Are the wheels about to fall of car finance?

[DonkeyApple]

stongle said:

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.

Absolutely agree. It would require State level intervention in order to stop the manipulation and the debt issue.

[Buster73]

Pre the banking crash there were plenty of folk remortgaging their homes to pay for a new X5 or whatever they fancied at the time.

And the banks were happy to lend .

God knows where some of these folk stand financially now.

But they had a new car on the drive....

[Mush1]

djc206 said:

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.

I mean I live pretty close to central London and I don't see many people wearing 5k watches. I'm yet to find many places within zones 1 to 3 of London that sell pints for much less than £4.50 even in the dives.

[CS Garth]

Mush1 said:

djc206 said:

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.

I mean I live pretty close to central London and I don't see many people wearing 5k watches. I'm yet to find many places within zones 1 to 3 of London that sell pints for much less than £4.50 even in the dives.

Wetherspoons Tower Bridge road. £2.20 a pint. All the kids at my place go there. The problem is that most people wouldn't be seen dead there in this image obsessed world

[DonkeyApple]

Mush1 said:

I mean I live pretty close to central London and I don't see many people wearing 5k watches. I'm yet to find many places within zones 1 to 3 of London that sell pints for much less than £4.50 even in the dives.

Samuel Smiths.

[Sheepshanks]

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.

When you see shots in the press of airfield full of cars there often aren't as many as indicated. Plus the new car market in the UK is 2 million units so that's 40K cars every week. The used market is 3x that. OK, thats cars at all ages but still the market for 2 or 3 year old ex-lease cars must be huge.

[J4CKO]

MOBB said:

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

I can see that but it is a self fulfilling prophecy if he embraces that mentality, things change over time and what isnt possible now, becomes possible but if you saddle yourself with debt then it is less likely.

I have only got to this way of thinking as I have got older, as a 20 year old I would be exactly the same, might get bored and go lease-tastic one day myself.

I think the problem is, if you get used to a brand new, decent spec, premium car every 2 to 3 years, when you stop, that 5 year old Focus is going to be about as appealing as last nights cold kebab left overs....

I think credit cards, finance and leasing do confuse people, you lose that bottom line
financial position, there are other answers that spend less/earn more and not having things sometimes doesn't enter into it.

[djc206]

Mush1 said:

I mean I live pretty close to central London and I don't see many people wearing 5k watches. I'm yet to find many places within zones 1 to 3 of London that sell pints for much less than £4.50 even in the dives.

London is it's own world. Look harder you'll see the watches, usually paired with a blue suit and pointy brown shoes.

[Sa Calobra]

Buster73 said:

Pre the banking crash there were plenty of folk remortgaging their homes to pay for a new X5 or whatever they fancied at the time.

And the banks were happy to lend .

God knows where some of these folk stand financially now.

But they had a new car on the drive....

I was road raged earlier by a new X5. I didn't think I must move over for that captain of industry! I simply thought '£500 a month rented car'

[tannhauser]

DonkeyApple said:

Henners said:

Sa Calobra said:

How many people do you think are upto their overdraft days before their next paycheck?

A worryingly high percentage.

Google will yield some stats.

Here are some fun figures.

25% of Britons have no savings.

60% (which includes that 25%) have savings of less than £1,000.

Now, what you next have to consider is that figure is not net wealth but just the amount of cash available. Almost all of those people will have short term debt obligations that far exceed any cash savings levels. At the same time, we also know that such people don't have viable investments. Finally, you also have to bear in mind that the bulk of the remaining 40% who have savings above £1,000 are pensions.

Ergo, the percentage of wage earners who have savings of less than £1,000 is generally considered to be as high as 75%. A rather startling figure. But the real change has been amonst the middle classes, the majority of whom have monthly financial situations that are more aligned with traditional wage earners, not salary earners.

And this is why the Govt has been working hard to unwind the toxic leverage in the housing market and is also forcing an enormous retail lending review at the FCA because the ability of the majority of residents in the U.K. Have significantly less ability to withstand an economic shock today than they had ten years ago when at least the Govt had the power to slam interest rates down and print money to stave off the total capitulation.

So in short, almost no one in the U.K. can actually afford the lifestyle they are living. Those who genuinely can number just a few percent of the population.

So in short, basically we're fked you mean?

This is what I've been saying all along.

[BigLion]

There is a lot of jealously on this thread.

People obsessed with how other people live financially is normally a sign which gives it away.

[daemon]

Sa Calobra said:

Buster73 said:

Pre the banking crash there were plenty of folk remortgaging their homes to pay for a new X5 or whatever they fancied at the time.

And the banks were happy to lend .

God knows where some of these folk stand financially now.

But they had a new car on the drive....

I was road raged earlier by a new X5. I didn't think I must move over for that captain of industry! I simply thought '£500 a month rented car'

You really have a chip on your shoulder dont you?

Yesterday you were at a car meet and wondering how the parents of the "stroppy youths" funded their car purchases...
... today its an X5 went past you and they were clearly in a rented car?

Really?

If i see a nice car what i think is "wow, nice car", not "oh i'm sure hes renting that and clearly cant afford it"?

[daemon]

BigLion said:

There is a lot of jealously on this thread.

People obsessed with how other people live financially is normally a sign which gives it away.

+1

Some people should look at the shortcomings in their own lives that have them living like they do and where they do, rather than making judgements on how everyone else might be able to "afford" nicer things than them - clearly racking up massive credit card bills and being at their overdraft limit the week before payday is the ONLY way they can be doing it?

Heres a thought - maybe some other people just earn more money?

[Buster73]

daemon said:

+1

Some people should look at the shortcomings in their own lives that have them living like they do and where they do, rather than making judgements on how everyone else might be able to "afford" nicer things than them - clearly racking up massive credit card bills and being at their overdraft limit the week before payday is the ONLY way they can be doing it?

Heres a thought - maybe some other people just earn more money?

And enjoy the fruits of their labour ?

[J4CKO]

BigLion said:

There is a lot of jealously on this thread.

People obsessed with how other people live financially is normally a sign which gives it away.

Not from me, but there is a concern that like in 2008, people get themselves into a state and then the whole house of cards comes crashing down, and those of us being prudent, living within our means get royally bent over to pay for those who play fast and loose, the "Just declare yourself bankrupt" brigade, those who just dont pay, it does feel like a mugs game sometimes, will be the same with care in old age, spend it all and there is nothing left to take get looked after anyway, have a house and savings then the government will have it to pay for it.

I am not jealous of someone leasing or financing a car, I could do it myself at the drop of a hat but I choose not to, not bothered what others do, as long as it doesnt affect me.

[Bill]

Protesteth much?!?

Obviously it isn't the only way, but you'll forgive me being concerned that a significant proportion of mine and my kids' generation will approach retirement without a pot to piss in and expect those of us that do to pick up the bill.

[daemon]

Bill said:

Protesteth much?!?

Obviously it isn't the only way, but you'll forgive me being concerned that a significant proportion of mine and my kids' generation will approach retirement without a pot to piss in and expect those of us that do to pick up the bill.

Why, if you were retired by that stage anyway would you be expected to pay for someone elses upkeep?

Lots of hand wringing on this thread...

[Elysium]

DonkeyApple said:

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.

I think you are mixing up cause and effect here. Manufacturers are still in a competitive market. Price fixing would require collusion and it would be illegal. I don't think it is happening.

However, manufacturers are inflating RRP to create headroom for discounting. This varies model by model depending on demand. Its easy to see the maths by looking at a website like Drive the Deal. They often state the discount available for a cash sale, the additional discount (support) available if you take finance and the rate required. The rates themselves are profitable in the current market (I think BMW are around 5% and Audi around 6%) and can easily finance the 'support'.

The bigger problem is with dealers who will try to sell 10% APR as 5% flat to max out their finance commission.

[48k]

neil1jnr said:

And please note, with a PCP deal, you would only hand the car back at the end if you were in negative equity,

That's not strictly true is it.

[DonkeyApple]

tannhauser said:

So in short, basically we're fked you mean?

This is what I've been saying all along.

Well, it's not brilliant.

The trouble with excess debt is that all it achieves is the transferring of what wealth the populous majority have rapidly into the hands of the minority. And without anyone trying. As we've seen with property asset inflation caused by excess debt, every single household in the U.K. is paying more as a result of this inflation but only the minority who actually own their home are wealthier as a result. Unfettered retail lending has served to shift the limited wealth of the masses across to the 'shop keepers'.

Now, many will say that the feckless are always feckless and that it true. The reality is that most people will always piss away any wealth that comes their way but there comes a point in the cycle when those who aren't feckless cannot retain any wealth. Not only are we past that point (social mobility has fallen dramatically and cost of living is too high) but the real shock is the lack of wealth in the middle classes. This is the really new thing. They have nothing of account but it's not because they lack income but because they are massively over spending to finance a lifestyle well beyond their means.

So are we screwed? Well I don't think so. The feckless are always going to be feckless. We see more of it because they are on TV and in social media these days. In the past they were always there but you just didn't see them. And those feckless spenders and co summers of excessive debt are going nowhere. The big change is among the middle classes. There is a huge change taking place as the traditional middle classes are stripping themselves rapidly of their wealth and wealth potential by over consumption. In fact, middle class by definition (savings, investments, security) is almost dead among the younger generations and what we are seeing is a new type of middle class but still defined as always by their non spending.

The US is in a genuinely awful state at the moment and this is an interesting article and one which contains many synergies with the South East of the UK.

http://www.marketwatch.com/story/how-you-can-still...