Are the wheels about to fall of car finance?
Discussion
)My main question with it is what is happening to all the off-lease cars. The financial model is built around the manufacturer being able to get a particular value for the car when it comes back and enters the second hand market. But even if they are stockpiling them to artificially preserve second hand values, that just means they've got a huge pile of assets that they can say is worth £X billion but in actuality if they had to liquidate the market would be flooded and values would drop through the floor.
What is the advantage to them of keeping the stockpiled cars? The payments from the lease period surely hasn't covered the cost of manufacturing the car let alone turned a profit, and the longer they stockpile the car before releasing it onto the used market, the less it's worth... and if they keep the values high then most people would prefer to jump up to a new car instead of making a slight saving on buying second hand.
I speak as someone who embraces the PCP method because it works for me and I don't mind that I'm indirectly paying for the privilege, but there is a big hole in the system on the manufacturer's end that I don't understand.
What is the advantage to them of keeping the stockpiled cars? The payments from the lease period surely hasn't covered the cost of manufacturing the car let alone turned a profit, and the longer they stockpile the car before releasing it onto the used market, the less it's worth... and if they keep the values high then most people would prefer to jump up to a new car instead of making a slight saving on buying second hand.
I speak as someone who embraces the PCP method because it works for me and I don't mind that I'm indirectly paying for the privilege, but there is a big hole in the system on the manufacturer's end that I don't understand.
Edited by Venturist on Sunday 26th March 10:21
CS Garth said:
But they do because the dealers control the finance - ie if you give someone the means to pay for something they will buy it. Look at DFS , Brighthouse, even Black circles. People don't look at the price, they look at the monthlies. This enables you to manipulate price upwards.
People are buying their tyres on finance? Bloody hell. This is an interesting thread. I bought my car on HP and while the APR was stupid I paid it off relatively quickly afterwards. In hindsight of course it would have been better to save for a year or so and then save myself a few hundred quid. I'll probably get a bank loan next time round if I don't pay cash. However, I have absolutely no interest whatsoever in PCP deals, although I can sometimes see the appeal. I just couldn't stomach paying so much money for something and probably never actually owning it. Is it just me or are new car radio/TV ads now making it much more clear that 'you will not own the vehicle'?
Welshbeef said:
mstrbkr said:
Welshbeef said:
40 year mortgages interest only
You can get those? Who is getting those?!
With regard to finance, my car is PCP'd and probably not at a very good interest rate either (it was 2 y/old when i bought it.) But it works for me, and was the only way i could buy a modern car with a warrenty etc. and that was important to me. Unlike others however i do not want to be trapped into the never ending cycle of car finance, with never ending payments being made at £xxx per month. It was interesting to note the salesmen's focus on "affordability" (monthlies) rather than actually looking at what the thing costs to buy. I hate thought of paying years (decades?) of interest on car loans, as one PCP is chopped in for another, ad infinitum.
BigLion said:
there are people on other forums driving brand new m4s and yet they then change to another m4 to get a different colour or spec a couple of years into the deal. These people know what they are paying but have no discipline.
Agree with this, happens more than ever. Due to no other reason than people can. Happens across the board with premium / performance owners best at wanting the latest thing at any cost. Its constantly having the latest phone applied to cars. Golf 7R as an example - facelift with the smallest amount of revisions but enough to mark it out as different for those interested, promote it as the must have Golf 7.5R and the amount of nearly new 7R owners wanting figures to change up is silly.
I personally see people 'upgrade' to a new car from their current 3 year old or less car with under 5k miles on the clock. Which costs them many, many thousands of pounds. Wasteful yes but good for the motor trade.
Venturist said:
My main question with it is what is happening to all the off-lease cars. The financial model is built around the manufacturer being able to get a particular value for the car when it comes back and enters the second hand market. But even if they are stockpiling them to artificially preserve second hand values, that just means they've got a huge pile of assets that they can say is worth £X billion but in actuality if they had to liquidate the market would be flooded and values would drop through the floor.
In Steven Wards 'Dealers Diary' pages in the latest Car Mechanics magazine he comments on the record stock levels appearing at bca car auctions over the last month. He feels that this will be bad for residuals. Edited by Venturist on Sunday 26th March 10:21
Looking at how the finance models work (earlier in this thread) there could certainly be something in the OPs original question.
Next question - anyone brave enough to short the lenders?
mstrbkr said:
On that subject, and in regards to mis-selling, Ford tried tell me that changing up to the next level of Fiesta ST after 1 year of my 2 year PCP was a good idea. You know how it goes "we can get you in a new car for the same monthly payment", but I had to ask what this did to the total amount I had borrowed. Then they spilled the beans that this would take my total amount borrowed back up to the same amount it had been a year previously, so I would have no equity whatsoever. I'm not sure I'd say it is a scam, but they are certainly being economic with the truth to hoodwink people into these early swaps.
I then had to be quite firm with the person on the phone when declining their offer, who kept telling me I shouldn't keep my car for the whole 2 year term.
I don’t know how true it is, but a Honda salesman told me that virtually no-one keeps the car for the full term. We’d got a Jazz on a 0% deal that Honda gave an extra £500 contribution for, on top of all other discounts. I couldn’t understand why they’d do this, and the salesman basically said it’s to get you onto the PCP treadmill. I then had to be quite firm with the person on the phone when declining their offer, who kept telling me I shouldn't keep my car for the whole 2 year term.
Sure enough they called 18mths into a 2yr deal and tried to get us to swap to a HR-V, a more expensive car, for a lower monthly payment. The salesman seemed genuinely gobsmacked that I didn’t snatch his hand off. It took some digging to establish this was a 3yr deal and he really didn’t want to tell us the GFV – he made out like it was completely irrelevant as no one gets to the end of the term anyway.
Perhaps I am missing something, and should have gone for it?
Sheepshanks said:
I don’t know how true it is, but a Honda salesman told me that virtually no-one keeps the car for the full term. We’d got a Jazz on a 0% deal that Honda gave an extra £500 contribution for, on top of all other discounts. I couldn’t understand why they’d do this, and the salesman basically said it’s to get you onto the PCP treadmill.
Sure enough they called 18mths into a 2yr deal and tried to get us to swap to a HR-V, a more expensive car, for a lower monthly payment. The salesman seemed genuinely gobsmacked that I didn’t snatch his hand off. It took some digging to establish this was a 3yr deal and he really didn’t want to tell us the GFV – he made out like it was completely irrelevant as no one gets to the end of the term anyway.
Perhaps I am missing something, and should have gone for it?
Nothing wrong with going for it provided you know the full cost to do it. Sure enough they called 18mths into a 2yr deal and tried to get us to swap to a HR-V, a more expensive car, for a lower monthly payment. The salesman seemed genuinely gobsmacked that I didn’t snatch his hand off. It took some digging to establish this was a 3yr deal and he really didn’t want to tell us the GFV – he made out like it was completely irrelevant as no one gets to the end of the term anyway.
Perhaps I am missing something, and should have gone for it?
If your happy with the Jazz keep going it's a bloody good car.
Venturist said:
My main question with it is what is happening to all the off-lease cars. The financial model is built around the manufacturer being able to get a particular value for the car when it comes back and enters the second hand market. But even if they are stockpiling them to artificially preserve second hand values, that just means they've got a huge pile of assets that they can say is worth £X billion but in actuality if they had to liquidate the market would be flooded and values would drop through the floor.
What is the advantage to them of keeping the stockpiled cars? The payments from the lease period surely hasn't covered the cost of manufacturing the car let alone turned a profit, and the longer they stockpile the car before releasing it onto the used market, the less it's worth... and if they keep the values high then most people would prefer to jump up to a new car instead of making a slight saving on buying second hand.
I speak as someone who embraces the PCP method because it works for me and I don't mind that I'm indirectly paying for the privilege, but there is a big hole in the system on the manufacturer's end that I don't understand.
See my earlier comment about scrapping 2x PCP deals and off to the baler , build in the cost to the two deals and deny the second hand market stock and sell more units !!! win win ....What is the advantage to them of keeping the stockpiled cars? The payments from the lease period surely hasn't covered the cost of manufacturing the car let alone turned a profit, and the longer they stockpile the car before releasing it onto the used market, the less it's worth... and if they keep the values high then most people would prefer to jump up to a new car instead of making a slight saving on buying second hand.
I speak as someone who embraces the PCP method because it works for me and I don't mind that I'm indirectly paying for the privilege, but there is a big hole in the system on the manufacturer's end that I don't understand.
Edited by Venturist on Sunday 26th March 10:21
LordLoveLength said:
In Steven Wards 'Dealers Diary' pages in the latest Car Mechanics magazine he comments on the record stock levels appearing at bca car auctions over the last month. He feels that this will be bad for residuals.
And yet average prices are up year on year and auction demand has remained strong. MuscleSaloon said:
I personally see people 'upgrade' to a new car from their current 3 year old or less car with under 5k miles on the clock. Which costs them many, many thousands of pounds. Wasteful yes but good for the motor trade.
That has been the case for decades though and predates the prevalent use of PCP and leasing too.When i was selling new Rovers 27 years ago now, you'd get people who came in when their car was three years old and openly say "well i'm used to pay £X per month so i may as well just continue doing that so i'm here to get a new one"
MuscleSaloon said:
LordLoveLength said:
In Steven Wards 'Dealers Diary' pages in the latest Car Mechanics magazine he comments on the record stock levels appearing at bca car auctions over the last month. He feels that this will be bad for residuals.
And yet average prices are up year on year and auction demand has remained strong. Again, thinking back to my childhood, say 40 years ago, a one car family was prevalent, with two cars being the exception. Then it became two car families were the norm, now its (one the kids hit 17) three and four cars you see outside houses.
brickwall said:
Sure the dealer can stick whatever price they like on cars they get back off PCP deals, but that doesn't mean people will buy them! Are there stacks of unsold 2-4 year old cars sitting around? If so, on who's books? And on what basis are they writing them down?
Go to somewhere like Bruntingthorpe. There's are tens of thousands of ex finance cars there, filling up the site quicker than they can be sold onBill said:
I suspect they don't actually think to deeply about it. The car industry has persuaded them that the same monthly payment for a normal loan for a used car will get them something new. They don't care that they have nothing to show for it at the end, because by that stage they have another new car.
Why does this fallacy get quoted on each leasing / finance thread?Not much deep though being demonstrated it seems.
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