Leasing the used car market
Discussion
What is the funding vehicle? It's an illiquid asset class, the risk premium is going to be significant (given whom is likely to be funding this). How will you set up the M2M of the assets being financed? Especially when there are no conditions over their usage and custody. I can't see how you can beat the manufacturers own rates, whom can access wholesale funding. I'd imagine you'd be 300bps+ over.
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
Just how often are those £10k bills on these modern cars? 1 in 25, 50? We all know "a guy who spent £15k in 18 months on a Porsche Boxster" but that is only because these stories are written up, not a lot of owners discuss the relatively pain free motoring on these cars.
The bork factor on these sorts of cars would terrify me, given the average owner might "have some fun" with the rev band once in a while but most never lose sight of what it could cost them but the leaser may be more incline to say "fJust how often are those £10k bills on these modern cars? 1 in 25, 50? We all know "a guy who spent £15k in 18 months on a Porsche Boxster" but that is only because these stories are written up, not a lot of owners discuss the relatively pain free motoring on these cars.
kit I'm having some fun, not my car to fix..." your ratio of cars needing engine rebuilds, entire new suspensions (guy I know had £15k of new suspension on his new rs4 at audis expense after playing on the nurbergring for a bit) would far exceed the average owner methinks.I've often thought there would be a demand for this kind of concept, but the margin to make any money from it doesn't really exist.
Would I be prepared to pay a fixed monthly cost for 1-2 years to experience a C63, 911 turbo, R8 etc? Yes I would! I wouldn't have the hassle of buying and selling and I could tick these cars off my bucket list. It wouldn't concern me if the car was a few years old and had 50k on the clock, I'm paying to experience these cars without the hassle of buying and selling. As long as the car is in great condition, I would be happy...
The problem is how much would someone be prepared pay for this service? And how big is the market? Fine for us petrolheads, but is that enough?
Calculating the depreciation, servicing, contingency for a big bill (maybe via a 3rd party warranty), transportation costs etc will all come before your margin. Naturally as the car is not new the incentive for the leaser is a reduced monthly payment, so what you charge would need to be relative to what the new model could be obtained for. Even if you made £200 a car per month (which I think is optimistic) that's only £2400 p.a from one car. To make 30k a year, you'll need 12/13 cars meaning you'd need to sink in around 500k? 6% return, worth the hassle?
Like I said, I love the concept as a leaser, but as a business I don't know if the figures stack up.
Would I be prepared to pay a fixed monthly cost for 1-2 years to experience a C63, 911 turbo, R8 etc? Yes I would! I wouldn't have the hassle of buying and selling and I could tick these cars off my bucket list. It wouldn't concern me if the car was a few years old and had 50k on the clock, I'm paying to experience these cars without the hassle of buying and selling. As long as the car is in great condition, I would be happy...
The problem is how much would someone be prepared pay for this service? And how big is the market? Fine for us petrolheads, but is that enough?
Calculating the depreciation, servicing, contingency for a big bill (maybe via a 3rd party warranty), transportation costs etc will all come before your margin. Naturally as the car is not new the incentive for the leaser is a reduced monthly payment, so what you charge would need to be relative to what the new model could be obtained for. Even if you made £200 a car per month (which I think is optimistic) that's only £2400 p.a from one car. To make 30k a year, you'll need 12/13 cars meaning you'd need to sink in around 500k? 6% return, worth the hassle?
Like I said, I love the concept as a leaser, but as a business I don't know if the figures stack up.
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.
Now I am really confused. Your posts indicate you would lease used cars to clients. So, where do these cars come from if you are not funding them yourself?If the client is funding them, then what are you offering? Would it be just the servicing package?
KevinCamaroSS said:
Now I am really confused. Your posts indicate you would lease used cars to clients. So, where do these cars come from if you are not funding them yourself?
If the client is funding them, then what are you offering? Would it be just the servicing package?
He wants to provide the finance and effectively underwrite the GFV. 3rd party PCP, or an agent for PCP to whomever is providing the financing (whom would want either a massive premium or indemnification on the GFV). If the client is funding them, then what are you offering? Would it be just the servicing package?
Fail to correctly cost / amortise wear & tear or the GFV leads to ruin (and making non-special edition sports cars easier to enter likely to have a downward push on valuations anyway).
It's one of those businesses where the only way to make a small pile of money is to start with a bigger one.
stongle said:
He wants to provide the finance and effectively underwrite the GFV. 3rd party PCP, or an agent for PCP to whomever is providing the financing (whom would want either a massive premium or indemnification on the GFV).
Fail to correctly cost / amortise wear & tear or the GFV leads to ruin (and making non-special edition sports cars easier to enter likely to have a downward push on valuations anyway).
It's one of those businesses where the only way to make a small pile of money is to start with a bigger one.
That was my view too.Fail to correctly cost / amortise wear & tear or the GFV leads to ruin (and making non-special edition sports cars easier to enter likely to have a downward push on valuations anyway).
It's one of those businesses where the only way to make a small pile of money is to start with a bigger one.
Your numbers arent accurate but if you have a large pile of cash to invest and are looking for a business you might enjoy then crack on. Vat status of vehicles you are buying and accurate depreciation/smr costs will be critical so will be difficult to just let customers find any vehicle but you could specify certain approved supplies who can source qualifying cars.
Car leasing is a funny business lots of companies making almost non existent margins just to get some £££ from smr and ability to gamble on residuals.
Certainly not somewhere I'd be investing.
Car leasing is a funny business lots of companies making almost non existent margins just to get some £££ from smr and ability to gamble on residuals.
Certainly not somewhere I'd be investing.
Your numbers arent accurate but if you have a large pile of cash to invest and are looking for a business you might enjoy then crack on. Vat status of vehicles you are buying and accurate depreciation/smr costs will be critical so will be difficult to just let customers find any vehicle but you could specify certain approved supplies who can source qualifying cars.
Car leasing is a funny business lots of companies making almost non existent margins just to get some £££ from smr and ability to gamble on residuals.
Certainly not somewhere I'd be investing.
Car leasing is a funny business lots of companies making almost non existent margins just to get some £££ from smr and ability to gamble on residuals.
Certainly not somewhere I'd be investing.
I don't understand why you are proposing to underwrite any mechanical problems. That is likely to bankrupt you.
I would suggest you offer a lease and price in a good warranty (that you have got underwritten elsewhere, i.e. You are buying warranties), and then offer maintenance as an additional monthly extra.
I suspect there is money in this idea, although I reckon the margins are slim.
Back when I was doing leasing, the big finance houses (Lex et al) would quote on a used car. The caveat was that the vehicle had to be 'VAT qualifying', which limits your vehicle sources to some extent.
Obviously things may have changed in the last 10 years.
I would suggest you offer a lease and price in a good warranty (that you have got underwritten elsewhere, i.e. You are buying warranties), and then offer maintenance as an additional monthly extra.
I suspect there is money in this idea, although I reckon the margins are slim.
Back when I was doing leasing, the big finance houses (Lex et al) would quote on a used car. The caveat was that the vehicle had to be 'VAT qualifying', which limits your vehicle sources to some extent.
Obviously things may have changed in the last 10 years.
Things haven't changed much in the last 10 years (I'm an introducer to Lex Autolease) - new only or pre-registered up to 3 months old / 100 miles on the clock is their criteria for a contract hire car and it must be VAT qualifying.
The biggest hurdles as far as I can see that you need to overcome:
1. New cars are relatively 'cheap' on contract hire as the rentals are calculated on the pre-VAT price of the car and the customer pays VAT on the monthly rentals. With used cars, there's no VAT in the supply price, unless it's an ex-lease car that hasn't been owned privately. If you are looking to then lease a used car to someone, you have to base your rentals on the full price of the car, and you still have to charge VAT on the rentals.
2. Maintenance / servicing / warranty issue for used cars. Who is responsible if the engine goes bang on a 4 year Audi R8, 2 months into the lease agreement? Certainly not the customer who'll be able to reject the car or demand it to be repaired. Potentially extremely costly.
3. Company car tax - if you are leasing a used car to a business, the company car tax is still calculated on the original list price / CO2 emissions of the car so this can be costly to the driver.
4. PCP agreements are readily available for prestige and sports cars up to 7 years old at the beginning of the term with a guaranteed future value after 2 / 3 / 4 years - the customer can just hand the car back at the end of the finance period without further obligation other than dehire damage and excess mileage. The dealers in this case provide the warranty, and the customer is responsible for maintenance / servicing / VED etc.
I struggle to see a market for used car leasing when PCP is so prevalent and does 90% of what you suggest already - but I do respect your idea.
The biggest hurdles as far as I can see that you need to overcome:
1. New cars are relatively 'cheap' on contract hire as the rentals are calculated on the pre-VAT price of the car and the customer pays VAT on the monthly rentals. With used cars, there's no VAT in the supply price, unless it's an ex-lease car that hasn't been owned privately. If you are looking to then lease a used car to someone, you have to base your rentals on the full price of the car, and you still have to charge VAT on the rentals.
2. Maintenance / servicing / warranty issue for used cars. Who is responsible if the engine goes bang on a 4 year Audi R8, 2 months into the lease agreement? Certainly not the customer who'll be able to reject the car or demand it to be repaired. Potentially extremely costly.
3. Company car tax - if you are leasing a used car to a business, the company car tax is still calculated on the original list price / CO2 emissions of the car so this can be costly to the driver.
4. PCP agreements are readily available for prestige and sports cars up to 7 years old at the beginning of the term with a guaranteed future value after 2 / 3 / 4 years - the customer can just hand the car back at the end of the finance period without further obligation other than dehire damage and excess mileage. The dealers in this case provide the warranty, and the customer is responsible for maintenance / servicing / VED etc.
I struggle to see a market for used car leasing when PCP is so prevalent and does 90% of what you suggest already - but I do respect your idea.
Hi all, great feedback thanks.
For those in the know, if I buy a used car I do not pay VAT, but if I PCP a vehicle from a trader/dealer, does that monthly payment include VAT? Therefore PCP is much more expensive because of this?
I would be de-risking the business model by using a 3rd party specialist for warranties. For example, one warranty provider has offered a fixed fee for mechanical failure, servicing, mot inc. wear and tear. Can even pay a premium to include items such as suspension, clutch. I think it wouldn't be unreasonable to suggest a £250 excess or similar on something like a clutch to avoid a piss take.
For those who bother to negotiate with warranty providers, it is not unreasonable to get a 5-10% discount. If I were a business sending 100s of cars there way, sure additional discounts to be had. Likewise partnering with some insurance brokers (although aware insurance not quite the same)
For the poster who suggested they may be some quibbles if the owner said "the suspensions is baggy" and demanded it fixed. This could be another issue.
I wouldn't be competing directly with the main dealers who as one poster said has the high finance backing, more the specialist trader
For those in the know, if I buy a used car I do not pay VAT, but if I PCP a vehicle from a trader/dealer, does that monthly payment include VAT? Therefore PCP is much more expensive because of this?
I would be de-risking the business model by using a 3rd party specialist for warranties. For example, one warranty provider has offered a fixed fee for mechanical failure, servicing, mot inc. wear and tear. Can even pay a premium to include items such as suspension, clutch. I think it wouldn't be unreasonable to suggest a £250 excess or similar on something like a clutch to avoid a piss take.
For those who bother to negotiate with warranty providers, it is not unreasonable to get a 5-10% discount. If I were a business sending 100s of cars there way, sure additional discounts to be had. Likewise partnering with some insurance brokers (although aware insurance not quite the same)
For the poster who suggested they may be some quibbles if the owner said "the suspensions is baggy" and demanded it fixed. This could be another issue.
I wouldn't be competing directly with the main dealers who as one poster said has the high finance backing, more the specialist trader
funt1m3 said:
Hi all, great feedback thanks.
For those in the know, if I buy a used car I do not pay VAT, but if I PCP a vehicle from a trader/dealer, does that monthly payment include VAT? Therefore PCP is much more expensive because of this?
A PCP agreement is effectively a loan to buy a car - you borrow money and then pay it back. There's no VAT payable on hire purchase / lease purchase or PCP (any agreement which gives you eventual ownership of the asset.)For those in the know, if I buy a used car I do not pay VAT, but if I PCP a vehicle from a trader/dealer, does that monthly payment include VAT? Therefore PCP is much more expensive because of this?
A lease agreement is a rental and the lessee pays VAT on the monthly rentals, regardless of whether they can reclaim the VAT or not.
When it comes to finance for a used, non VAT qualifying car, a purchase agreement will be cheaper than a lease because there's no reclaimable VAT in the supply price of the vehicle. For example, let's assume a 3 year old Range Rover Sport at £50,000 (not VAT qualifying) and assuming the same rate of interest is available on both agreements:
PCP: Deposit of £5,000
followed by 35 monthly payments of £645.47
Final optional balloon payment of £31240.38 (based on 12,000 miles per year.)
Finance Lease:
Initial rental of £5,000 + VAT
followed by 35 monthly rentals of £645.47 + VAT
Final balloon rental payable of £31240.38 + VAT
Customer has to pay VAT on a rental agreement, regardless of whether the car is VAT qualifying itself.
So if a PCP allows someone to hand the car back no questions asked at the end of the term, surely it makes sense to PCP rather than lease the used car game?
Could I not offer a PCP package then with maintenance and essentially only charge VAT on the maintenance element? is £645 + (for example) (£250 + VAT) = £945 as opposed to (645 + 250 + VAT) = £1,074?
Could I not offer a PCP package then with maintenance and essentially only charge VAT on the maintenance element? is £645 + (for example) (£250 + VAT) = £945 as opposed to (645 + 250 + VAT) = £1,074?
funt1m3 said:
Hi. I have completed a little research but agree the FCA regs and all things consumer credit would be a stumbling block. That being said I did find out that 49,000 companies are registered by FCA to provide credit services. How hard can it be...??
That covers all different types of credit services, so it sounds like a lot until you really think about it. And don't kid yourself, it can be extremely hard. Since early 2014 the FCA took over from the 'Office of Fair Trading' and many of the companies currently on the register are in an 'intermediary phase authorisation' whilst trying to actually get properly authorised by the FCA. Many of the brokers from years ago (especially the bedroom broker type) will not be authorised.If you manage to get through the authorisation process, then be prepared for ongoing FCA scrutiny/reporting, BVRLA membership, ICO registration and so on. This is what makes it so difficult for any small business in this sector.
But with determination and drive it is do-able, and I would be happy to help or point you in the right direction if you do decide to pursue your idea. Feel free to PM
funt1m3 said:
So if a PCP allows someone to hand the car back no questions asked at the end of the term, surely it makes sense to PCP rather than lease the used car game?
Could I not offer a PCP package then with maintenance and essentially only charge VAT on the maintenance element? is £645 + (for example) (£250 + VAT) = £945 as opposed to (645 + 250 + VAT) = £1,074?
But again I ask, what are you offering that I cannot get myself at equal or less cost?Could I not offer a PCP package then with maintenance and essentially only charge VAT on the maintenance element? is £645 + (for example) (£250 + VAT) = £945 as opposed to (645 + 250 + VAT) = £1,074?
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