New car sales 75% via PCP

[del mar]

http://www.bbc.co.uk/news/business-38516247

Although this doesn't say it, on Radio 2 the report said 75% were via PCP.

Is this good or bad for the car industry ?
Yes there is a steady flow of income, but they don't get the full amount for the car as most are just returned after 3 years ?

[Dog Star]

And how much do you think it costs to build a car?

[anonymous-user]

del mar said:

http://www.bbc.co.uk/news/business-38516247

Although this doesn't say it, on Radio 2 the report said 75% were via PCP.

Is this good or bad for the car industry ?
Yes there is a steady flow of income, but they don't get the full amount for the car as most are just returned after 3 years ?

Don't they get the full amount from the financing company?

[sidicks]

del mar said:

http://www.bbc.co.uk/news/business-38516247

Although this doesn't say it, on Radio 2 the report said 75% were via PCP.

Is this good or bad for the car industry ?
Yes there is a steady flow of income, but they don't get the full amount for the car as most are just returned after 3 years ?

Cars are returned to be replaced by new cars...

[750turbo]

del mar said:

http://www.bbc.co.uk/news/business-38516247

Although this doesn't say it, on Radio 2 the report said 75% were via PCP.

Is this good or bad for the car industry ?
Yes there is a steady flow of income, but they don't get the full amount for the car as most are just returned after 3 years ?

The OEM's do not finance the car - It is the finance houses.

[Adrian W]

Its a time bomb, I have seen cars where the total lease cost is less than the depreciation of the car, irrelevant of what the lease company actually paid for it, places like Bruntingthorp are filled to capacity with lease returns, if they dump them on to the used market it will either destroy it or dramatically effect new car sales.

I still believe that this will be the next big finance scandal, those that work in finance on here have said its rubbish (but they would) but I believe it will transpire that there is a gap between the actual value of returned lease cars and the asset value on the lease companies books, it cant be sustainable.

[paulrockliffe]

I don't think there's an issue with the manufacturers getting their money! On PCP they get cash + finance on a lease they get depreciation paid + profit. In both cases the car gets sold again, usually on finance, to the second hand market. They wouldn't sell many cars if everyone had to find £15-30k to buy a new Golf, which would mean a new Golf would then cost much more anyway.

Often the finance company is lending the manufacturer's cash pile anyway.

[KTF]

Manufacturer delivers car to dealer.

Manufacturer invoices dealer for car.

Dealer pays invoice.

Manufacturer gets their money.

[Murph7355]

Adrian W said:

...

I still believe that this will be the next big finance scandal, those that work in finance on here have said its rubbish (but they would) but I believe it will transpire that there is a gap between the actual value of returned lease cars and the asset value on the lease companies books, it cant be sustainable.

Who will it be a scandal for?

End customers in contract will be fine. Manufacturer's get their money regardless. So it's the Finance firms carrying the risk, no? And they'll usually be good at assessing that and will have baked it into what the punters pay.

I agree it seems like a time bomb. At some point those firms will need to realise the asset value. So used car prices in the over leased areas will take a hit, which may impact new prices too. But so be it IMO.

I'm just looking at replacing our XC90 and see this as good news at the moment... There's an abundance of nearly new kit on the market for what seems like sensible money

[BoRED S2upid]

sidicks said:

del mar said:

http://www.bbc.co.uk/news/business-38516247

Although this doesn't say it, on Radio 2 the report said 75% were via PCP.

Is this good or bad for the car industry ?
Yes there is a steady flow of income, but they don't get the full amount for the car as most are just returned after 3 years ?

Cars are returned to be replaced by new cars...

Returned cars are then sold for a profit. It's a win win for the car company! A steady flow of cash and very good condition low mileage used cars cha Ching!

[Digga]

It is extremely well documented that there's chronic over-capacity in the European car market. Manufacturers are keen to keep the factories shifting volume, so they have to be creative about ways to get consumers into new metal. Let's not forget that a lot of the finance is offered by in-house finance businesses too, so the manufacturer takes a cut of that meaty APR too.

Who it's bad news for is hard to say. There is obviously potential for a used car-price crash, so both manufacturers, and those without guaranteed minimum future values (GMFV) written into their contracts to get burned.

I had my eyes opened to this a few years back looking at new Range Rovers, whilst waiting for my Defender to come out of the service bay at my local Land Rover stealer. The balloon finance schemes on a £100k ish car are eyewatering, but talking to the salesman, they're the most common way of getting into one. I'd always niavely assumed that if you had a Range Rover, you had money - either cash or a modest HP loan - but clearly, given the sheer numbers of the things (and many of those parked outside very modest properties), I was way wrong.

[KTF]

Digga said:

I'd always niavely assumed that if you had a Range Rover, you had money - either cash or a modest HP loan - but clearly, given the sheer numbers of the things (and many of those parked outside very modest properties), I was way wrong.

If you had 100k, why would you put it all in a depreciating asset when you can put a small amount towards the car and invest (or whatever) the rest to offset the interest?

[walm]

Adrian W said:

I still believe that this will be the next big finance scandal, those that work in finance on here have said its rubbish (but they would) but I believe it will transpire that there is a gap between the actual value of returned lease cars and the asset value on the lease companies books, it cant be sustainable.

I work in finance and pretty much agree with you.
The main issue is around residuals - i.e. the value of the car when it gets returned at the end of the lease.

It's not really a scandal (the regs around selling consumer finance are pretty strict already), just an unsustainable bubble of new car sales volumes waiting to burst.
And in fairness, one relatively helpful offset is that OEMs are raising the price of GBP cars owing to the FX move post-Brexit which helps sure up the second-hand market pricing.

I suspect the likely outcome will be a dramatic drop in new car volumes as hinted at by SMMT today.

[Truckosaurus]

Adrian W said:

....I have seen cars where the total lease cost is less than the depreciation of the car...

I've had a lease where the total costs were less than the VAT on the list price. So lord knows what creative accountancy goes on behind the scenes.

[Digga]

KTF said:

Digga said:

I'd always niavely assumed that if you had a Range Rover, you had money - either cash or a modest HP loan - but clearly, given the sheer numbers of the things (and many of those parked outside very modest properties), I was way wrong.

If you had 100k, why would you put it all in a depreciating asset when you can put a small amount towards the car and invest (or whatever) the rest to offset the interest?

Dunno, I thought of it this way: If you had 100k, why would you pay 9.whatever percent APR?

[MitchT]

del mar said:

Is this good or bad for the car industry ?

Good because the car industry is getting paid to produce more cars.

del mar said:

Yes there is a steady flow of income, but they don't get the full amount for the car as most are just returned after 3 years ?

The agreed final value will favour the dealer, not the customer, so they can sell it used for a tidy profit.

My only question is, what happens to all the nearly new cars? Are there really enough people out there to buy them all? As the supply grows will used prices collapse, thus further depressing the agreed final values on them when they're being bought new, thus ultimately making PCP deals prohibitively expensive?

[KTF]

Digga said:

Dunno, I thought of it this way: If you had 100k, why would you pay 9.whatever percent APR?

You can get lower rates if you don't use the manufacture finance scheme.

[Digga]

MitchT said:

My only question is, what happens to all the nearly new cars? Are there really enough people out there to buy them all? As the supply grows will used prices collapse, thus further depressing the agreed final values on them when they're being bought new, thus ultimately making PCP deals prohibitively expensive?

This, given the numbers is a big enough risk on it's own, but when you factor in the seismic shift we're likely to see as hybrid and EV vehicles finally begin to become the de facto means of plebian transport, you have a whole other set of issues.

[walm]

KTF said:

Digga said:

Dunno, I thought of it this way: If you had 100k, why would you pay 9.whatever percent APR?

You can get lower rates if you don't use the manufacture finance scheme.

Right now, lease discounts appear to mean that your monthly cost is actually less than depreciation (since when YOU buy the car, the discount you can secure is much lower than the leasing company's discount).

So... EVEN INCLUDING THE INTEREST, it is cheaper to rent than buy, as it were.

Now, sure, you are still taking a massive hit on depreciation but if you HAVE to have a new car then it is simply cheaper in many cases to lease.

This is very unusual and is only sustainable while interest rates are so low and while residuals hold up.
Either of those changing would have a material impact on the total cost of ownership of new cars.

[powerstroke]

Large numbers of People have given up the idea pay for and you own a car outright and are happy to rent it over 3 years or whatever ,making one payment per month and not having any unexpected bills , second hand will get cheaper white goods cars exported or scrapped , as more people take it up
in the end the cost will be passed on to the user so if you have a bog standard audi and its 15k list and worth 3 k at the end of your contract the payments will be worked out to cover the depreciation + profit for the lease co ... the lower the residual value the more you will have to pay ...