How the hell do people afford cars these days?
Discussion
Tomanybikes said:
nickfrog said:
Tomanybike said:
A mythical 40k pension contribution to mitigate PCP interest does not seem to hold water for most people.
Nothing mythical as I am sure you know, it doesn't have to be as much as 40k. You also know that it doesn't have to be for most people to still validate the fact that "it depends".Plenty of people put decent money in pension and it is not difficult to see why with the tax relief (while it lasts!). Choosing to put money in pension can be a very smart move even if that means not paying cash for a car, whatever its value.
P.S. I totally agree about putting money into pensions is probably the best thing you can do because of the government top up and if you are a 40% tax payer you also get extra relief but only on the amount over the basic rate threshold, so you would need to earn around 90k to get maximum relief.
As for max relief, again, you don't have to pay the full £40k gross if you can't. You can pay, say, £10k/year and get 40% of that back if you are on £60k, so that's £4k, ie the entire yearly cost of a cheap lease for instance. Plenty of people over 50 do that, and you can see why as they approach retirement and want to make the most of that facility while they can. It doesn't have to be anywhere near a majority to make sense. It depends.
The BoE have been keeping interest rates as low as possible since 2008 for what they see as a good reason- cheaper money is generally good for the economy, especially in generating business investment. We've been fortunate in that inflation has been very low for a very long time, but now we're starting to see different circumstances, so the ultra low interest rate model is having to be adjusted.
Any student of history will know that fiscal policy can only achieve so much, particularly if you want results in a short time frame. Solid economic growth could be achieved by long term investment in the likes of education, transport, other infrastructure and so on (real levelling up). Sadly, people don't tend to be wooed by 30-year investment plans. The media are more interested in the next Spring/Autumn statement with the latest tax micro-adjustment.
Any student of history will know that fiscal policy can only achieve so much, particularly if you want results in a short time frame. Solid economic growth could be achieved by long term investment in the likes of education, transport, other infrastructure and so on (real levelling up). Sadly, people don't tend to be wooed by 30-year investment plans. The media are more interested in the next Spring/Autumn statement with the latest tax micro-adjustment.
Fusion777 said:
Think a lot of people on here have a heavily skewed view of the average person's finances, and what they can and can't afford. I know people who have cars on PCP/lease who don't even have a pension, never mind making additional contributions to it.
Lots of people have very low levels of financial literacy. They often have little interest in even attempting to learn more, even though it would benefit them substantially.
You really don't need to have a skewed view of the average person's finance to understand that different people are in different situations and have varying levels of financial literacy. And that what applies to the "average" may or may not apply to people well below the average or well over the average. As ever, it depends. Hence the fact that sweeping and dogmatic views may well apply to some but not to others. Lots of people have very low levels of financial literacy. They often have little interest in even attempting to learn more, even though it would benefit them substantially.
Deep Thought said:
And therein lies the problem for manufacturers at the minute. They have severe supply issues so the "exotic" ways to finance cars (through finance incentives and subsidised rates) dont really exist. Bad time for PCPing or leasing.
A monthly payment works for many people. It wraps up depreciation, warranty and often servicing in a monthly payment that they can budget for. Most people are paid monthly so that works for them. The benefit for everyone else is it did keep a great flow of good, used cars coming on to the market which kept prices low. The consequence has been of restricted numbers being sold is that used prices have went sky high. I've been watching M2, M2C and M3 V8 prices and they're an easy 20-25% up on what they were at the start of 2020 and thats for the same year of car, not even factoring in the age of it. I think most marques are the same.
Tbf I think a lot of this now applies equally to other industries too. We’re moving away from asset ownership to ongoing “service” type ways of operating. Eg historic on premise IT footprints now moving to the cloud. And then the risk of vendor lock-in and inability to exit. Much like PCP and it being described as a “roundabout” you can’t get out of. A monthly payment works for many people. It wraps up depreciation, warranty and often servicing in a monthly payment that they can budget for. Most people are paid monthly so that works for them. The benefit for everyone else is it did keep a great flow of good, used cars coming on to the market which kept prices low. The consequence has been of restricted numbers being sold is that used prices have went sky high. I've been watching M2, M2C and M3 V8 prices and they're an easy 20-25% up on what they were at the start of 2020 and thats for the same year of car, not even factoring in the age of it. I think most marques are the same.
I used to download albums at £10/time, maybe 5 times a year. Spotify came along and I’m now paying £15/month but probably shuffling the same playlist of 100 songs. But I don’t want to lose the playlists I’ve created.
I know somewhat of an extension to the car finance discussion but in general this “service” based way of operating is now everywhere. Which is all good until those services become too expensive or ways to pay for them (income, tax backs etc) dry up.
Any individual on £100K + and bonus able which would normally be the case, then ensuring up to the max £40k pension contribution is achieved each year is a very sensible thing to do. Highly tax efficient.
Clearly you need to be mindful on the LTA which would be a kicker in the balls come pension time.
I’ll wager we will not be able to put in £40k with the tax rebate long term so maxing it now over 63.25% marginal tax rate should be done.
Clearly you need to be mindful on the LTA which would be a kicker in the balls come pension time.
I’ll wager we will not be able to put in £40k with the tax rebate long term so maxing it now over 63.25% marginal tax rate should be done.
ukpolak said:
I know somewhat of an extension to the car finance discussion but in general this “service” based way of operating is now everywhere. Which is all good until those services become too expensive or ways to pay for them (income, tax backs etc) dry up.
That is a massive risk indeed. We kept going on about it with our kids but I am not entirely sure it has worked. It is about education but there is an inherent human inertia about those small amounts which businesses exploit. Welshbeef said:
Clearly you need to be mindful on the LTA which would be a kicker in the balls come pension time.
Yes, nice problem to have and it is sometimes difficult to predict when you hit it even if you've stopped contributing a while ago. Although the past few months have somewhat reduced that risk... for now. Deep Thought said:
Really?
Arent manufacturers now focusing on margin when they cant get volume, so new car prices have went UP dramatically for cash buyers?
What discount would you have got on say a Mercedes 190E back in the 80s? I remember a friend of mine saying he was laughed at when he asked them to throw in a radio.
So without any car finance do you think we would still have a typical Ford Focus £25k today when the average salary is around £30k, I would think either we would have lower car prices to align closer to earnings on affordability or we would have far higher earnings to be able to afford these things. Arent manufacturers now focusing on margin when they cant get volume, so new car prices have went UP dramatically for cash buyers?
What discount would you have got on say a Mercedes 190E back in the 80s? I remember a friend of mine saying he was laughed at when he asked them to throw in a radio.
Nothing wrong with finance in certain situations and it works for many, but these days it's almost a given that someone takes a car on finance, the best deals are often for those taking finance.
If you save a couple of years to buy a car you know it can be hard work, only for someone to come along sign the dotted line and off they go, worry about the repayments another day. There will always be someone who is happy to borrow, so to get what you want you many have no option but to borrow themselves or lose out.
Look at the poor buggers saving for housing deposits only to find that a few years down the road that deposit is not enough as prices have increased another 20% in that time, all on the back of cheap borrowing and ever larger mortgages. It's certainly not because every ones wages are surging.
Deep Thought said:
Tomanybikes said:
If only 1O% earn 50k it’s a bit of a stretch to think they both will be in the 10% but a few will be but with kids there’s a good chance there will be years that there not.
50k is about 35k take home after a bit of pension contribution which is not a lot of money mortgage/rent, living and then a PCP for the white Audi you always go on about.
Also the mythical 40k pension contribution to mitigate PCP interest does not seem to hold water for most people.
Yup. Some people can easily afford a monthly payment and others cant. Who'd have thought it?50k is about 35k take home after a bit of pension contribution which is not a lot of money mortgage/rent, living and then a PCP for the white Audi you always go on about.
Also the mythical 40k pension contribution to mitigate PCP interest does not seem to hold water for most people.
You seem to be obssessed with the fact that some people are maxing out their pension contributions and trying to turn it in to a negative. I'd have thought that was a good thing?
Doesn't bother me much what others drive. In fact when I see a nice car I usually think good on you.
Looking down my street there is a very interesting mix. Each side next door to me are retired. One couple in their 80s who have a 2006 Citroën C1 diesel which they've owned from new. The others retired recently and bought a 17 plate Suzuki Ignis. He always had company cars when he was working. The newest car on the street is a 20 plate Ford Kuga. That belongs to the youngish family. They have 3 kids and neither parent works. I think they're probably on motability hence the new car and I don't see the bloke very often. Then there's the 2 bed semi with a Lotus Exige 350 sport. I'm guessing it belongs to the 20 something son who still lives at home. Must have been a 70k car and it's very much unloved. Parks it on street and never cleans it, the inside is full of litter! Takes all sorts.
Looking down my street there is a very interesting mix. Each side next door to me are retired. One couple in their 80s who have a 2006 Citroën C1 diesel which they've owned from new. The others retired recently and bought a 17 plate Suzuki Ignis. He always had company cars when he was working. The newest car on the street is a 20 plate Ford Kuga. That belongs to the youngish family. They have 3 kids and neither parent works. I think they're probably on motability hence the new car and I don't see the bloke very often. Then there's the 2 bed semi with a Lotus Exige 350 sport. I'm guessing it belongs to the 20 something son who still lives at home. Must have been a 70k car and it's very much unloved. Parks it on street and never cleans it, the inside is full of litter! Takes all sorts.
lornemalvo said:
Exactly right. Old school thinking that hopefully will make a return
Oh I do hope not. 
It's the big borrowers and big spenders who're both keeping the creaky old cart of UK PLC wobbling down the road and the rest of us in comfort.
If these people stopped striving and aspiring and earning and borrowing and spending and paying tax and instead started scrimping and saving and maxing out their pensions and ISAs rather than filling their lives with shiny tat the economy would collapse like a wet cardboard box.
Jaguar steve said:
lornemalvo said:
Exactly right. Old school thinking that hopefully will make a return
Oh I do hope not. It's the big borrowers and big spenders who're both keeping the creaky old cart of UK PLC wobbling down the road and the rest of us in comfort.
If these people stopped striving and aspiring and earning and borrowing and spending and paying tax and instead started scrimping and saving and maxing out their pensions and ISAs rather than filling their lives with shiny tat the economy would collapse like a wet cardboard box.
ukpolak said:
Deep Thought said:
And therein lies the problem for manufacturers at the minute. They have severe supply issues so the "exotic" ways to finance cars (through finance incentives and subsidised rates) dont really exist. Bad time for PCPing or leasing.
A monthly payment works for many people. It wraps up depreciation, warranty and often servicing in a monthly payment that they can budget for. Most people are paid monthly so that works for them. The benefit for everyone else is it did keep a great flow of good, used cars coming on to the market which kept prices low. The consequence has been of restricted numbers being sold is that used prices have went sky high. I've been watching M2, M2C and M3 V8 prices and they're an easy 20-25% up on what they were at the start of 2020 and thats for the same year of car, not even factoring in the age of it. I think most marques are the same.
Tbf I think a lot of this now applies equally to other industries too. We’re moving away from asset ownership to ongoing “service” type ways of operating. Eg historic on premise IT footprints now moving to the cloud. And then the risk of vendor lock-in and inability to exit. Much like PCP and it being described as a “roundabout” you can’t get out of. A monthly payment works for many people. It wraps up depreciation, warranty and often servicing in a monthly payment that they can budget for. Most people are paid monthly so that works for them. The benefit for everyone else is it did keep a great flow of good, used cars coming on to the market which kept prices low. The consequence has been of restricted numbers being sold is that used prices have went sky high. I've been watching M2, M2C and M3 V8 prices and they're an easy 20-25% up on what they were at the start of 2020 and thats for the same year of car, not even factoring in the age of it. I think most marques are the same.
I used to download albums at 10/time, maybe 5 times a year. Spotify came along and I’m now paying 15/month but probably shuffling the same playlist of 100 songs. But I don’t want to lose the playlists I’ve created.
I know somewhat of an extension to the car finance discussion but in general this “service” based way of operating is now everywhere. Which is all good until those services become too expensive or ways to pay for them (income, tax backs etc) dry up.
Competition keeps the pricing palatable, just like in the new car market.
Deep Thought said:
Yup. SaaS and Cloud services replacing bespoke software and physical infrastructure hardware. Why buy something that requires a large capital outlay and devalues heavily as soon as you buy it when you can simply pay a subscription to use it, allowing you to focus on your core business? It cant be a surprise that peoples private lives reflect that. Most people dont want to own a car, they want a capability. A car is something that moves them about, not is part of their life.
Competition keeps the pricing palatable, just like in the new car market.
When are you going to rent a Dacia?Competition keeps the pricing palatable, just like in the new car market.
Theoldguard said:
So without any car finance do you think we would still have a typical Ford Focus 25k today when the average salary is around 30k, I would think either we would have lower car prices to align closer to earnings on affordability or we would have far higher earnings to be able to afford these things.
Nothing wrong with finance in certain situations and it works for many, but these days it's almost a given that someone takes a car on finance, the best deals are often for those taking finance.
If you save a couple of years to buy a car you know it can be hard work, only for someone to come along sign the dotted line and off they go, worry about the repayments another day. There will always be someone who is happy to borrow, so to get what you want you many have no option but to borrow themselves or lose out.
Look at the poor buggers saving for housing deposits only to find that a few years down the road that deposit is not enough as prices have increased another 20% in that time, all on the back of cheap borrowing and ever larger mortgages. It's certainly not because every ones wages are surging.
Are cars any more expensive than they were 30 years ago, once you factor in inflation? I dont particularly think so. Nothing wrong with finance in certain situations and it works for many, but these days it's almost a given that someone takes a car on finance, the best deals are often for those taking finance.
If you save a couple of years to buy a car you know it can be hard work, only for someone to come along sign the dotted line and off they go, worry about the repayments another day. There will always be someone who is happy to borrow, so to get what you want you many have no option but to borrow themselves or lose out.
Look at the poor buggers saving for housing deposits only to find that a few years down the road that deposit is not enough as prices have increased another 20% in that time, all on the back of cheap borrowing and ever larger mortgages. It's certainly not because every ones wages are surging.
And where a Ford Escort / Focus and the Golf were once the poverty spec people car, the companies involved have quietly elevated them both in size and finish, leaving a gap in the market for cheaper brands. Its easily possible to get a new car for under £14K from the likes of Dacia which is probably bigger than a Ford Escort / first gen focus was, better put together and better spec'd.
Tomanybikes said:
Deep Thought said:
Yup. SaaS and Cloud services replacing bespoke software and physical infrastructure hardware. Why buy something that requires a large capital outlay and devalues heavily as soon as you buy it when you can simply pay a subscription to use it, allowing you to focus on your core business? It cant be a surprise that peoples private lives reflect that. Most people dont want to own a car, they want a capability. A car is something that moves them about, not is part of their life.
Competition keeps the pricing palatable, just like in the new car market.
When are you going to rent a Dacia?Competition keeps the pricing palatable, just like in the new car market.
Deep Thought said:
Are cars any more expensive than they were 30 years ago, once you factor in inflation? I dont particularly think so.
And where a Ford Escort / Focus and the Golf were once the poverty spec people car, the companies involved have quietly elevated them both in size and finish, leaving a gap in the market for cheaper brands. Its easily possible to get a new car for under 14K from the likes of Dacia which is probably bigger than a Ford Escort / first gen focus was, better put together and better spec'd.
The cost to wage ratio should be the factor imo.And where a Ford Escort / Focus and the Golf were once the poverty spec people car, the companies involved have quietly elevated them both in size and finish, leaving a gap in the market for cheaper brands. Its easily possible to get a new car for under 14K from the likes of Dacia which is probably bigger than a Ford Escort / first gen focus was, better put together and better spec'd.
Deep Thought said:
Yup. SaaS and Cloud services replacing bespoke software and physical infrastructure hardware. Why buy something that requires a large capital outlay and devalues heavily as soon as you buy it when you can simply pay a subscription to use it, allowing you to focus on your core business? It cant be a surprise that peoples private lives reflect that. Most people dont want to own a car, they want a capability. A car is something that moves them about, not is part of their life.
Competition keeps the pricing palatable, just like in the new car market.
The subscription model was a push from the "supply" side and marketed to help build demand. Back in the day you would buy the Microsoft Office suite and never need to upgrade. Companies moved their products to a subscription model as it keeps a steady stream of incoming revenue. You simply remove the option to buy outright and people will eventually have to upgrade and give in. Competition keeps the pricing palatable, just like in the new car market.
Similar happened with the car industry, except they first tried building in 10 year life cycles via planned obselence. Remember when you'd see a car advert and they'd advertise the "OTR" price? Now they advertise monthly payments only. I do "feel" the price of cars rose in that time too, but haven't looked at inflation adjusted figures.
Ofcourse there are people that it genuinely suits, then there are others who think it suits them.
As you say, it disguises depreciation into a single monthly payment. The norm used to be that the average Joe would buy used. Someone a little more well off would have already taken that depreciation hit, and would have been able to absorb the hit. Now the average Joe is taking that hit without realising and also not realising it hurts their financial resilience in the long term.
Yet the irony is that the average Joe feels as though they are doing well (their parents had a Ford but they can "afford" a Mercedes etc) and their over confidence may push them to over leverage.
Edited by Ice_blue_tvr on Sunday 22 May 08:24
Deep Thought said:
Yup. SaaS and Cloud services replacing bespoke software and physical infrastructure hardware. Why buy something that requires a large capital outlay and devalues heavily as soon as you buy it when you can simply pay a subscription to use it, allowing you to focus on your core business? It cant be a surprise that peoples private lives reflect that. Most people dont want to own a car, they want a capability. A car is something that moves them about, not is part of their life.
Competition keeps the pricing palatable, just like in the new car market.
This is an interesting point. At a risk of a tangent to the thread, the only thing I subscribe to (that I can think of) is Netflix. This is because it’s the cheapest way to watch box sets and cheaper than buying DVDs from Tesco. Competition keeps the pricing palatable, just like in the new car market.
I still have my record collection, old bikes and buy and sell my cars (half the fun). But I’m so out of date. My children have subscriptions to Microsoft Live Gold, Sony equivalent, Anime streaming services etc. It’s the only way they can access these things. Try as I might to dissuade them, it’s the future. It’s how they access what they want to do - like a car for most people.
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