Are the wheels about to fall of car finance?

[SDarks]

MOBB said:

My 20 year old nephew liked my leased Leon Cupra so much, he went and leased one as well.

£320 per month, which he "can afford".

He's on minimum wage, lives with his parents and takes home less than £1k a month I believe.

"He can afford it"

I am very pro-lease for my circumstances, but the above shows how things have changed, at his age I probably earned a little bit more than him, but drove around in a £1k Ford Cortina.

The other thing is at the end of the 24 months, what does he do? Start again I assume, doesn't want to lose face with his mates or get something lesser. So he will lease for years and years.

When is he starting his own youtube channel and vlog antics? This is pretty much their situation just with supercars right? (Apart from the rich before youtube ones). I think that makes a lot of disillusioned young people who watch the channels think that its okay to live with your parents and spend 60% of your income on monthly payments.

I was in a local Audi dealership recently looking at second hand S3 and there was a new R8 in the window, me and the sales person got talking and he said would you like me to run the numbers, out of interest i said yes.. I think it was something like £1200 a month £20k down but don't quote me on that. I had discussed my budget before with the sales person so he knew my financial budget and i asked do you think i can afford that? He replied yes, use the money for the S3 as a deposit and you can have the R8.... The sales people churning these PCP's have no conscience what so ever.

[Derek Smith]

J4CKO said:

I had a 19 year old Capri that I had to tax insure and fuel, if I could afford it, had to cycle to work as had no money for petrol.

My car turned 21 three months before I did. I was treated to a night out by my mates.

I've never had a new car. I'd obviously have liked one, but there were other priorities. Now I could buy one, at least on tick, the urge has lessened - as with so much in my life.

[J4CKO]

SDarks said:

MOBB said:

My 20 year old nephew liked my leased Leon Cupra so much, he went and leased one as well.

£320 per month, which he "can afford".

He's on minimum wage, lives with his parents and takes home less than £1k a month I believe.

"He can afford it"

I am very pro-lease for my circumstances, but the above shows how things have changed, at his age I probably earned a little bit more than him, but drove around in a £1k Ford Cortina.

The other thing is at the end of the 24 months, what does he do? Start again I assume, doesn't want to lose face with his mates or get something lesser. So he will lease for years and years.

When is he starting his own youtube channel and vlog antics? This is pretty much their situation just with supercars right? (Apart from the rich before youtube ones). I think that makes a lot of disillusioned young people who watch the channels think that its okay to live with your parents and spend 60% of your income on monthly payments.

I was in a local Audi dealership recently looking at second hand S3 and there was a new R8 in the window, me and the sales person got talking and he said would you like me to run the numbers, out of interest i said yes.. I think it was something like £1200 a month £20k down but don't quote me on that. I had discussed my budget before with the sales person so he knew my financial budget and i asked do you think i can afford that? He replied yes, use the money for the S3 as a deposit and you can have the R8.... The sales people churning these PCP's have no conscience what so ever.

He gets a bonus and can pay his bills, he has no interest beyond getting the paperwork and whatever basic checks are there and getting you signed up.

The responsibility lies with the customer really, expecting the lenders/dealers to be responsible is a bit like asking our dog to mind your dinner, ok, they get legislation to encourage fiscal responsibility but people need to take stock and ask themselves the uncomfortable question that after rent/mortgage/food/clothing/fuel/existing debt/utilities etc etc, can they really afford the shiny thing ? if so, crack on, if not, ffs dont, 3 years of misery to run a car you cant afford to put fuel in ?

I am sure so many people just think "my finances are screwed anyway" and just sign up anyway, should goes out of the window and they get completely focused on acquiring said item, I have been there. Definitely a lot of short termism going on, which will come home to roost, how many folk dont have a pension but have financed a brand new Audi A3 ?

[W124]

DonkeyApple said:

W124 said:

The other side of this is what happens to the colossal amount of cars that litter the decommissioned air-bases and racetracks up and down the land that are the by-product of this finance insanity. They can't sell them on without battering the residuals that hold up the deals. Yet they have a wildly inflated asset value on somebody's books.

You mean the evidence of market manipulation by manufacturers and their finance arms? They will probably be booked into SPVs in somewhere like Lux and the book losses used to offset tax liabilities somewhere else.

It's more the physical reality of them. There are tens, possibly hundreds, of thousands of ex lease/PCP/PCH cars stored in massed ranks all over the place. I've seen them - they just sit there exposed to the weather. I cannot see how they can be physically dealt with as they can't be sold on. There are just too many. They have no real asset value. Coupled with the brutal manipulation of the market to which you allude, the consequences of cheap credit credit trapping million in the hole for cars and other things, inflation rising as it is and the corresponding rise in rates that has to come. It's quite a big problem this. Winter is coming etc. etc.

[Truckosaurus]

SDarks said:

... "use the money for the S3 as a deposit and you can have the R8"....

Perhaps not the same extent as going from an S3 to R8, but I bet that same line works on a large number of punters who come in looking for a used car for 'cash' and get talked into using the money as the down payment on a new car.

[funkyrobot]

SDarks said:

When is he starting his own youtube channel and vlog antics? This is pretty much their situation just with supercars right? (Apart from the rich before youtube ones). I think that makes a lot of disillusioned young people who watch the channels think that its okay to live with your parents and spend 60% of your income on monthly payments.

I was in a local Audi dealership recently looking at second hand S3 and there was a new R8 in the window, me and the sales person got talking and he said would you like me to run the numbers, out of interest i said yes.. I think it was something like £1200 a month £20k down but don't quote me on that. I had discussed my budget before with the sales person so he knew my financial budget and i asked do you think i can afford that? He replied yes, use the money for the S3 as a deposit and you can have the R8.... The sales people churning these PCP's have no conscience what so ever.

If you paid your hard earned for that S3 at a main dealer, aren't you guilty of propping up the manufacturer scam?

[DonkeyApple]

W124 said:

It's more the physical reality of them. There are tens, possibly hundreds, of thousands of ex lease/PCP/PCH cars stored in massed ranks all over the place. I've seen them - they just sit there exposed to the weather. I cannot see how they can be physically dealt with as they can't be sold on. There are just too many. They have no real asset value. Coupled with the brutal manipulation of the market to which you allude, the consequences of cheap credit credit trapping million in the hole for cars and other things, inflation rising as it is and the corresponding rise in rates that has to come. It's quite a big problem this. Winter is coming etc. etc.

The car market is an absolute farce yes. But those cars do have a value. The value is defined from how much the market is artificially inflated by storing them over selling them and also by the tax savings from writing down their book values.

Personally, if manufacturers were banned from market manipulation and also banned from selling finance I think people would get a genuine shock as to just how much over the odds they have been paying for their cars regardless of how clever or dumb they have been in their purchasing.

If finance had to be arranged through genuinely independent and competitive entities and if the manufacturer had no means to manipulate used supply then we would really see a benefit to the consumer.

[MOBB]

Sheepshanks said:

Something's wrong there - a 20yr old on minimum wage isn't taking home £1K/mth.

I was making assumptions, no idea what he actually takes home.

But £5.60 x 40 hours x 52 weeks = £970 per month, less a bit of tax and NIC.

So not far off. I did say less than £1k though

[Alex_225]

Just in relation to the posts about young drivers opting for PCP over ownership, my cousin is 20 and currently learning to drive.

I had a chat with him about cars, he's got a few grand he's saved from working and is looking for a first car. What's he got his eye on.....a £300 a month all inclusive Peugeot 208 deal.

I don't blame someone for borrowing money to pay for a car, not everyone has £10k sitting there to spend in one hit but a shame that people can only see the 'brand new' aspect of it and not the other side of the coin.

[MOBB]

J4CKO said:

SDarks said:

MOBB said:

My 20 year old nephew liked my leased Leon Cupra so much, he went and leased one as well.

£320 per month, which he "can afford".

He's on minimum wage, lives with his parents and takes home less than £1k a month I believe.

"He can afford it"

I am very pro-lease for my circumstances, but the above shows how things have changed, at his age I probably earned a little bit more than him, but drove around in a £1k Ford Cortina.

The other thing is at the end of the 24 months, what does he do? Start again I assume, doesn't want to lose face with his mates or get something lesser. So he will lease for years and years.

When is he starting his own youtube channel and vlog antics? This is pretty much their situation just with supercars right? (Apart from the rich before youtube ones). I think that makes a lot of disillusioned young people who watch the channels think that its okay to live with your parents and spend 60% of your income on monthly payments.

I was in a local Audi dealership recently looking at second hand S3 and there was a new R8 in the window, me and the sales person got talking and he said would you like me to run the numbers, out of interest i said yes.. I think it was something like £1200 a month £20k down but don't quote me on that. I had discussed my budget before with the sales person so he knew my financial budget and i asked do you think i can afford that? He replied yes, use the money for the S3 as a deposit and you can have the R8.... The sales people churning these PCP's have no conscience what so ever.

He gets a bonus and can pay his bills, he has no interest beyond getting the paperwork and whatever basic checks are there and getting you signed up.

The responsibility lies with the customer really, expecting the lenders/dealers to be responsible is a bit like asking our dog to mind your dinner, ok, they get legislation to encourage fiscal responsibility but people need to take stock and ask themselves the uncomfortable question that after rent/mortgage/food/clothing/fuel/existing debt/utilities etc etc, can they really afford the shiny thing ? if so, crack on, if not, ffs dont, 3 years of misery to run a car you cant afford to put fuel in ?

I am sure so many people just think "my finances are screwed anyway" and just sign up anyway, should goes out of the window and they get completely focused on acquiring said item, I have been there. Definitely a lot of short termism going on, which will come home to roost, how many folk dont have a pension but have financed a brand new Audi A3 ?

He does say he has zero chance of ever buying a house with todays house prices, so why bother.

At 20 all I wanted was my own place, but my first place cost £40k with a £250 deposit so I can sympathise

[stongle]

DonkeyApple said:

nickfrog said:

So if I feel that my lease deal was going to beat depreciation (which it has after 18 months), should I have bought the car cash instead so that I don't lose my home and don't have to borrow to finance my kids' xmas?

Bizarre generalisations and obvious lack of critical thinking here. I don't know why though, it is not THAT complicated.

What do I care if the wheels fall off the car finance ? I have a contract with VW FS, they can't charge me more retrospectively.

And if the second hand market collapses and it's reflected on lease prices then I'll buy a 2-year old car, like I would have done if new didn't prove cheaper at the time, also creating an opportunity yield in the process.

No. that's an isolated scenario. It's the big picture that is where the core risk lies.

The purpose of finance is to sell an inflated number of goods (by expanding the client demographic) and to do so at an inflated profit margin (price by monthly).

In its own right this is of no issue but what you and I know, as does anyone with the most basic inkling of how retail finance works is that the majority do not use it to pay less. Besides, even the tiny number who think they are being smart by fitting into the small pricing gaps are obviously still paying over the odds because the pricing structure they are basing their fair value assumption on is inflated in the first instance as a function of making the finance look more appealing.

I agree with the sentiment..... BUT, I think those pricing gaps are more prevalent that you think.

VW Finance in particular seem to shelter depreciation risk - particularly on outgoing models / end of lifecycle. The wifes new school battle bus was a VW Touareg, costs less than a Hyundai Santa Fe over 3 years. VW Finance are either giving me a 37% discount on new or taking an additional 15k of depreciation on my behalf (which is more than likely the former not the latter)

Using leasing to access a specific car (or sought after model), may not make sense. Using it to access any car it can pay dividends (& save haggle hassle). It's working out how to arbitrage specific Vs. general finance (which is the same as trading). IF VW want to price some leasing this way; they're going to get hit on that level.

Are the people whom are caught in the finance cycle for the "latest" model part subsiding VW to offer me such a deal - probably. Is it morally ambiguous to take advantage of this.... hmmmm.

Is the market at risk of macro events / idiosyncratic costs - yep. What is interesting is the BoEs actions on Bank stress testing compared to the Eurozone (and where the manufacturers sit). If Autoloans go bad, you can see the Eurozone banks sitting on stack loads of this sh*t. The LLPs will push them further underwater. Fun times ahead.

[DonkeyApple]

MOBB said:

He does say he has zero chance of ever buying a house with todays house prices, so why bother.

At 20 all I wanted was my own place, but my first place cost £40k with a £250 deposit so I can sympathise

People do seem to give up on life quite early these days.

In reality it's still the case that if you want your own house then you either need to work hard and save or have big tits and suck like a Dyson.

Edited by DonkeyApple on Tuesday 28th March 15:04

[crosseyedlion]

DonkeyApple said:

MOBB said:

He does say he has zero chance of ever buying a house with todays house prices, so why bother.

At 20 all I wanted was my own place, but my first place cost £40k with a £250 deposit so I can sympathise

People do seem to give up on life quite early these days.

I think he's right.

The deposit required to buy a house in many parts of the country (and all of the south east) is quite staggering when you consider the proportion of someones income that needs to go out in rent. Its not impossible, but a bit of a mountain.

Unless someone either gets left money, lives with parents or couples up with someone long term in early 20's (which these days is rare) then getting a house before 30 is out of the question, 40 for some.

All this to get on a ladder based on a bubble, only to be taxed on it when you go. It's easy to fail to see the point.

Its a similar situation to the japanese 20 somethings that spend fortunes on their cars because they know they cant afford to own their own property.

[DonkeyApple]

stongle said:

DonkeyApple said:

nickfrog said:

So if I feel that my lease deal was going to beat depreciation (which it has after 18 months), should I have bought the car cash instead so that I don't lose my home and don't have to borrow to finance my kids' xmas?

Bizarre generalisations and obvious lack of critical thinking here. I don't know why though, it is not THAT complicated.

What do I care if the wheels fall off the car finance ? I have a contract with VW FS, they can't charge me more retrospectively.

And if the second hand market collapses and it's reflected on lease prices then I'll buy a 2-year old car, like I would have done if new didn't prove cheaper at the time, also creating an opportunity yield in the process.

No. that's an isolated scenario. It's the big picture that is where the core risk lies.

The purpose of finance is to sell an inflated number of goods (by expanding the client demographic) and to do so at an inflated profit margin (price by monthly).

In its own right this is of no issue but what you and I know, as does anyone with the most basic inkling of how retail finance works is that the majority do not use it to pay less. Besides, even the tiny number who think they are being smart by fitting into the small pricing gaps are obviously still paying over the odds because the pricing structure they are basing their fair value assumption on is inflated in the first instance as a function of making the finance look more appealing.

I agree with the sentiment..... BUT, I think those pricing gaps are more prevalent that you think.

VW Finance in particular seem to shelter depreciation risk - particularly on outgoing models / end of lifecycle. The wifes new school battle bus was a VW Touareg, costs less than a Hyundai Santa Fe over 3 years. VW Finance are either giving me a 37% discount on new or taking an additional 15k of depreciation on my behalf (which is more than likely the former not the latter)

Using leasing to access a specific car (or sought after model), may not make sense. Using it to access any car it can pay dividends (& save haggle hassle). It's working out how to arbitrage specific Vs. general finance (which is the same as trading). IF VW want to price some leasing this way; they're going to get hit on that level.

Are the people whom are caught in the finance cycle for the "latest" model part subsiding VW to offer me such a deal - probably. Is it morally ambiguous to take advantage of this.... hmmmm.

Is the market at risk of macro events / idiosyncratic costs - yep. What is interesting is the BoEs actions on Bank stress testing compared to the Eurozone (and where the manufacturers sit). If Autoloans go bad, you can see the Eurozone banks sitting on stack loads of this sh*t. The LLPs will push them further underwater. Fun times ahead.

Or they are inflating RRP to make costly finance deals look cheap while also hooking clients in for repeats.

If I'm selling £1 coins to dimwits at £1.50, I'm still ripping you off when I sell them to you at a 25% discount. The difference is that you're happy about it as you got an absolute bargain in relative terms.

Now, if I am banned from that activity and have to sell at £1 then you are even better off because you are paying fair value as are all the others. And at the same time it's harder for me to sell to you again so I have to work harder for your business.

[Mush1]

crosseyedlion said:

DonkeyApple said:

MOBB said:

He does say he has zero chance of ever buying a house with todays house prices, so why bother.

At 20 all I wanted was my own place, but my first place cost £40k with a £250 deposit so I can sympathise

People do seem to give up on life quite early these days.

I think he's right.

The deposit required to buy a house in many parts of the country (and all of the south east) is quite staggering when you consider the proportion of someones income that needs to go out in rent. Its not impossible, but a bit of a mountain.

Unless someone either gets left money, lives with parents or couples up with someone long term in early 20's (which these days is rare) then getting a house before 30 is out of the question, 40 for some.

All this to get on a ladder based on a bubble, only to be taxed on it when you go. It's easy to fail to see the point.

Its a similar situation to the japanese 20 somethings that spend fortunes on their cars because they know they cant afford to own their own property.

This basically.

I live in a London suburb, I'm about a 30 minute train to central London where anything with 2 beds costs at least 400k. Assuming I could save a 10% deposit I would need to then finance another 360k, the most I can get with my salary on a mortgage is circa 200k.

Now by the time I've saved 40k for a deposit similar properties will probably cost upwards of 600.

Thats before you include any extra costs like fees, taxes and then before actually buying anything to put inside the house/flat/box-room.

I could possibly look to move further out of London, but then who would live near my mum to help look after her? Or should I have to pay for a carer? Simply put, I'm not getting onto the housing ladder any time soon unless I do one of those buy 25% of a home and rent the rest which doesn't really make any sense to me.

[djc206]

crosseyedlion said:

DonkeyApple said:

MOBB said:

He does say he has zero chance of ever buying a house with todays house prices, so why bother.

At 20 all I wanted was my own place, but my first place cost £40k with a £250 deposit so I can sympathise

People do seem to give up on life quite early these days.

I think he's right.

The deposit required to buy a house in many parts of the country (and all of the south east) is quite staggering when you consider the proportion of someones income that needs to go out in rent. Its not impossible, but a bit of a mountain.

Unless someone either gets left money, lives with parents or couples up with someone long term in early 20's (which these days is rare) then getting a house before 30 is out of the question, 40 for some.

All this to get on a ladder based on a bubble, only to be taxed on it when you go. It's easy to fail to see the point.

Its a similar situation to the japanese 20 somethings that spend fortunes on their cars because they know they cant afford to own their own property.

All of what you say about how difficult it can be to get onto the housing ladder as a young person is true but as a young person (ish I'm 30) I'd like to add that as a generation we've never experienced anything other than rock bottom interest rates (This month marks 8 years since the base rate was reduced to 0.5%). We are so used to practically free borrowing that we've turned into a generation of magpies, nice watches, cars, holidays, you name it it's all on tick because tick is cheap and YOLO as they say.

Your point coupled with mine means that many young people have taken a st situation and made it a lot worse by getting addicted to a very high standard of living, higher than they would have under normal economic conditions. Weening themselves off Audis, Rolexes, Mulberrys and Christian Louboutins onto Vauxhalls, Casios, Radleys and Shoezone isn't going to be easy!

[DonkeyApple]

djc206 said:

crosseyedlion said:

DonkeyApple said:

MOBB said:

He does say he has zero chance of ever buying a house with todays house prices, so why bother.

At 20 all I wanted was my own place, but my first place cost £40k with a £250 deposit so I can sympathise

People do seem to give up on life quite early these days.

I think he's right.

The deposit required to buy a house in many parts of the country (and all of the south east) is quite staggering when you consider the proportion of someones income that needs to go out in rent. Its not impossible, but a bit of a mountain.

Unless someone either gets left money, lives with parents or couples up with someone long term in early 20's (which these days is rare) then getting a house before 30 is out of the question, 40 for some.

All this to get on a ladder based on a bubble, only to be taxed on it when you go. It's easy to fail to see the point.

Its a similar situation to the japanese 20 somethings that spend fortunes on their cars because they know they cant afford to own their own property.

All of what you say about how difficult it can be to get onto the housing ladder as a young person is true but as a young person (ish I'm 30) I'd like to add that as a generation we've never experienced anything other than rock bottom interest rates (This month marks 8 years since the base rate was reduced to 0.5%). We are so used to practically free borrowing that we've turned into a generation of magpies, nice watches, cars, holidays, you name it it's all on tick because tick is cheap and YOLO as they say.

Your point coupled with mine means that many young people have taken a st situation and made it a lot worse by getting addicted to a very high standard of living, higher than they would have under normal economic conditions. Weening themselves off Audis, Rolexes, Mulberrys and Christian Louboutins onto Vauxhalls, Casios, Radleys and Shoezone isn't going to be easy!

That's rather it. Bar those at the bottom it's only those who are living the dream who aren't buying homes. Trigger pulling is far more important.

[crosseyedlion]

djc206 said:

All of what you say about how difficult it can be to get onto the housing ladder as a young person is true but as a young person (ish I'm 30) I'd like to add that as a generation we've never experienced anything other than rock bottom interest rates (This month marks 8 years since the base rate was reduced to 0.5%). We are so used to practically free borrowing that we've turned into a generation of magpies, nice watches, cars, holidays, you name it it's all on tick because tick is cheap and YOLO as they say.

Your point coupled with mine means that many young people have taken a st situation and made it a lot worse by getting addicted to a very high standard of living, higher than they would have under normal economic conditions. Weening themselves off Audis, Rolexes, Mulberrys and Christian Louboutins onto Vauxhalls, Casios, Radleys and Shoezone isn't going to be easy!

Indeed, but even without all these niceties its still extremely difficult/impossible for many. For a single 20 something with a reasonable job and a degree, when the maximum mortgage available for a 30k income is £135k ish, and they can only save up £5k a year after living costs & rent (note, I said single) and the starting price for a reasonable flat not in complete hole is £200k...that means they'll have to save for 13 years, simplistically.

Obviously situations and house prices change - but without a windfall its entirely possible for these people to never own their own home whilst still having impeccable credit, diligent/frugal spending habits and a decent career. The only hope is someone dying or coupling up. Its not really a solid foundation for a market to be based on, soon enough those with equity will be rarer and rarer so will have little to pass on and keep the chain moving. Prices will crash.

So, with the prospect of never owning a home, why the hell not get a load of credit and live well in other aspects? (this isn't my view, but I totally understand it) Life is for enjoying, not for spending half of it suffering to save to get on a ladder which will likely be taxed again when you go.

[stongle]

DonkeyApple said:

Or they are inflating RRP to make costly finance deals look cheap while also hooking clients in for repeats.

If I'm selling £1 coins to dimwits at £1.50, I'm still ripping you off when I sell them to you at a 25% discount. The difference is that you're happy about it as you got an absolute bargain in relative terms.

Now, if I am banned from that activity and have to sell at £1 then you are even better off because you are paying fair value as are all the others. And at the same time it's harder for me to sell to you again so I have to work harder for your business.

I get it, of course the RRP is b*llocks (if you're telling me that the VW was 40% overpriced - then I'd be surprised & an idiot).

It's a double consumer whammy as they are (in the main) - borrowing to finance the higher price.

The problem is when ALL the manufacturers are at; what are you going to do? You can only minimise your risk by buying vehicles marked to a realistic market. Legislative intervention is required (of which I'd agree). Timing might be BREXIT sensitive though (if BoE moves against Car Finance market and auto loans in the next 2 years; Germany will sh*t a brick).

All well and good arguing about barges etc; but it doesn't suit everyone.

[djc206]

crosseyedlion said:

Indeed, but even without all these niceties its still extremely difficult/impossible for many. For a single 20 something with a reasonable job and a degree, when the maximum mortgage available for a 30k income is £135k ish, and they can only save up £5k a year after living costs & rent (note, I said single) and the starting price for a reasonable flat not in complete hole is £200k...that means they'll have to save for 13 years, simplistically.

Obviously situations and house prices change - but without a windfall its entirely possible for these people to never own their own home whilst still having impeccable credit, diligent/frugal spending habits and a decent career. The only hope is someone dying or coupling up. Its not really a solid foundation for a market to be based on, soon enough those with equity will be rarer and rarer so will have little to pass on and keep the chain moving. Prices will crash.

So, with the prospect of never owning a home, why the hell not get a load of credit and live well in other aspects? (this isn't my view, but I totally understand it) Life is for enjoying, not for spending half of it suffering to save to get on a ladder which will likely be taxed again when you go.

I agree but my sympathies for people driving brand new German cars, wearing £5k watches and drinking £5 pints of peroni at our local pub bemoaning the price of property are limited.

Life as a singleton isn't easy, it always has been and always will be the case that being a couple makes getting on the ladder a lot easier. Most people couple up so I don't see that aspect as a big issue really.