Automotive Finance Market Size, Share & Trends Analysis Report By Provider Type (Banks, OEMs, Others), By Finance Type (Direct, Indirect), By Purpose Type (Loan, Leasing, Others), By Vehicle Type (Commercial Vehicles, Passenger Vehicles) and By Region(North America, Europe, APAC, Middle East and Africa, LATAM) Forecasts, 2023-2031

Market Overview

The global automotive finance market size was valued at USD 274.72 billion in 2023. It is estimated to reach USD 465.01 billion by 2032, growing at a CAGR of 6.8% during the forecast period (2024–2032).

Automotive financing, also known as car finance, car financing, and auto finance, refers to the variety of financial services that enable individuals to acquire a vehicle through any arrangement other than a cash-only purchase. These services include retail installments, leases, loans, and sales contracts. Automotive financing is extensively utilized by both the general public and businesses.

Automotive finance, commonly facilitated by banks or other financial institutions, allows consumers to make payments to dealers or manufacturers for vehicle purchases, even in cases where they lack the required funds. In simple terms, automotive finance provides consumers with the means to acquire a vehicle by securing the necessary funds to complete the payment obligations to the seller. Financial institutions use the most prominent technologies, including Blockchain, digital payment systems, and online/mobile banking, to provide their customers with the best automotive financial services.

Market Dynamics

Global automotive finance market drivers

Increasing launch of advanced vehicles with high tech and enhanced safety features

The global automotive sector has witnessed the launch of several innovative technology products over the past few decades, having improved safety features. As per the European Automobile Manufacturers' Association (ACEA), the average price and vehicle sales have steadily increased in major world geographies, especially in European countries. In the European region, there has been a consistent increase in the demand for automobiles, with a growth rate of 3.4% observed for the fourth consecutive year. The demand for automotive financial services is rising as an increasing number of clients seek a cost-effective and dependable means to finance their vehicles.

Additionally, incorporating attractive technology-specific features, using higher-quality materials, and economic fluctuations are significant factors driving this growth. Customers today seek a finance source that can provide them with hassle-free and quick automotive financing. A high percentage of automotive ownership per household, a progressive growth rate in vehicle registration, and an increasing average price of vehicles in developed economies are favoring market growth.

Rising adoption of digital services by customers to find suitable financing products

The ongoing digitalization is affecting the automotive market by changing customers' behavior during the purchasing process. The Internet has been considered the most widely used and influential source among vehicle buyers. These customers are searching for the appropriate vehicle and a suitable financing product online as per their needs instead of directly visiting the dealer. As a result, the customer is detached from directly interacting with the car dealers. The success of on-site financing can be attributed to two factors. The first is that automotive finance providers can provide at least the same contractual conditions as traditional banks.

Secondly, the financers coordinate with car dealers as they are generally a part of the same corporate group. This provides automotive finance providers with a significant competitive edge over banks. Similarly, automotive finance market players are positioning themselves online to offer customers new and innovative communication channels. Thus, the evolving preference of buyers to adopt on-site financing makes the buying process more organized and increases the significance of automotive finance companies, fueling market growth.

Global automotive finance market restraint

Government regulations regarding credit provision

Certain government regulations on credit provision force financiers to reframe their strategies for products and modify their operations, systems, business processes, and controls. Automotive finance companies must comply with regulatory requirements, focus on the customer life cycle, and decrease defaulter debts. There are country-specific government regulations on credit provision with varying degrees of freedom for automotive finance providers. According to the Consumer Leasing Act of the Federal Trade Commission, the extent of disclosure of lease terms and costs is specified. This act even necessitates certain sensitive information in advertisements for leases. All these factors will hamper the market growth in the future.

Global automotive finance market opportunities

Technological advancements

Technological advancements have emerged as a popular trend in the automotive finance industry. In order to maintain their market position, market-leading companies in the automotive finance industry are concentrating on developing new technologies, thereby providing opportunities for market growth. For instance, in September 2022, Kuwy, the first automotive fintech startup in India and a subsidiary of Volkswagen Finance, launched KUWY-LaaS, an artificial intelligence-driven platform with blockchain technology for online auto sales. The technology democratizes online auto transactions while maintaining total transparency and provides additional information to assist the vendor, buyer, and lender in making the best decisions. The technology enables consumers to select financing options, choose a lender, and receive rapid approval in a paperless journey.

Regional Analysis

Europe dominates the global market

Based on region, the global automotive finance market is bifurcated into North America, Europe, Asia-Pacific, Latin America, and the Middle East and Africa.

Europe is the most significant global automotive finance market shareholder and is anticipated to exhibit a CAGR of 6.6% during the forecast period. The European regional market expansion can be attributed to the region's abundance of automotive finance service providers. Numerous market participants are concentrating on providing services via mobile and online channels. This initiative provides these key players with an advantage over conventional players. Moreover, the increasing demand for electric vehicles in the region propels market expansion.

Additionally, the European automobile market is experiencing accelerated transformations. Introducing innovative technologies such as electrified vehicles, connected automobiles, and autonomous automobiles stimulates market expansion. In such a transformation phase, companies, including captives and independents, are anticipated to acquire momentum as the demand for such vehicles increases substantially. Germany, the United Kingdom, and France are significant revenue contributors to the European market.

North America is anticipated to exhibit a CAGR of 6.02% over the forecast period. The North American region experienced sluggish development in the sector, primarily due to the COVID-19 pandemic and rising economic insecurity. However, the United States and Canada are the most lucrative economies in the region. The large population that purchases automobiles and requires financial assistance positively influences regional market development. In addition, strong economic development and an already well-developed and robust automotive industry are significant factors in the region's strong influence. Large financial institutions, which provided better and more advanced services and a variety of options, were the main drivers of the expansion of the American economy.

Asia-Pacific is envisaged to rise as the fastest-growing regional market. In the upcoming years, the market is expected to experience significant growth. The investments and initiatives being made by the governments in the region to support digitization, as well as the strong emphasis being put on ensuring a customer-friendly and convenient automotive financing process, can be attributed to the growth of the automotive finance market in the Asia-Pacific. The robust automotive sector growth in the Asia-Pacific region is expected to fuel the demand for financial services and subsequently lead to the expansion of the automotive financing market in the region.

Additionally, the increasing prevalence of car rental and sharing services in the region is driving the expansion of the market. Due to its dominance in the regional automotive market, the Indian automotive market has significant development potential as the country's disposable income has increased steadily in recent years. In China and South Korea, the demand for electric vehicles is increasing significantly. Therefore, it is anticipated that the industries in these nations will acquire momentum in the coming years.

Segmental Analysis

The global automotive finance market is segmented by provider type, finance type, purpose type, and vehicle type.

Based on provider type, the global automotive finance market is segmented into banks, OEMs, and other financial institutions. 

The bank segment owns the highest market share and is estimated to exhibit a CAGR of 6.4% during the forecast period. Banks dominate emerging markets, whereas financial captives are popular in mature markets. Banks and credit unions aim to provide consumers with low-interest rate loans and minimal risk factors associated with the financing process. In addition, banks facilitate fast processing with minimum documentation and provide financing for up to 85% of the vehicle's overall value. Banks also offer flexible tenures ranging from 12 to 60 months for repayments.

Furthermore, the banking segment is expected to grow over the forecast period because of the fast-processing features offered by banks and the need for minimal documentation. At the same time, banks also offer a finance portal that gives their customers complete access to their loan details after registration. Hence, the banking segment will continue dominating the market over the forecast period.

Based on finance type, the global automotive finance market is bifurcated into direct and indirect finance types. 

The direct segment dominates the global market and is projected to exhibit a CAGR of 6.31% over the forecast period. In the direct finance type, the consumers contact or visit a lending institution directly, such as a bank or credit union, to attain financing for their vehicle, usually before completing the acquisition at a dealership. In this segment, consumers are liable for determining which financing source suits best for their needs.

The segment accounts for the largest market share mainly because obtaining direct finance involves simple procedures, minimum risk factors, and familiar terms and conditions. Customers opting for direct finance can focus on finalizing the loan scheme of their choice as direct financiers coordinate with vehicle dealers and take care of all the necessary documentation. Direct automotive financing offers benefits such as eliminating lengthy loan processes, offering multiple loan options, providing time to examine every loan scheme, and streamlining the loan processes.

Based on purpose type, the global automotive finance market is divided into loans, leasing, and others. 

The loan segment is the most significant contributor to the market and is estimated to exhibit a CAGR of 6.3% over the forecast period. The loan segment comprises automotive finance purposes in which customers get a direct loan from a bank, finance company, or credit union. In a loan, the customer must pay the amount financed over time and some inclusive interest sum. Once a contract is signed between the customer and the financer, the buyer uses the loan amount from the direct lender to pay the price of the vehicle. Loans are considered the best option for customers needing financial support to acquire a new vehicle.

Generally, no minimum deposit is involved in a loan where fixed monthly payments are decided. Personal contract purchase is another flexible way of procuring a car, especially for customers wanting flexibility. Banks are offering customers the ability to apply for pre-approval. This makes it easier for customers to compare estimated loan offers. The automotive loan market is also saturated in well-established geographies while constantly gaining momentum in emerging countries.

Based on vehicle type, the global automotive finance market is divided into commercial vehicles and passenger vehicles. 

The passenger vehicles segment is the largest revenue contributor to the market and is expected to exhibit a CAGR of 7.21% over the forecast period. Passenger vehicles, such as passenger cars, utility vehicles, and multipurpose vehicles, refer to vehicles owned by individuals for personal use and commuting. Such customers select vehicles to suit their requirements and budget, after which they finalize the most appropriate finance deal. Automotive finance companies ensure that individuals acquire complete vehicle ownership after paying the mandatory down payment and compulsory documentation.

The passenger vehicles segment is anticipated to gain momentum over the forecast period, mainly due to the shifting customer preference toward opting for automotive financing and owning a vehicle early in professional life. In line with the evolving trend, private and captive automotive financiers are building more holistic relationships with automotive dealers and buyers. Automotive financiers are also pursuing various initiatives to digitize their operations and improve automotive financing lifecycle management to enhance customer experience.

Recent Developments

• July 2023- Maruti Suzuki India Limited announced that it signed an agreement with Bajaj Finance Ltd. Under the terms of this partnership, Bajaj Finserv Ltd.'s lending subsidiary will offer "tailor-made auto retail financing solutions" to Maruti Suzuki customers.
• April 2023- The auto-tech company CarDekho launched Rupyy, a specialized fintech platform that offers financing options to automobile buyers and dealers. The company announced that CarDekho Financial Services will be rebranded and consolidated under this new name.