Consumer spending on car purchasing is estimated to have increased by 43% in currrent terms - Is the demand for cars in the UK set to keep growing?

Major car dealers now have their own websites showing example models, prices and dealership location - Will the Internet develop as a powerful force for the car market?

What are the most important factors consumers take into consideration when purchasing a car?

Mintel Retail Intelligence last examined the car retail sector in March 2000, when it was suffering from negative publicity concerning high car prices in the UK. Due to a combination of government initiatives and consumer pressure manufacturers began to introduce price reductions in late 2000 and consumers returned to car showrooms, pushing sales of new cars to a record high in 2001.

The car retailing sector is going through a period of change, evolving from a fragmented franchise network controlled by manufacturers into a more consolidated sector in which the larger dealerships are beginning to flex their muscles and look for ways of developing their own distribution networks. Whereas in the past each dealer sold cars supplied by a single manufacturer, it is estimated that some 15% of UK dealerships now operate on a multi-franchise basis. Four of the largest dealers have established themselves as procurement and distribution specialist for major new Internet retailing sites.

Dixons provide the cars for Jamjar.com, Inchcape provides cars for oneswoop.com, Pendragon has set up its own Internet car retailing site, tins.co.uk and Inchcape owns 100% of autobytel.co.uk under a 20 year exclusive licensing agreement with US Internet car retailer Autobytel.com.

New forces for increased competition are entering the market: car supermarkets provide competition to the traditional used car dealer and Internet sites offer instant price comparisons which are enabling consumers to approach a dealership from a stronger bargaining position.

The biggest change will come from the recently announced proposed changes to Block Exemption, which will break the automatic link between manufacturers and dealers in the after-sales market. Dealers will be able to subcontract repairs to an authorised garage and independent repairers will be able to apply for authorisation from manufacturers. Dealers' franchise agreements will no longer be limited to geographical territories and they will be able to offer more than one manufacturer brand within the same showroom. New entrants will be able to compete in the UK car retailing market - either European dealers or UK retailers setting up joint ventures with existing franchised dealers who are looking for ways to increase their new car sales beyond the limits of the franchise agreements.

These changes come at a time when manufacturers are suffering from overcapacity in the UK and European markets and dealer networks are consolidating. Currently, both manufacturers and dealers are operating on thin profit margins when it comes to selling new cars. Manufacturers will seek to maintain their control over dealerships, while the larger dealers flex their muscles and seek out new retail partners who wish to enter the car retail market.

Other relevant Mintel Retail Intelligence reports include:

- Car Servicing/MOT, Market Intelligence, February 2002

- Car and Van Hire, Market Intelligence, December 2001

- Car Aftermarket - Small Parts, Market Intelligence, July 2001

- Car Finance: One-Stop Shop, Finance Intelligence, May 2001

- Car Accessories, Market Intelligence, April 2001

- Car Decoration & Care, Market Intelligence, November 2000

- The UK Car Market, Special Report, August 2000

- Car Retailing, Retail Intelligence, March 2000.