Negative equity - is this normal?
Discussion
maz8062 said:
The whole PCP, Lease, cash debate is down to the over inflated price of New cars financed on PCP. This is how it appears to work in my eyes:
- Inflated and over priced car sold by slick salesmen to punters happy to focus on the monthlies while dreaming that they might be blue to afford the car for the GFV
- The inflated car is now in circulation and will work its back to the dealer as an approved used vehicle. Depreciation may be 50% of its original value after 3 years but its still 50% of an over inflated price in the first place.
- 2nd hand values of said cars are still ridiculously expensive, but tend not to benefit from the same discounted finance rates enjoyed by the first PCP customer. Hence a 3/4 year old car will be a huge chunk of change and investment for a car outside of OEM warranty, and repair bills will be inevitable.
- What to do? Remortgage the house and pay £400 per month for 5 years for a 3 year old car, or lease/PCP again. Rinse and repeat.
The only way out of this merry go round is to buy a less fancied marque or buy a much older car. But then there are risks in that too.
The problem is that new cars are too expensive in the first place. BMW M8 for £130k - bog standard 911 for a £100k with options are just examples of how things have got out of hand. The world’s gone crazy.
- Theres biggish discounts all over the place and very few people go in to a dealers and pay list or anywhere near it. When i was selling used cars people were only in front of me if my car was the best value. They'd also know precisely what their car was worth. Do all customers get the bestest deal possible? No, of course not. Thats life. Happens with anything from the price of a loaf, to a TV, to a car, to a house - Inflated and over priced car sold by slick salesmen to punters happy to focus on the monthlies while dreaming that they might be blue to afford the car for the GFV
- The inflated car is now in circulation and will work its back to the dealer as an approved used vehicle. Depreciation may be 50% of its original value after 3 years but its still 50% of an over inflated price in the first place.
- 2nd hand values of said cars are still ridiculously expensive, but tend not to benefit from the same discounted finance rates enjoyed by the first PCP customer. Hence a 3/4 year old car will be a huge chunk of change and investment for a car outside of OEM warranty, and repair bills will be inevitable.
- What to do? Remortgage the house and pay £400 per month for 5 years for a 3 year old car, or lease/PCP again. Rinse and repeat.
The only way out of this merry go round is to buy a less fancied marque or buy a much older car. But then there are risks in that too.
The problem is that new cars are too expensive in the first place. BMW M8 for £130k - bog standard 911 for a £100k with options are just examples of how things have got out of hand. The world’s gone crazy.
- 20 to 25% discounts are quite common on German metal such as BMWs. Broadly speaking, cars drop in value 50% every three years. Thats always been a broad rule of thumb. Thats not 50% from list price, its 50% from the typical discounted price.
- I think second hand prices are quite reasonable. Granted, maybe a bit more than they were this time last year but used cars dont feel particularly expensive to me - particularly compared to our European / Global counterparts, many of whom arent PCP focused.
- Cheap loans are available all over the place. Its quite easy to get a cheap loan to cover the residual value / finance a car cheaply, used. Many people - myself included have used PCP for a period of time, then moved on to other forms of purchasing. Sometimes PCP suits my needs, sometimes it doesnt
There an easy £20K+ off the price of an M8 but i totally agree with you - prices of metal like that from non premium brands like BMW are crazy. But then, do BMW care? Those are halo models. Noone will buy one cash, probably wouldnt have anyway ever. They'll put together some preferential PCP deal with a crazy buy back residual or sell a handful on stupidly cheap lease deals. Gets some on the road, maintains the "Ultimate Driving Machine" image, whilst they sell 320ds like hot cakes.
Edited by Deep Thought on Thursday 4th March 15:08
maz8062 said:
The whole PCP, Lease, cash debate is down to the over inflated price of New cars financed on PCP.
That's the reason why I just ignore any list price and focus on the transaction price even if that means cancelling a PCP straight away if that triggers the added contribution. Same for a lease, if the cost to own is lower on a lease than discounted cash, then guess what, I get the lease deal and the in built discount.I am certainly not a slave to any method of financing the depreciation. There's always been debt junkies, nothing new.
If you can look at it like that then suddenly, new cars are actually as cheap as they ever were. And we have the cheapest second hand cars in Europe so no, I don't believe actual car prices are inflated if you can work the system to your advantage.
nickfrog said:
maz8062 said:
The whole PCP, Lease, cash debate is down to the over inflated price of New cars financed on PCP.
That's the reason why I just ignore any list price and focus on the transaction price even if that means cancelling a PCP straight away if that triggers the added contribution. Same for a lease, if the cost to own is lower on a lease than discounted cash, then guess what, I get the lease deal and the in built discount.I am certainly not a slave to any method of financing the depreciation. There's always been debt junkies, nothing new.
If you can look at it like that then suddenly, new cars are actually as cheap as they ever were. And we have the cheapest second hand cars in Europe so no, I don't believe actual car prices are inflated if you can work the system to your advantage.
Just relative to the "new cars are so expensive these days".
A new 1988 M3 Evo 2 was £28,814
https://www.pistonheads.com/news/ph-features-heroe...
That translates to £79,014 in todays money.
https://www.bankofengland.co.uk/monetary-policy/in...
A new M4 Competition is £76,000 list / £67K after discount.
https://broadspeed.com/new_cars/BMW/M4/Choose_Numb...
A new M2 Competition is £55K list / £49K after discount.
https://broadspeed.com/new_cars/BMW/M2/Choose_Numb...
An M2 CS was £75K list.
https://www.autocar.co.uk/car-news/motor-shows-la-...
A new 1988 M3 Evo 2 was £28,814
https://www.pistonheads.com/news/ph-features-heroe...
That translates to £79,014 in todays money.
https://www.bankofengland.co.uk/monetary-policy/in...
A new M4 Competition is £76,000 list / £67K after discount.
https://broadspeed.com/new_cars/BMW/M4/Choose_Numb...
A new M2 Competition is £55K list / £49K after discount.
https://broadspeed.com/new_cars/BMW/M2/Choose_Numb...
An M2 CS was £75K list.
https://www.autocar.co.uk/car-news/motor-shows-la-...
My understanding on new car prices is that they are comparable with historic prices from years past. However, I suspect that lower production costs and economies of scale haven't been passed on in more recent times and that finance "penetration" is higher than in days of old. Inflation also makes the numbers grow bigger the more times goes on anyway, e.g. 4% p/a growth starting at £15k 25 years ago becomes a bigger and bigger cash increase every year.
As I said earlier in the thread, the cost of buying any new car can vary enormously depending on how you finance it. My upcoming car purchase would cost £30k cash (albeit a quickly-terminated PCP to achieve the price!!), £31k if 50:50 cash and loan and £37k if PCP'd at 6.4% with the balloon paid in 4 years' time.
Then of course there are all the alternatives such as not buying a new car at all - clearly the cheapest! - bangernomics, savvy used cash purchases, leases and various other forms of finance. Incidentally, I've done them all. These are intricately tied-up with decisions about what sort of car you want. I'd argue it's game to advise people on more cost-effective purchase methods and alternatives, but passing judgement on consumer choices extends a lot further than cars.
For what it's worth, my own view is that buying something personal to you keeping it over a long term (7-10 years) offers good value and is often overlooked. Negative equity becomes irrelevant in those circumstances.
As I said earlier in the thread, the cost of buying any new car can vary enormously depending on how you finance it. My upcoming car purchase would cost £30k cash (albeit a quickly-terminated PCP to achieve the price!!), £31k if 50:50 cash and loan and £37k if PCP'd at 6.4% with the balloon paid in 4 years' time.
Then of course there are all the alternatives such as not buying a new car at all - clearly the cheapest! - bangernomics, savvy used cash purchases, leases and various other forms of finance. Incidentally, I've done them all. These are intricately tied-up with decisions about what sort of car you want. I'd argue it's game to advise people on more cost-effective purchase methods and alternatives, but passing judgement on consumer choices extends a lot further than cars.
For what it's worth, my own view is that buying something personal to you keeping it over a long term (7-10 years) offers good value and is often overlooked. Negative equity becomes irrelevant in those circumstances.
The Cardinal said:
My understanding on new car prices is that they are comparable with historic prices from years past. However, I suspect that lower production costs and economies of scale haven't been passed on in more recent times and that finance "penetration" is higher than in days of old. Inflation also makes the numbers grow bigger the more times goes on anyway, e.g. 4% p/a growth starting at £15k 25 years ago becomes a bigger and bigger cash increase every year.
That overlooks the massive spec increases, power increases, safety increases, economy improvements, emissions improvements that modern cars have.And labour charges have increased greatly. As has the dependency on tech and associated costs there. Development costs of new cars are huge also.
PCP may be more prevalent on new cars but lets not kid ourselves that finance is a new thing. Even when i was selling cars new back in around 1989 the vast majority of people bought a car on a 3 year finance deal then at the end of term came back and bought another car rather than let their current car get older. So even then people were budgetting monthly for cars.
We'd have seen some people take out a bank loan rather than use finance but the amount of people using cash to change cars was tiny.
All engineered goods have improved, and production has become more efficient. So fully get the points intelligently made.
My issue is whatever the price point for the goods, all the profit is made in the finance/warranty ancillaries: and PCP is bundling for the consumer who does not have the knowledge or tenacity to hunt down the keen deals which are about. These people who pay relatively more on the price differential are usually the less well off in society, but are deliberately targeted by the OEM profit machines.
Please dont think me socialist, because I am definitely not...am happy to make money off big corporates tooled up with lawyers and accountants, but do not like business models which exploit those with unequal bargaining power.
My issue is whatever the price point for the goods, all the profit is made in the finance/warranty ancillaries: and PCP is bundling for the consumer who does not have the knowledge or tenacity to hunt down the keen deals which are about. These people who pay relatively more on the price differential are usually the less well off in society, but are deliberately targeted by the OEM profit machines.
Please dont think me socialist, because I am definitely not...am happy to make money off big corporates tooled up with lawyers and accountants, but do not like business models which exploit those with unequal bargaining power.
Deep Thought said:
PCP may be more prevalent on new cars but lets not kid ourselves that finance is a new thing. Even when i was selling cars new back in around 1989 the vast majority of people bought a car on a 3 year finance deal then at the end of term came back and bought another car rather than let their current car get older. So even then people were budgetting monthly for cars.
We'd have seen some people take out a bank loan rather than use finance but the amount of people using cash to change cars was tiny.
My experience of buying cars in the late 80’s and 90’s was slightly different. The option to buy cars - 2nd hand cars, was limited to cash or HP. I financed my cars with HP - the payments were affordable over a 3 year term and then the car was mine, mine to sell on and use any funds to finance the next car. That was how it used to work, and secondhand car values broadly tracked affordable monthly payments on HP, as there was no such thing as Leasing or PCP for the masses, or for those outside of fleets.We'd have seen some people take out a bank loan rather than use finance but the amount of people using cash to change cars was tiny.
So how have we got to a stage where secondhand car values are way out of the affordability of Mr average on HP? Because car inflation has outpaced wage inflation. But the car manufacturers have been clever by mirroring the US in introducing lease payments, and in so doing, making cars accessible for the regular monthly payments of old (on HP) but now one doesn’t own the car.
Broadly speaking the list price of a car doesn’t matter to anyone apart from those with the means to buy outright. For Mr average it’s all about the monthly payments - can I afford X payment per month?If so, I can buy car Y. I’ll never own it, because it’s way too expensive on my salary to fund it on HP, but I’ll be able to roll over the lease for evermore and get a new car with the latest tech every 3 years.
The only winners in all of this are the car manufacturers. It’s about growth, and they’re growing because they can sell new cars to the likes of the OP by using sales gimmicks and passing over the true value of the car to the secondhand market.
I’m not complaining because I’m part of the rat race. I’ll be looking for a leasing deal in a few months to replace my existing one, and I’m looking forward to the new tech that I’ll enjoy with the new car - after all our current car only has 3 year old tech.
maz8062 said:
My experience of buying cars in the late 80’s and 90’s was slightly different. The option to buy cars - 2nd hand cars, was limited to cash or HP. I financed my cars with HP - the payments were affordable over a 3 year term and then the car was mine, mine to sell on and use any funds to finance the next car. That was how it used to work, and secondhand car values broadly tracked affordable monthly payments on HP, as there was no such thing as Leasing or PCP for the masses, or for those outside of fleets.
We would have seen people getting bank loans also, not just HP.We did have a lot of people who simply came back in and bought another car at the end of the term. Most people didnt want to drop back the years and then have to work their way back up to a certain age of car again. We would have rang people who were "due a change" and coming near the end of their term. Not unlike what happens today.
That was a busy Rover dealers (some might argue a contradiction of terms, but we were - and it still thrives today as a Skoda dealership)
maz8062 said:
So how have we got to a stage where secondhand car values are way out of the affordability of Mr average on HP? Because car inflation has outpaced wage inflation. But the car manufacturers have been clever by mirroring the US in introducing lease payments, and in so doing, making cars accessible for the regular monthly payments of old (on HP) but now one doesn’t own the car.
They havent. Its just that your £300 a month HP payment on a 3 or 4 year old car gets you a brand new car on a PCP deal. And - as i've said above - most people will change their car every three or four years anyway so see little advantage in the older car.maz8062 said:
Broadly speaking the list price of a car doesn’t matter to anyone apart from those with the means to buy outright. For Mr average it’s all about the monthly payments - can I afford X payment per month?If so, I can buy car Y. I’ll never own it, because it’s way too expensive on my salary to fund it on HP, but I’ll be able to roll over the lease for evermore and get a new car with the latest tech every 3 years.
I dont think the monthly payment becomes affordable unless the dealer does at least a reasonable deal. So that will involve at least a half decent discount. Yes, some people walk in and pay the asking price but they are very very few and far between. maz8062 said:
The only winners in all of this are the car manufacturers. It’s about growth, and they’re growing because they can sell new cars to the likes of the OP by using sales gimmicks and passing over the true value of the car to the secondhand market.
They're making new cars more affordable - thats their purpose so its hard to fault them for that. As a car enthusiast i dont necessarily see that as a bad thing. If i'm buying / leasing / PCPing new then it means i've a better chance of getting the car i want at a palatable price / payment. If its used, then the price - as Nick has said - is relatively low here compared to other European markets because theres so many cars out there.maz8062 said:
Yes, but does the new car price include VAT or not? If it doesn’t include VAT I.e. VAT is added at the point of sale, what is the new price of the car?
The price of new car is the price the consumer pays currently that includes 20% VAT and is baked into the value of the car, the utter drivel posted by people who state that the VAT is lost as soon as you drive off the forecourt is just that drivel. Today I sold my X3M for £52,000 it was purchased new at £59,000 15 months ago the ex vat price at invoice was £49,166 so after 15 months and 9000 miles it is still worth more than the new ex vat invoice 15 months ago, same situation with an M3 I bought in 2012 45k invoice inc VAT sold for 38k 18 months later, look at GT3/4s for examples of cars that actually increase in value as you drive off the forecourt....VAT has nothing to do with it.
Edited by Wills2 on Friday 5th March 00:18
Not sure it was drivel, perhaps just a lack of understanding which has been clarified.
Personally I find some of the monthly figures people are prepared to pay a bit scary, but I wouldn't knock PCP per se. It seems a good way to hedge risk of final value if you go the term and dont mind/understand the product.
What I dont get is entering into the product then being surprised that cars take a hit or worrying about it, unless intending to come out early or settle.
Personally I find some of the monthly figures people are prepared to pay a bit scary, but I wouldn't knock PCP per se. It seems a good way to hedge risk of final value if you go the term and dont mind/understand the product.
What I dont get is entering into the product then being surprised that cars take a hit or worrying about it, unless intending to come out early or settle.
AudiMan9000 said:
For the record, I have no intention of actually getting rid of my Q3. I just like to know whether I am in the red or black. It’s academic if I’m not looking to get out of the PCP.
The answer is you are certainly well in the red. Every time you make a payment, you are effectively buying a little chunk of the car.If you don’t put down a deposit and have a payment holiday, you are just prolonging the time it takes for you to build equity in the car.
Unless it increases in value, which won’t happen on any ordinary car. Your Audi is an ordinary car by today’s standards.
Thread can be closed now if that is all you are after.
maz8062 said:
So how have we got to a stage where secondhand car values are way out of the affordability of Mr average on HP? Because car inflation has outpaced wage inflation. But the car manufacturers have been clever by mirroring the US in introducing lease payments, and in so doing, making cars accessible for the regular monthly payments of old (on HP) but now one doesn’t own the car.
.
I do sit here finding myself wondering if we have actually got to a stage where second hand cars are out of the affordability of Mr average on HP or have we got to a point in society where Mr Average now expects to drive what would have once been seen as an executive car which would have been out of reach of that person?.
To try and illustrate my point, I was born in 1981 and growing up my dad had a fairly decent job as the senior accountant at a medium size firm which sold bathrooms kitchens etc wholesale to B&Q amongst others, so I would suggest thats a fairly reasonable employment, I have no idea what his ake home salary was but we were comfortable, My Mum worked in retail, so a two income family, very average of the time.
Growing up through the 80's and 90's my parents drove typically normal cars from Ford, Citroen, Peugeot, Renault, Fiat probably a couple of other brands I can't recall currently, typically my dad owned a Mondeo sized estate car and my Mum would have a Fiesta size hatchback.
We lived in a detached 3 bed house which was a new build in 1983 when my parents bought it and a decade later they extended to make it 4 bedrooms. On our estate of I think just under 40 houses next to no one owned any type of premium German car, I recall one household having a C class Merc and another having what was at the time an old Jaguar.
If you look at people living in similar circumstances on a modern new build estate now I imagine most driveways will be occupied by a BMW, Audi or Mercedes and "lesser" badges would frowned upon.
I don't think affordability has changed but peoples wants have changed and what once would have been out of reach for most people has now become the norm
Jamescrs said:
maz8062 said:
So how have we got to a stage where secondhand car values are way out of the affordability of Mr average on HP? Because car inflation has outpaced wage inflation. But the car manufacturers have been clever by mirroring the US in introducing lease payments, and in so doing, making cars accessible for the regular monthly payments of old (on HP) but now one doesn’t own the car.
.
I do sit here finding myself wondering if we have actually got to a stage where second hand cars are out of the affordability of Mr average on HP or have we got to a point in society where Mr Average now expects to drive what would have once been seen as an executive car which would have been out of reach of that person?.
To try and illustrate my point, I was born in 1981 and growing up my dad had a fairly decent job as the senior accountant at a medium size firm which sold bathrooms kitchens etc wholesale to B&Q amongst others, so I would suggest thats a fairly reasonable employment, I have no idea what his ake home salary was but we were comfortable, My Mum worked in retail, so a two income family, very average of the time.
Growing up through the 80's and 90's my parents drove typically normal cars from Ford, Citroen, Peugeot, Renault, Fiat probably a couple of other brands I can't recall currently, typically my dad owned a Mondeo sized estate car and my Mum would have a Fiesta size hatchback.
We lived in a detached 3 bed house which was a new build in 1983 when my parents bought it and a decade later they extended to make it 4 bedrooms. On our estate of I think just under 40 houses next to no one owned any type of premium German car, I recall one household having a C class Merc and another having what was at the time an old Jaguar.
If you look at people living in similar circumstances on a modern new build estate now I imagine most driveways will be occupied by a BMW, Audi or Mercedes and "lesser" badges would frowned upon.
I don't think affordability has changed but peoples wants have changed and what once would have been out of reach for most people has now become the norm
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