Are the wheels about to fall of car finance?
Discussion
RSK21 said:
... "let's start with how much you are going to sell the car for and then we'll discuss terms".
...if you do that, you could end up paying too much. Or not doing a deal at all because you and the salesguy are locked into positions that you can't get out of.Generally the base price can be lower if you're buying using finance than if paying cash.
rodericb said:
Sheepshanks said:
That seems common with VW - same happened to us when we wanted a Tiguan. Dealer group, Inchcape had over 100 nearly new ones that were dearer than discounted new - you had to go back to a year old before they were cheaper. They wouldn't move on the used prices either.
The salesman we bought off said some people come in fixated on getting a nearly-new one and don't do the comparision, and it's different sales teams so they don't encourage people to look at new.
Would the dealer be getting bonuses from VW which would more than offset the opportunity cost of having a large number of used?The salesman we bought off said some people come in fixated on getting a nearly-new one and don't do the comparision, and it's different sales teams so they don't encourage people to look at new.
You start dropping prices on used cars and suddenly everyone refuses to pay them and wants a deal. That is effectively what has happened with new prices and thus rather than a race to the bottom the manufacturers have had to disguise the actual price paid (to keep it higher than it otherwise would be if everyone focussed on it) by shifting the focus to 'monthlies' which has been possible in this ultra low interest environment.
If they did start giving in on used car prices, the internet would be awash with stories of discounts on nearly new cars (rather than lease prices per month) as used to be the way. At that point your likely several billion pounds worth of balance sheet assets of used cars out on lease starts to lose value and you end up having to write down the book by tens of millions if they even lose a few percentage points of values.
The canniest thing car markers have done in recent times is to make people view a car like a phone and completely obfuscate the actual price they are paying. So long as the wheels go round and a car has equity or parity in it then the corks keep popping, the minute negative equity creeps in (ie values soften) then the problems start. As with any credit boom.
Edited by CS Garth on Monday 27th March 11:09
CharlesdeGaulle said:
rxe said:
... And I don't buy the "oooh, cars are so complex these days". They are complex now, but won't be viewed as complex or scary in 10 years time. The regular problems will be fixed, just as they are on cars that are now 15 year old, but where viewed as technically complex back in the day ...
Great post. Blown turbos, timing chain tensioners, DMFs, TPFs will all generate bills £1,000-£5,000 and thats just the "common" ones under the bonnet, then you've maybe an auto box, or 4WD, and all the electricals. Seeing some BMWs appearing now with significant dash faults - how much would that cost to take apart and repair?
daemon said:
Great post, yes. But that doesnt seem to help the 5-10 year old cars today does it?
Blown turbos, timing chain tensioners, DMFs, TPFs will all generate bills £1,000-£5,000 and thats just the "common" ones under the bonnet, then you've maybe an auto box, or 4WD, and all the electricals. Seeing some BMWs appearing now with significant dash faults - how much would that cost to take apart and repair?
Agreed. We will know how to fix them, but fixing them will not be cheap. Blown turbos, timing chain tensioners, DMFs, TPFs will all generate bills £1,000-£5,000 and thats just the "common" ones under the bonnet, then you've maybe an auto box, or 4WD, and all the electricals. Seeing some BMWs appearing now with significant dash faults - how much would that cost to take apart and repair?
One thing about the car fiance 'bubble' is that it's much more vertically integrated than housing, etc.
For instance:
1. Punter buys a car on PCP/leases it on contract hire. My example, a 2015 Golf Match that I have just moved on from. Monthlies + auction price came to about £16,500 at a guess. List price was £24k, broker price probably about £19k at the time.
2. Dealer sold the car for £x to the finance company. Let's say that was £18k and they expected to get £13k for it at auction. It actually probably made £11k, based on the fact that it's now on the Trader at £12,500. As a result, it's underperformed as an asset by £2k and that's the finance company's risk. Ignoring interest, a PCP would have cost £8k, I've paid £5.5k.
3. The thing is... I can go and buy a base model Golf for £14,500 right now, brand new. Admittedly it will be sackcloth spec and couldn't pull the skin off a rice pudding, but the build cost won't be that different from a slightly nicer Match - certainly not £2k less. So, even in this pretty dire scenario for the manufacturer they've given me 1/3 off an excessive list price and still made more money than they would on a poverty spec model. The finance company might be recording a loss, but as it's manufacturer owned, that loss is more than offset by the margin (not profit after overhead) on the car.
Compare that to a house, where the build and land cost are probably 90%+ of the original value, and the original seller has no ongoing relationship with the lender, so if the house is underwater when the mortgage is brought to an end, the builder/vendor cashed out years ago, the buyer is liable for the loss, and the vendor eats the loss if the buyer/borrower can't make good on it.
For instance:
1. Punter buys a car on PCP/leases it on contract hire. My example, a 2015 Golf Match that I have just moved on from. Monthlies + auction price came to about £16,500 at a guess. List price was £24k, broker price probably about £19k at the time.
2. Dealer sold the car for £x to the finance company. Let's say that was £18k and they expected to get £13k for it at auction. It actually probably made £11k, based on the fact that it's now on the Trader at £12,500. As a result, it's underperformed as an asset by £2k and that's the finance company's risk. Ignoring interest, a PCP would have cost £8k, I've paid £5.5k.
3. The thing is... I can go and buy a base model Golf for £14,500 right now, brand new. Admittedly it will be sackcloth spec and couldn't pull the skin off a rice pudding, but the build cost won't be that different from a slightly nicer Match - certainly not £2k less. So, even in this pretty dire scenario for the manufacturer they've given me 1/3 off an excessive list price and still made more money than they would on a poverty spec model. The finance company might be recording a loss, but as it's manufacturer owned, that loss is more than offset by the margin (not profit after overhead) on the car.
Compare that to a house, where the build and land cost are probably 90%+ of the original value, and the original seller has no ongoing relationship with the lender, so if the house is underwater when the mortgage is brought to an end, the builder/vendor cashed out years ago, the buyer is liable for the loss, and the vendor eats the loss if the buyer/borrower can't make good on it.
CS Garth said:
The canniest thing car markers have done in recent times is to make people view a car like a phone and completely obfuscate the actual price they are paying. So long as the wheels go round and a car has equity or parity in it then the corks keep popping, the minute negative equity creeps in (ie values soften) then the problems start. As with any credit boom.
[/footnote]
At least car finance is only 2-4yrs, whilst houses are 20-40yrs. Cars are also easier to buy and sell. So I don't see car finance as a significant risk to the economy. [/footnote]
gizlaroc said:
daemon said:
Great post, yes. But that doesnt seem to help the 5-10 year old cars today does it?
Blown turbos, timing chain tensioners, DMFs, TPFs will all generate bills £1,000-£5,000 and thats just the "common" ones under the bonnet, then you've maybe an auto box, or 4WD, and all the electricals. Seeing some BMWs appearing now with significant dash faults - how much would that cost to take apart and repair?
Agreed. We will know how to fix them, but fixing them will not be cheap. Blown turbos, timing chain tensioners, DMFs, TPFs will all generate bills £1,000-£5,000 and thats just the "common" ones under the bonnet, then you've maybe an auto box, or 4WD, and all the electricals. Seeing some BMWs appearing now with significant dash faults - how much would that cost to take apart and repair?
Sheepshanks said:
...if you do that, you could end up paying too much. Or not doing a deal at all because you and the salesguy are locked into positions that you can't get out of.
Generally the base price can be lower if you're buying using finance than if paying cash.
I get that, and perhaps that particular sentence is too binary a statememt on my part. The point I'm making though is how can people not work out what the overall asset cost is.Generally the base price can be lower if you're buying using finance than if paying cash.
I'm an advocate of financing in the right circumstances (and those are as many and varied as the people doing the buying) but it baffles me that people can agree a monthly cost without knowing the underlying asset value.
PH pedant mode - I disagree with generally but do agree that sometimes the base cost can be lower with finance.
philmots said:
Sheepshanks said:
Most recent cars are going to be a nightmare at 10yrs old. How much are things like LCD dashboards going to cost, for example?
A small fortune!There was a thread in here not long ago, a guy had an X5 or 6 series (can't remember which) that was just out of warranty. One of its led headlights failed, iirc he was quoted well over a grand for its replacement, which is just ludicrous!
But no one repairs them yet to my knowledge? I mean, wtf do you do?
LEDs should last a long time. Its the whole point of people swapping halogens at home for LED equivalents. They're meant to be lower power, longer lasting. IMO stuff like that should have a much longer warranty placed on it, especially as you must have working ones on your car. Dying at 3 years and facing £1000 replacement is actually unacceptable for such an item in my view. They're more (perhaps prohibitively) expensive because they're supposed to be better and last a lifetime (for the above reasons).
I have a honda civic. Its 11 years old. I must have changed the bulbs about 4 times and I have never changed the high beam or fog lamps. 11 years, and bulbs that cost a few quid. Progress eh.
daemon said:
And theres the faffing about trying to get someone who knows how to fix it, then time off the road, etc, etc. I've had three different (out of warranty) cars in the last year that have been off the road for 3 weeks, trying to get an odd ball problem resolved, waiting on parts, etc.
Ask any taxi/limo driver, they tell you maintenance and knowing the history to a car is key. Many of their cars are well over 10 years old along with over 200,000 miles with hardly any mechanical dramas. I travel loads and sat in the back of many S class, A8's, 7 series and had these conversations. Look after the car well, it'll look after you.
There's a minefield of 2/3 year old ex lease/PCP cars heading your way at car supermarkets 'cheap'. The previous owners knew they where 'renting' this car, and know for sure oil wasn't warmed on a cold morning as they thrashed through the first few miles. Same when they didn't let the turbo cool down after a good run, because they knew it wasn't theirs.
wemorgan said:
At least car finance is only 2-4yrs, whilst houses are 20-40yrs. Cars are also easier to buy and sell. So I don't see car finance as a significant risk to the economy.
Maybe not, but I do see it as a significant risk to the car industry. Supply already far outstrips demand and there are a lot of jobs at stake. Peugeot buying GM Europe is a pointer to 'correction' in the market down the line.johnnnnnnyy said:
Ask any taxi/limo driver, they tell you maintenance and knowing the history to a car is key. Many of their cars are well over 10 years old along with over 200,000 miles with hardly any mechanical dramas. I travel loads and sat in the back of many S class, A8's, 7 series and had these conversations.
Look after the car well, it'll look after you.
Absolutely. And if i was buying new and running it through to end of (useable) life like most taxi / limo drivers do then yes, thats the answer. Look after the car well, it'll look after you.
However in the context of what was proposed here - buy an older car then you're really just hoping for the best as to how the previous owner treated it - particularly relative to turbos, injectors, DPFs, DMFs, etc. And electronics can fail at any point.....
johnnnnnnyy said:
There's a minefield of 2/3 year old ex lease/PCP cars heading your way at car supermarkets 'cheap'. The previous owners knew they where 'renting' this car, and know for sure oil wasn't warmed on a cold morning as they thrashed through the first few miles. Same when they didn't let the turbo cool down after a good run, because they knew it wasn't theirs.
I dont know of too many PCP car owners who view them as just "renting" the car. Any we've had in the past we've never treated it as anything other than "our" car. Likewise if i was buying a 2-3 year old car, i'd be very jumpy about buying from a car supermarket - i'd rather pay the bit extra (and often not that much extra) and get one from a franchised dealer with an approved used warranty.
Also being a cash buyer of a new car (if you can find them any more?) doesnt guarantee its going to be treated any better - it "might - particularly if its a performance car - but likewise "mechanical sympathy" is rare these days.
r11co said:
wemorgan said:
At least car finance is only 2-4yrs, whilst houses are 20-40yrs. Cars are also easier to buy and sell. So I don't see car finance as a significant risk to the economy.
Maybe not, but I do see it as a significant risk to the car industry. Supply already far outstrips demand and there are a lot of jobs at stake. Peugeot buying GM Europe is a pointer to 'correction' in the market down the line.Peugeot buying Vauxhall was them buying market share.
Sheepshanks said:
....that's what supports the argument for PCPing or leasing a new car for 2-3 years, and them moving on to the next one.
Your figures are just the same for my C Class - except it was 5mths old when I paid £23,500 for it. New (and there weren't the massive discounts then) is was £35K. I might get £2K for it now, but it's carrying at least that in "needed" work, big chunks of which aren't feasible for most DIY mechanics.
Exactly. We're pretty much at the stage now where you either buy on PCP and spend XXX per month on known, warranted reliability or do what I do and just run an old car that can be fixed with competent DIY.Your figures are just the same for my C Class - except it was 5mths old when I paid £23,500 for it. New (and there weren't the massive discounts then) is was £35K. I might get £2K for it now, but it's carrying at least that in "needed" work, big chunks of which aren't feasible for most DIY mechanics.
For me, the middle ground of 5-10 year old stuff out of warranty isn't worth the risk. Many get away with it of course, but if your luck runs out.......
Modern cars don't interest me at all, so given the choice I'd probably PCP something like a fairly basic diesel Octavia. 50 quid or so a week, and it does the job.
CS Garth said:
The canniest thing car markers have done in recent times is to make people view a car like a phone and completely obfuscate the actual price they are paying. So long as the wheels go round and a car has equity or parity in it then the corks keep popping, the minute negative equity creeps in (ie values soften) then the problems start. As with any credit boom.
They have exactly, and imo it's all the better for it.Edited by CS Garth on Monday 27th March 11:09
iSore said:
Exactly. We're pretty much at the stage now where you either buy on PCP and spend XXX per month on known, warranted reliability or do what I do and just run an old car that can be fixed with competent DIY.
For me, the middle ground of 5-10 year old stuff out of warranty isn't worth the risk. Many get away with it of course, but if your luck runs out.......
Modern cars don't interest me at all, so given the choice I'd probably PCP something like a fairly basic diesel Octavia. 50 quid or so a week, and it does the job.
+1For me, the middle ground of 5-10 year old stuff out of warranty isn't worth the risk. Many get away with it of course, but if your luck runs out.......
Modern cars don't interest me at all, so given the choice I'd probably PCP something like a fairly basic diesel Octavia. 50 quid or so a week, and it does the job.
Thats the conclusion i'm drawing too. The middle ground is not the place to be.
rxe said:
Don't think so.
People are asking where the bargain used cars are - well they're everywhere. Maybe not a year or two old, but you can pick up a working, decent car with an MOT for a few hundred quid very easily. All of my LHD mates are amazed at the sort of metal that you can get for buttons in this country.
And I don't buy the "oooh, cars are so complex these days". They are complex now, but won't be viewed as complex or scary in 10 years time. The regular problems will be fixed, just as they are on cars that are now 15 year old, but where viewed as technically complex back in the day.
My speciality is Alfa 156s, which back in the late 90s were viewed as fearsomely complex, with new fangled ECUs, body computers (in the GT....), difficult suspension, the ABS was going to be unfixable in 5 years etc etc..... Now, as a complete amateur, I can have one fully in pieces in the garage, and get it back together again. I can read all of the ECUs with a EUR 50 bit of software and £10 of cables. If the ABS breaks I can get a new ECU and pump off ebay for £20. Gearbox - £50. If the car is doing something that the ECU cannot diagnose, I can stick an oscilloscope on the sensor or actuator and see precisely what it is doing - you can actually see the movement of an injector pintle (or not) by looking at the current draw. All quite easy. Cause of death of most 156s? Rust, accident damage, belt failure, crappy JTS engines blowing up.
So, yes in 15 years, when your Audi gearbox explodes, you'll get an s/h one off a scrappy and whack it in, re-coding it on your phone, following a guide audiowner.com or whatever. Just like you do today.
Hmmm, not so sure. 8 speed ZF boxes need to be decoded using software with the donor car running before removal. If not, they cannot be coded to the recipient car and are therefore scrap. Given that the increasing majority of BMW's, Audis etc are autos that's going to be a biggie.People are asking where the bargain used cars are - well they're everywhere. Maybe not a year or two old, but you can pick up a working, decent car with an MOT for a few hundred quid very easily. All of my LHD mates are amazed at the sort of metal that you can get for buttons in this country.
And I don't buy the "oooh, cars are so complex these days". They are complex now, but won't be viewed as complex or scary in 10 years time. The regular problems will be fixed, just as they are on cars that are now 15 year old, but where viewed as technically complex back in the day.
My speciality is Alfa 156s, which back in the late 90s were viewed as fearsomely complex, with new fangled ECUs, body computers (in the GT....), difficult suspension, the ABS was going to be unfixable in 5 years etc etc..... Now, as a complete amateur, I can have one fully in pieces in the garage, and get it back together again. I can read all of the ECUs with a EUR 50 bit of software and £10 of cables. If the ABS breaks I can get a new ECU and pump off ebay for £20. Gearbox - £50. If the car is doing something that the ECU cannot diagnose, I can stick an oscilloscope on the sensor or actuator and see precisely what it is doing - you can actually see the movement of an injector pintle (or not) by looking at the current draw. All quite easy. Cause of death of most 156s? Rust, accident damage, belt failure, crappy JTS engines blowing up.
So, yes in 15 years, when your Audi gearbox explodes, you'll get an s/h one off a scrappy and whack it in, re-coding it on your phone, following a guide audiowner.com or whatever. Just like you do today.
I started off on Alfasuds, 116 Giuliettas etc nearly 100 years ago. They were considered complex but only compared to the knife and fork engineering on a Mark 2 Escort that my Mum could fix. It's not about the ability to fix stuff, it's 'can I be arsed?' 9 year old 520d worth £35600 where the timing chain has left the building and a £3000 bill to fix it? It's scrap. Could be fixed, but simply not worth it.
CS Garth said:
The canniest thing car markers have done in recent times is to make people view a car like a phone and completely obfuscate the actual price they are paying. So long as the wheels go round and a car has equity or parity in it then the corks keep popping, the minute negative equity creeps in (ie values soften) then the problems start. As with any credit boom.
Surely negative equity because of sudden softening values is the finance companys problem?When we'd our Z4 Coupe back in 07/08 and the ass dropped out of values we simply handed it back. I remember reading it cost BMW hundreds of millions across many tens of thousands of cars handed back rather than traded back in to the dealer.
daemon said:
+1
Thats the conclusion i'm drawing too. The middle ground is not the place to be.
I came to this same conclusion too - not worth the risk. I would rather have something guaranteed to work for £200 a month than something second hand and not guaranteed for £150 with a bank loanThats the conclusion i'm drawing too. The middle ground is not the place to be.
nickfrog said:
Is there an official guide as to "what a car is actually meant to do" or do you mean for your particular needs ?
Ha ha, probably not. But being an ageing fart, a car that goes along at 80 quietly, does 30+ mpg, handles decently and has air con and a sunroof is fine. Sat nav? A Garmin stuck to the screen is fine. A radio that plays the odd CD (not really into music when driving) is okay, Radio 2 and 4 are more important. Maybe I'm lucky in as much that I don't really ask a lot from a daily. A to B in beige pleasantness is fine.
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