Leasing the used car market
Discussion
I quite like the idea. A few thoughts I had that haven't been mentioned above I don't think:
- Quite close to being a car dealer with finance - is this the intention?
- How would you source stock of reasonable quality?
- Would people reject cars for scratches/stone chips/other? When leasing new it's a new car obviously, if I leased a second hand R8 from you and it had been smoked in I would be unhappy.
- Could people pay it all up front, so give you £15k up front for use of an R8 fully warrantied for 2 years?
- If the car needs repairs or significant work done would you provide an equivalent loan car? I guess some repairs could take a long time if it's an engine rebuild or similar
- What are you going to do when the cars are returned?
- Quite close to being a car dealer with finance - is this the intention?
- How would you source stock of reasonable quality?
- Would people reject cars for scratches/stone chips/other? When leasing new it's a new car obviously, if I leased a second hand R8 from you and it had been smoked in I would be unhappy.
- Could people pay it all up front, so give you £15k up front for use of an R8 fully warrantied for 2 years?
- If the car needs repairs or significant work done would you provide an equivalent loan car? I guess some repairs could take a long time if it's an engine rebuild or similar
- What are you going to do when the cars are returned?
I think there is some confusion, the business I propose would not be a dealer. I would not purchase any cars I would let the customer go out and source their chosen car (within some set criteria) from a reputable dealer/trader. The car does not need to be 3 years old but perhaps a maximum 10. Prior to purchase I was thinking using a company like 'click mechanic' to go and inspect the car as a 3rd party all the while preparing a scan of the car for dents, chips, paintwork issues, smoking/non smoking etc. They provide this service for about £100 and again if I partnered with them I am sure a volume discount to be had
- Could people pay it all up front, so give you £15k up front for use of an R8 fully warrantied for 2 years?
Yes I don't see why that couldn't be an option. Save on a credit fees/interest
- If the car needs repairs or significant work done would you provide an equivalent loan car? I guess some repairs could take a long time if it's an engine rebuild or similar
Good point. I don't think it would be reasonable to provide an equivalent, but something above the Daewoo Matiz's of this world. Decent 5 series or something of that ilk. Could again partner with one of the leading hire companies for discounts
- What are you going to do when the cars are returned?
Either;
Offer them for sale to the leasee for a reasonable purchase price
If still a desirable car, phone around my existing clients to see if they would have interest when the current leasee's term is up
Immediately sell to trade (I do not want the added expense of a showroom nor the aggravation of selling)
- Could people pay it all up front, so give you £15k up front for use of an R8 fully warrantied for 2 years?
Yes I don't see why that couldn't be an option. Save on a credit fees/interest
- If the car needs repairs or significant work done would you provide an equivalent loan car? I guess some repairs could take a long time if it's an engine rebuild or similar
Good point. I don't think it would be reasonable to provide an equivalent, but something above the Daewoo Matiz's of this world. Decent 5 series or something of that ilk. Could again partner with one of the leading hire companies for discounts
- What are you going to do when the cars are returned?
Either;
Offer them for sale to the leasee for a reasonable purchase price
If still a desirable car, phone around my existing clients to see if they would have interest when the current leasee's term is up
Immediately sell to trade (I do not want the added expense of a showroom nor the aggravation of selling)
funt1m3 said:
Plus some rates are much higher than I calculate. What would be reasonable estimate for the cost per year on 50 Audi R8s (to allow for spread of cars). £2500 per annum? That's £250k in a 2 year period I budget. I think that would cover inc. buffer
To cover what and how many miles? For something like an R8 servicing and RFL and consumables I would look to budget around 70-100p/mile, the lower end for higher miles. On top of that you need to figure in depreciation.For a 4K miles/year I would be looking at minimum £3000 plus depreciation. My rough rule of thumb is add the fuel cost again to cover service, insurance, RFL etc. if driving over 8K miles. Double the fuel cost if driving less than 5K miles, 1.5X for in between. These figures do not include depreciation which is roughly the same as your total running costs.
R8 22mpg. 4K miles (5mpl) Fuel cost = 4000/5*£1.25= £1,000 for fuel, therefore other running costs = £2,000, depreciation a further £3,000, so £6000 all in. Remove fuel and insurance totally £1,500 = £4500 cost to you.
funt1m3 said:
I think there is some confusion, the business I propose would not be a dealer. I would not purchase any cars I would let the customer go out and source their chosen car (within some set criteria) from a reputable dealer/trader.
technically you would be purchasing them all though, just handing over money for someone else to buy them for youseems wide open to a scam from the customers though
KevinCamaroSS said:
R8 22mpg. 4K miles (5mpl) Fuel cost = 4000/5*£1.25= £1,000 for fuel, therefore other running costs = £2,000, depreciation a further £3,000, so £6000 all in. Remove fuel and insurance totally £1,500 = £4500 cost to you.
The £2.5k i quoted was just for servicing. I factored another £3k in for depreciation also (plus taxes among other things)Hmm yes the scam thing had crossed my mind. Need a think on that one...
funt1m3 said:
I factored another £3k in for depreciation
So if you're doing the funding and not supplying the cars, essentially you'll be paying retail money for cars. A dealer will more than likely have more than £3k margin in something like an R8, so you'd lose £3k the moment you 'buy' it, so you'd need to factor in the monthly depreciation as well.Another good point. Perhaps there might be wiggle room though as if i go to buy an R8 now with the funds (ie my business transfers the full value to the dealer/trader immediately) he/she might be more willing to offer a discount than if I go saying "Love it. Here's £3k down, can I have the rest on finance please?"
Not sure as not an expert in the art of car buying.
If the car was up for £40k and my 2 year trade in value (estimate) was £34k then I say to customer it is £650pm (for example)
If the customer was savvy enough to secure it for £38k, my trade in value would still be £34k and the customer could reap the benefits in a lower monthly (in this case £83/month over 2 years)
Thanks for the replies guys.
Not sure as not an expert in the art of car buying.
If the car was up for £40k and my 2 year trade in value (estimate) was £34k then I say to customer it is £650pm (for example)
If the customer was savvy enough to secure it for £38k, my trade in value would still be £34k and the customer could reap the benefits in a lower monthly (in this case £83/month over 2 years)
Thanks for the replies guys.
funt1m3 said:
Another good point. Perhaps there might be wiggle room though as if i go to buy an R8 now with the funds (ie my business transfers the full value to the dealer/trader immediately) he/she might be more willing to offer a discount than if I go saying "Love it. Here's £3k down, can I have the rest on finance please?"
Not sure as not an expert in the art of car buying.
If the car was up for £40k and my 2 year trade in value (estimate) was £34k then I say to customer it is £650pm (for example)
If the customer was savvy enough to secure it for £38k, my trade in value would still be £34k and the customer could reap the benefits in a lower monthly (in this case £83/month over 2 years)
Thanks for the replies guys.
If you do this - let me know, if you can get all the niggles right it could work. Even if it is a nicheNot sure as not an expert in the art of car buying.
If the car was up for £40k and my 2 year trade in value (estimate) was £34k then I say to customer it is £650pm (for example)
If the customer was savvy enough to secure it for £38k, my trade in value would still be £34k and the customer could reap the benefits in a lower monthly (in this case £83/month over 2 years)
Thanks for the replies guys.
funt1m3 said:
Another good point. Perhaps there might be wiggle room though as if i go to buy an R8 now with the funds (ie my business transfers the full value to the dealer/trader immediately) he/she might be more willing to offer a discount than if I go saying "Love it. Here's £3k down, can I have the rest on finance please?"
Not sure as not an expert in the art of car buying.
If the car was up for £40k and my 2 year trade in value (estimate) was £34k then I say to customer it is £650pm (for example)
If the customer was savvy enough to secure it for £38k, my trade in value would still be £34k and the customer could reap the benefits in a lower monthly (in this case £83/month over 2 years)
Thanks for the replies guys.
You see the problem you have here is...Not sure as not an expert in the art of car buying.
If the car was up for £40k and my 2 year trade in value (estimate) was £34k then I say to customer it is £650pm (for example)
If the customer was savvy enough to secure it for £38k, my trade in value would still be £34k and the customer could reap the benefits in a lower monthly (in this case £83/month over 2 years)
Thanks for the replies guys.
SpeckledJim said:
The dealer won't give a discount because you are paying cash. He wants to sell you finance.
This.Also what happens if there's a problem with the car and the dealer tells the customer to jog on, customer raises a dispute with the funder (you) and stops payments until the car is fixed? This happens more often than you'd think.
Do you have experience in the finance sector?
I think until I can provide comparable quotes it is difficult to prove this is a viable offering. If a dealer was charging £700 and I was charging £680 then absolutely this model is bust given the negligible difference. I'll work on some real world examples.
I'm a commercial accountant by trade so a little knowledge of the finance markets. I have friends and family in the brokerage game so will be discussing with them soon. Sure many pitfalls to overcome!
And to the gentlemen who mentioned a niche market, absolutely spot on. In my target market (approx £25k to £75k, between 3-10years, "mainstream") there are the following for sale on Autotrader as at today
Aston 326
Bentley 436
Jaguar 150
Maserati 119
Porsche 990
Approx 2,000 cars. The 'for sale' market for these cars represents 5-10% of total cars on the road therefore a conservative estimate of 20,000 cars. A 5% share of that market would be fine by me!
Easier said than done I know, I know...
I'm a commercial accountant by trade so a little knowledge of the finance markets. I have friends and family in the brokerage game so will be discussing with them soon. Sure many pitfalls to overcome!
And to the gentlemen who mentioned a niche market, absolutely spot on. In my target market (approx £25k to £75k, between 3-10years, "mainstream") there are the following for sale on Autotrader as at today
Aston 326
Bentley 436
Jaguar 150
Maserati 119
Porsche 990
Approx 2,000 cars. The 'for sale' market for these cars represents 5-10% of total cars on the road therefore a conservative estimate of 20,000 cars. A 5% share of that market would be fine by me!
Easier said than done I know, I know...
OP, I think that once you iron out the many points raised, you have a potentially brilliant business.
If I understand correctly, a customer sources the car at a reputable (VAT-registered for example) dealer, checks the car, test drives it, and decides to buy, then negotiates the price.
The customer contacts you with the negotiated price, and you calculate 6+23 / 3+35 etc lease payments, absorbing all mechanical and market risks and other running costs, leaving the customer with a fixed monthly payment, and you with a credit agreement and what you hope will be a residual asset value in excess of the outstanding liability.
2 questions;
1. who will provide your funding? Your own money, or a bank?
2. I would like to be your first customer - where do I sign?
If I understand correctly, a customer sources the car at a reputable (VAT-registered for example) dealer, checks the car, test drives it, and decides to buy, then negotiates the price.
The customer contacts you with the negotiated price, and you calculate 6+23 / 3+35 etc lease payments, absorbing all mechanical and market risks and other running costs, leaving the customer with a fixed monthly payment, and you with a credit agreement and what you hope will be a residual asset value in excess of the outstanding liability.
2 questions;
1. who will provide your funding? Your own money, or a bank?
2. I would like to be your first customer - where do I sign?
When does a slight knock or wobble that is or isn't a big deal depending on your perspective become your problem to fix?
A 5 year old car either has zero maintenance requirements from one perspective, or needs thousands of pounds a year from a fuss-pot's perspective.
If you're offering a 'fully maintained' car with no extras to pay, then do you fix every MOT advisory? Do you replace bushes that are essentially fine, but aren't as-new? How do you regard tyres and brakes, given a cheeky money could destroy them in an afternoon?
A 5 year old car either has zero maintenance requirements from one perspective, or needs thousands of pounds a year from a fuss-pot's perspective.
If you're offering a 'fully maintained' car with no extras to pay, then do you fix every MOT advisory? Do you replace bushes that are essentially fine, but aren't as-new? How do you regard tyres and brakes, given a cheeky money could destroy them in an afternoon?
So let me get this right. The customers finds the car, negotiates a price with the dealer, then comes to you, you buy the car they've chosen for them and lease it to them including a maintenance package. Again what I don't understand is why the customer would come to you when he can just "lease" it from the dealer and cut out the middle man (you). The only benefit I can see to the customer is that you take on the risk of depreciation and maintenance but with dealers offering extendable warranties, free servicing and guaranteed future values (GFV) I still can't see how what you will be offering is all that different.
SpeckledJim said:
When does a slight knock or wobble that is or isn't a big deal depending on your perspective become your problem to fix?
A 5 year old car either has zero maintenance requirements from one perspective, or needs thousands of pounds a year from a fuss-pot's perspective.
If you're offering a 'fully maintained' car with no extras to pay, then do you fix every MOT advisory? Do you replace bushes that are essentially fine, but aren't as-new? How do you regard tyres and brakes, given a cheeky money could destroy them in an afternoon?
Surely roughly similar provision in leasing a new car would apply; i.e. return it in similar condition to when you collected it, with provision for reasonable wear and tear. In practice, return a car with tyres, discs and pads that are road-legal, irrespective of the number of replacements that you have destroyed on track during the term of the agreement. A 5 year old car either has zero maintenance requirements from one perspective, or needs thousands of pounds a year from a fuss-pot's perspective.
If you're offering a 'fully maintained' car with no extras to pay, then do you fix every MOT advisory? Do you replace bushes that are essentially fine, but aren't as-new? How do you regard tyres and brakes, given a cheeky money could destroy them in an afternoon?
sideways sid said:
SpeckledJim said:
When does a slight knock or wobble that is or isn't a big deal depending on your perspective become your problem to fix?
A 5 year old car either has zero maintenance requirements from one perspective, or needs thousands of pounds a year from a fuss-pot's perspective.
If you're offering a 'fully maintained' car with no extras to pay, then do you fix every MOT advisory? Do you replace bushes that are essentially fine, but aren't as-new? How do you regard tyres and brakes, given a cheeky money could destroy them in an afternoon?
Surely roughly similar provision in leasing a new car would apply; i.e. return it in similar condition to when you collected it, with provision for reasonable wear and tear. In practice, return a car with tyres, discs and pads that are road-legal, irrespective of the number of replacements that you have destroyed on track during the term of the agreement. A 5 year old car either has zero maintenance requirements from one perspective, or needs thousands of pounds a year from a fuss-pot's perspective.
If you're offering a 'fully maintained' car with no extras to pay, then do you fix every MOT advisory? Do you replace bushes that are essentially fine, but aren't as-new? How do you regard tyres and brakes, given a cheeky money could destroy them in an afternoon?
If I've leased a fully maintained 5 year-old 911 from the OP, what happens when I say "front end feels a bit baggy, I'd like a suspension re-fresh?
He finds someone in 'authority' to drive it and say "it's 5 years old, it's fine" and I say "it's baggy - if it was mine I'd sort it - but I'm paying you to sort it, aren't I?"
funt1m3 said:
No all costs I would cover. Those sort of big bills you speak of are the big scare yes, but this business would benefit from economies of scale. Not only by splitting these big bills over 100s of cars, but by having buyer power with independent garages
Out of curiosity, lets assume an average cost of £50,000 per car, if you're financing 100, surely thats £5 million you need to cover the purchases? funt1m3 said:
I think there is some confusion, the business I propose would not be a dealer. I would not purchase any cars I would let the customer go out and source their chosen car (within some set criteria) from a reputable dealer/trader. The car does not need to be 3 years old but perhaps a maximum 10. Prior to purchase I was thinking using a company like 'click mechanic' to go and inspect the car as a 3rd party all the while preparing a scan of the car for dents, chips, paintwork issues, smoking/non smoking etc. They provide this service for about £100 and again if I partnered with them I am sure a volume discount to be had
- Could people pay it all up front, so give you £15k up front for use of an R8 fully warrantied for 2 years?
Yes I don't see why that couldn't be an option. Save on a credit fees/interest
- If the car needs repairs or significant work done would you provide an equivalent loan car? I guess some repairs could take a long time if it's an engine rebuild or similar
Good point. I don't think it would be reasonable to provide an equivalent, but something above the Daewoo Matiz's of this world. Decent 5 series or something of that ilk. Could again partner with one of the leading hire companies for discounts
- What are you going to do when the cars are returned?
Either;
Offer them for sale to the leasee for a reasonable purchase price
If still a desirable car, phone around my existing clients to see if they would have interest when the current leasee's term is up
Immediately sell to trade (I do not want the added expense of a showroom nor the aggravation of selling)
Hi OP - thanks for clarifying. If you're not sourcing the cars I imagine this would be a little more difficult. How would you be sure the car exists at all or would you travel to inspect them? - Could people pay it all up front, so give you £15k up front for use of an R8 fully warrantied for 2 years?
Yes I don't see why that couldn't be an option. Save on a credit fees/interest
- If the car needs repairs or significant work done would you provide an equivalent loan car? I guess some repairs could take a long time if it's an engine rebuild or similar
Good point. I don't think it would be reasonable to provide an equivalent, but something above the Daewoo Matiz's of this world. Decent 5 series or something of that ilk. Could again partner with one of the leading hire companies for discounts
- What are you going to do when the cars are returned?
Either;
Offer them for sale to the leasee for a reasonable purchase price
If still a desirable car, phone around my existing clients to see if they would have interest when the current leasee's term is up
Immediately sell to trade (I do not want the added expense of a showroom nor the aggravation of selling)
It seems like your proposed approach would have you paying dealer profit and underwriting mechanical risk for the customer. I've not run any figures but I'd imagine the profit I would want to cover those would make it uncompetitive. Particularly if the customer chooses a money pit / worn car and you're on the hook for fixing it.
Overall I do like the idea and would consider something at a reasonable price for sure. I just think it maybe needs a little pivot to tweak it slightly. Hopefully not though as I'd love to pick my own car from scratch and lease it via such a scheme.
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