EU Commission _ UK Automotive Study on the Pricing and Fitment of Optional Extras to Passenger Cars and Light Commercials Final report February – 2016 Europe Direct is a service to help you find answers to your questions about the European Union. Freephone number (*): 00 800 6 7 8 9 10 11 (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you). LEGAL NOTICE This document has been prepared for the European Commission however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet (http://www.europa.eu). Luxembourg: Publications Office of the European Union, 2016 ISBN 978-92-79-58256-1 doi:10.2834/235371 © European Union, 2016 Reproduction is authorised provided the source is acknowledged. Contract Number: 340201/2015/716355/SER/CLIMA.C.2 A study into the fitment and pricing of optional extras onto new motor vehicles in the UK and their resale in the used market 17th February, 2016 ABSTRACT Analysis of the car and light commercial vehicle UK markets regarding the fitment and pricing of optional extras when new. Analysis by segments A, B, C, D, E, F, J, M, S, NI Class I, NI Class II, NI Class III and at three time points, November 2003, 2009 and 2015. Also including CAP HPI expert views of how the used market values options in the used market. Requested by & Delivered to: Ian Hodgson CLIMA.C.2 [email protected] Transport and Ozone Unit Tel: (+32-2) 2986431 Climate Action Directorate General Fax: (+32-2) 2969554 European Commission Office address: Postal address: Avenue de Beaulieu 24 Office BU-24 -1/19 B-1160 Brussels, Belgium B-1049 Brussels, Belgium http://ec.europa.eu/clima/policies/transport/index_en.htm Produced by: CAP HPI Consulting Contact: CAP HPI Michaela Hill Capitol House Technology & Data Consultant Bond Court [email protected] Leeds Office: +44 (0) 113 222 2054 West Yorkshire, UK Mobile: +44 (0) 7739 304822 LS1 5EZ http://www.cap.co.uk/ Contents Page. Executive Summary 4 Report Sections - 1. New vehicle analysis of optional equipment availability a) General trends in optional availability 6 b) Cost aggregation of options new over the data periods 9 2. Used vehicle market analysis of cost effective vehicle options 14 3. Consumer insight of purchasing a used vehicle with additional cost option 17 fitted when new 4. Effects of optional equipment on CO2 emissions 20 5. Manufacturer selection of optional equipment against competitors a) Overview of why standard equipment levels improve over time 24 b) Specific Segment analysis for passenger cars and light commercial vehicle 28 c) Fleet market analysis 36 d) Actions taken by manufacturers to ensure competitiveness 38 6. Appendix i) Mean Cost Option Analysis: Cars by Segment 41 - Segment coverage A/B, C, D, E, F, J, M, S. ii) Mean Cost Option Analysis: Commercial Vehicles by Segment 60 - Segment coverage N1: Class I, II and III 1 | P a g e Figures and Table Contents Figures Page Figure 1 Feature Adoption Profile Across Segments 6 Figure 2 Air Conditioning Feature Evolution 7 Figure 3 Variation in Commercial User Requirements 35 Table Page Table 1 Options Average Price Movement Summary by Generic Category: Cars 9 Table 2 Options Average Price Movements: N1 segment 10 Table 3 Passenger Cars Options Average Price by Generic Category 11 Table 4 LCV Options Average Price by Generic Category (mean average price) 13 Table 5 Key Options Average Price and Retained Value Percentages (Cars) 14 Table 6 Option Pack Residual Value Performance – MINI 15 Table 7 Option Pack Residual Value Performance – Honda CR-V 15 Table 8 Option Pack Residual Value Performance – Hyundai Tucson 15 Table 9 Key Options Average Price and Retained Value Percentages (LCVs) 16 Table 10 CAP HPI Black Book Editorial Commentary by Segment 18 Table 11 CAP HPI View of the Effects of Optional Equipment on CO2 Emissions - Cars 21 Table 12 CAP HPI View of the Effects of Optional Equipment on CO2 Emissions - LCV 23 Table 13 Historic Feature Development of Rear Parking Sensors and Rear View Camera 24 Table 14 Historic Feature Development of Daytime Running Lights and Active City Stop 25 Table 15 Historic Feature Development of Alloy Wheel (incl. Size) and Bluetooth 26 Connectivity Table 16 Historic Feature Development of Air Conditioning 26 2 | P a g e Table Continue…. Page Table 17 Historic Feature Development of Puncture Repair Solutions 27 Table 18 Historic Feature Development of Sunroofs 27 Table 19 B-segment Specification Line-Up Fiesta vs MINI 29 Table 20 Historic Feature Development of Headlight Technology 30 Table 21 Historic Feature Development of Electric Door Mirrors and Headlight 30 Washers – LCVs Table 22 N1 class I Specification line-up- Fiesta van vs Corsavan 31 Table 23 Ford Transit LX pack specification line-up 33 Table 24 Tyre Options Ford Transit vs Mercedes Sprinter 34 Table 25 N1 segment Historic Development of Alloy wheel Size Variations 34 Table 26 CAP HPI View of Manufacturer Activity by Sector and Market 38 Table 27 Models Reviewed by Segment 40 3 | P a g e Executive Summary 1) New Vehicle analysis of optional equipment availability Features typically start as an option in the F-segment with the premium brands and then go on to become standard fitment. They are then “backfilled” with new optional features. This trend filters down through the segment hierarchy, both when optional and standard. Key reasons for the trend for increased specification: o Competition between manufacturers to make their products stand out o Existing customer retention and attracting new customers o Reducing costs of newly developed technology o Maintain margins for both manufacturers and dealer networks LCVs do not exhibit this hierarchy: as the focus is on practicality, manufacturers compete by offering a wider range of body types, rather than options and standard features. In passenger cars and LCVs, exceptions to this are driven by either legislation or technology. The passenger car segments J (SUV), M (MPV) and S (sports) behave differently. J-Segment is very broad and also divides across utilitarian and lifestyle lines. M-segment is more focused on practicality. S-segment is more about the driving experience, is dividing along the lines of true sports cars and more luxurious, comfortable cars. 2) Used vehicle market analysis of cost effective vehicle options 1) In the used market, options often hold very little value. Analysis of options pricing is complicated by to the vast array of permeations across the many brands, models and over time. By using CAP HPI’s generic options structure, a trend of increasing prices emerges over the 12 years studied, but at a rate below that of UK inflation. Options themselves have also generally become more sophisticated over the same period. Most options retain little value in the used market. The key ones that do retain value, and that thus could be deemed “cost effective”, are the ones that are visible and interactive: o Navigation systems o Parking aids o Panoramic roofs o Air conditioning (including climate control) o Leather interior trim Options packs are used by manufacturers to simplify the buying process and encourage sales, but often perform poorly in the used market as many of the features packaged have little customer appeal. LCV options selection is focused much more on practicality e.g. ply lining to protect bodywork. Safety features on LCVs are becoming more evident driven by health & safety considerations. The 4x4 LCV market has split between utilitarian (commercial buyers) and lifestyle choice vehicles (private buyers). 4 | P a g e 3) Consumer insight of purchasing a used vehicle with additional cost options fitted when new The key difference is the buying process in the used market: the customer does not choose what to add but has a choice of vehicles in the market where specification is already set. Additional specification can to the value of vehicle, but more often influences the choice between vehicles without impacting the price the customer is willing to pay. The options that the typical used customer is willing to pay for are visual and / or interactive. Greater personalisation of new product via options is adding complexity and becoming a challenge for motor traders to value in the used market. 4) Effects of optional equipment on CO2 emissions 2) Few options improve CO2 performance, as 3)most add weight or increase the current draw on the electrical systems. Features that do reduce CO2 are standardised very quickly in order to meet environmental targets and to reduce taxation costs, particularly for company car drivers. The private car market focused more on fuel efficiency than CO2. The UK taxation system has made company car drivers particularly sensitive to CO2 output. High CO2 figures are a considerable competitive disadvantage in a sizeable UK market. LCVs are less focused on CO2, concerned more with practicality and total cost of ownership. Changing technology is challenging some existing views of how options impact CO2 e.g. newer dual clutch automatic transmissions improving CO2 output over manual transmissions, new “intelligent” electrical systems reducing CO2 by management of the whole electrical system. 5) Manufacturer selection of optional equipment against competitors 4) Specification improves over time as features5) fil ter down through the segment hierarchy, the drivers for which include: o Competition between brands o Customers who have become used to ever increasing specifications in new models o Legal & environmental requirements o Using specification to support brand image o Reducing cost of new technology and back filling standardised options with new ones.