dealers 26
… and most motor insurance policies also do so 26
Sources of road assistance distributed by dealers 27
Road assistance is almost always bundled with both factory and extended warranties 27
Consumer uptake of automotive financial services through dealers 28
Take-up rates for point-of-sale finance and leasing increased between 2012 and 2015… 28
… and are also high for a number of other products, most notably extended warranties 28
Survey of automotive dealers and manufacturer brands - partnerships 30
Introduction 30
Finance and leasing 31
Four providers dominate non-tied point-of-sale finance relationships with dealers in Canada 31
and two of these own subsidiaries active in sub-prime automotive finance 31
Numerous province-specific lenders and credit unions are also active in this sector 31
All manufacturer brands have a captive or preferred provider in this field… 33
… with Scotiabank and RBC identifiable as the leading non-captive providers 33
In the combined analysis, four providers are found likely to control almost 50% of the market 35
Creditor insurance 36
A number of dealers have made separate arrangements for this product… 36
with First Canadian, iA-SAL and SSQ Financial Group holding the bulk of these relationships 36
Five providers benefit from direct relationships for creditor insurance with captive finance firms 38
Motor insurance 40
Few dealers distribute motor insurance… 40
… and most that do are based in British Columbia with ICBC used as provider 40
SmartCoverage benefits from its relationship with GM 42
GAP insurance 44
Dealers mostly employ non-tied partners, since few manufacturer brands have a scheme… 44
… with eight such partners identified in total, led by iA-SAL 44
Only six out of the 32 manufacturer brands researched have an arrangement for GAP protection 46
Extended warranties 48
At least ten non-tied providers distribute extended warranties through dealers 48
… with the fifth-ranked competitor (Groupe PPP) active in Quebec only 48
LGM, Safe-Guard and Warrantech have all secured partnerships with manufacturer brands… 50
… albeit iA-SAL emerges as the leading external provider in the combined analysis 52
Road assistance 53
Road assistance is rarely available as a stand-alone product 53
Sykes Assistance Services and Club Auto Roadside Services dominate manufacturer brand relationships 55
Prepaid maintenance contracts 57
Where available, dealers tend to focus on offering manufacturer-branded contracts… 57
… all of which are managed internally by the manufacturers themselves 59
Scratch and dent protection 61
First Canadian, iA-SAL and Sym-Tech hold the most non-tied partnerships for scratch and dent protection 61
Relatively few manufacturer brands have developed their own scratch and dent protection product 63
Tire and rim protection 65
The same three non-tied providers are also the most prominent in the tire and rim protection sector… 65
followed by Tricor and Diamond-Kote 65
A majority of manufacturer brands have an arrangement for tire and rim protection 67
Excess wear and tear protection 69
Dealers focus mainly on distributing manufacturer brands' own excess wear and tear protection cover… 69
… which are mainly configured and managed on an internal basis… 71
… albeit with LGM and Safe-Guard employed by a handful of brands

LIST OF GRAPHICS / TABLES

00 EXECUTIVE SUMMARY 1
Key market data for consumer automotive financial services in Canada, 2015 2
10 INTRODUCTION 3
20 MARKET ANALYSIS 11
Passenger car parc and new / used passenger car sales in Canada, 2011 to 2015 12
Passenger car parc and new / used passenger car sales in Canada, 2011 to 2015 (table) 12
New light passenger vehicle sales in Canada, segmented by manufacturer group, 2014 13
New and used passenger car finance market in Canada, segmented by distribution channel: volumes, 2011 to 2015 14
New and used passenger car finance market in Canada, segmented by distribution channel: values, 2011 to 2015 15
New and used passenger car finance market in Canada, segmented by distribution channel: values and volumes, 2011 to 2015 (table) 16
% split between the different types of finance and leasing contract organised at the point of sale in Canada, 2015 17
Total revenues from consumer automotive insurance, warranty, assistance and service contract markets in Canada, 2015 19
Total revenues from consumer automotive insurance, warranty assistance and service contracts in Canada, 2015 (table) 20
Comparison of the provision of each type of automotive financial service by dealers and manufacturer brands in Canada, 2015 22
Average number of tied and non-tied schemes organised by dealers for each type of automotive financial service in Canada, 2015 (table) 23
Average number of tied and non-tied schemes organised by dealers for each type of automotive financial service in Canada, 2015 24
% split between the different types of creditor insurance policy sold at the point of sale in Canada, 2015 25
% split between the different types of motor insurance policy sold at the point of sale in Canada, 2015 26
% availability of road assistance through factory warranties, annual services, extended warranties, motor insurance, prepaid service contracts and as a stand-alone product in Canada, 2015 27
% of new and used car purchasers acquiring each type of automotive financial service at the point of sale (where made available) in Canada, 2015 29
Provision of finance and leasing by dealers in Canada, 2015: provision rate, product sources and provider share of non-tied partnerships 32
Provision of finance and leasing by manufacturer brands in Canada, 2015: provision rate, operating models and weighted provider share of partnerships 34
Implied market shares of new business for finance and leasing at the point of sale in Canada, 2015 35
Provision of creditor insurance by dealers in Canada, 2015: provision rate, product sources and provider share of non-tied partnerships 37
Provision of creditor insurance by manufacturer brands in Canada, 2015: provision rate, operating models and weighted provider share of partnerships 39
Provision of motor insurance by dealers in Canada, 2015: provision rate, product sources and provider share of non-tied partnerships 41
Provision of motor insurance by manufacturer brands in Canada, 2015: provision rate, operating models and weighted provider share of partnerships 43
Provision of GAP insurance by dealers in Canada, 2015: provision rate, product sources and provider share of non-tied partnerships 45
Provision of GAP insurance by manufacturer brands in Canada, 2015: provision rate, operating models and weighted provider share of partnerships 47
Provision of extended warranties by dealers in Canada, 2015: provision rate, product sources and provider share of non-tied partnerships 49
Provision of extended warranties by manufacturer brands in Canada, 2015: provision rate, operating models and weighted provider share of partnerships 51
Implied market shares of new business for extended warranties at the point of sale in Canada, 2015 52
Provision of road assistance by dealers in Canada, 2015: provision rate, product sources and provider share of non-tied partnerships 54
Provision of road assistance by manufacturer brands in Canada, 2015: provision rate, operating models and weighted provider share of partnerships 56
Provision of prepaid service contracts by dealers in Canada, 2015: provision rate, product sources and provider share of non-tied partnerships 58
Provision of prepaid service contracts by manufacturer brands in Canada, 2015: provision rate, operating models and weighted provider share of partnerships 60
Provision of scratch and dent protection by dealers in Canada, 2015: provision rate, product sources and provider share of non-tied partnerships 62
Provision of scratch and dent protection by manufacturer brands in Canada, 2015: provision rate, operating models and weighted provider share of partnerships 64
Provision of tire and rim protection by dealers in Canada, 2015: provision rate, product sources and provider share of non-tied partnerships 66
Provision of tire and rim protection by manufacturer brands in Canada, 2015: provision rate, operating models and weighted provider share of partnerships 68
Provision of excess wear and tear protection by dealers in Canada, 2015: provision rate, product sources and provider share of non-tied partnerships 70
Provision of excess wear and tear protection by manufacturer brands in Canada, 2015: provision rate, operating models and weighted provider share of partnerships 72

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