The Puzzle of New Cars
Discussion
With todays news of Lookers announcing redundancies, car sales collapsing (even pre CV19) its got me thinking a lot about the new car market.
In other markets, you normally see inflationary pressures - so either prices will go up, quantities will go down, or margins will shrink. Theres some outlier inpacts such as tax (eg Sugar Tax) that also push prices up, but what you normally see is where one product prices themselves out either through price increases or shrinkflation, another product takes its place. One only needs to look at the rise of the discounters and the collapse of Asda/Tesco/JS sales to see it first hand.
With cars it seems they are in a quandry. Prices have been rising every year, often well above inflationary rates. The average new car price has risen 40% over the past ten years, which has been masked by PCP and discounts making them look ‘affordable’. At the same time car brands havent really taken their place in the lower end, like Dacia, Ssangyong etc. Even the lower manufacturers are significantly raising their prices - the MX5 was £18,995 in 2018, and now it is £23795. Using the Mx5 as an example, it turned 10,000 units in 18, but only 3,000 as a forecast in 20.
The new market is also being impacted significantly by the new EU emissions regulation. Manufacturers are adding significant amounts to RRP to offset the fines they will receive for not being under average 95g/km emissions. By the same measure, EV’s, PHEV’s are still far too high priced for far too little reward (remember when the Tesla3 was meant to be £29999 RRP?)
All this begs the question, what can the car market do? Sales are falling off a cliff, and nobody is taking the bold decision to cut costs mainly because they cant due to EU/more tech/FX. No lower brands are really taking their place since people in the UK still love a badge.
My personal take is that the New Car Market is going to end up in freefall soon and probably plateau back where it was 10-15 years ago. The used market will stay fairly strong since theres no real need for prices to fall. Some manufacturers will merge, go bust, or exit the market. People still need cars, but I believe people will hold onto theirs for longer. The PCP market will have a serious adjustment since higher RRPs and lower GMFVs push payments up another £100-200 easily.
In other markets, you normally see inflationary pressures - so either prices will go up, quantities will go down, or margins will shrink. Theres some outlier inpacts such as tax (eg Sugar Tax) that also push prices up, but what you normally see is where one product prices themselves out either through price increases or shrinkflation, another product takes its place. One only needs to look at the rise of the discounters and the collapse of Asda/Tesco/JS sales to see it first hand.
With cars it seems they are in a quandry. Prices have been rising every year, often well above inflationary rates. The average new car price has risen 40% over the past ten years, which has been masked by PCP and discounts making them look ‘affordable’. At the same time car brands havent really taken their place in the lower end, like Dacia, Ssangyong etc. Even the lower manufacturers are significantly raising their prices - the MX5 was £18,995 in 2018, and now it is £23795. Using the Mx5 as an example, it turned 10,000 units in 18, but only 3,000 as a forecast in 20.
The new market is also being impacted significantly by the new EU emissions regulation. Manufacturers are adding significant amounts to RRP to offset the fines they will receive for not being under average 95g/km emissions. By the same measure, EV’s, PHEV’s are still far too high priced for far too little reward (remember when the Tesla3 was meant to be £29999 RRP?)
All this begs the question, what can the car market do? Sales are falling off a cliff, and nobody is taking the bold decision to cut costs mainly because they cant due to EU/more tech/FX. No lower brands are really taking their place since people in the UK still love a badge.
My personal take is that the New Car Market is going to end up in freefall soon and probably plateau back where it was 10-15 years ago. The used market will stay fairly strong since theres no real need for prices to fall. Some manufacturers will merge, go bust, or exit the market. People still need cars, but I believe people will hold onto theirs for longer. The PCP market will have a serious adjustment since higher RRPs and lower GMFVs push payments up another £100-200 easily.
I suspect it'll make people look clearly at their finances; funding the depreciation on a depreciating rental product, through it's steepest period of depreciation, with interest, to only hand it back after a few years and start again on the "cycle", rinse and repeat, is not the cheapest method of having a car on the driveway.
If people choose to forget the new car smell, forget 3-year warranty and budget for the odd repair, ignore the badge on the front or ignore the age on the number plate, they could save themselves an awful lot of money by having a second hand car. Perhaps furlough or loss of jobs for some has been a wake up call to the expense of car finance.
I mention this because a vast majority of new car sales come through finance of some sort. If people en masse start avoiding manufacturer and finance deals, instead opting to turn to the used market, it will have a huge affect on manufacturers and dealers. Not necessarily for the wrong reasons either, the point OP makes about inflated car prices over the last few years stands true. If the manufacturers can't flog so many cars on a pseudo-cheap finance package, they will be forced to lower the prices.
If people choose to forget the new car smell, forget 3-year warranty and budget for the odd repair, ignore the badge on the front or ignore the age on the number plate, they could save themselves an awful lot of money by having a second hand car. Perhaps furlough or loss of jobs for some has been a wake up call to the expense of car finance.
I mention this because a vast majority of new car sales come through finance of some sort. If people en masse start avoiding manufacturer and finance deals, instead opting to turn to the used market, it will have a huge affect on manufacturers and dealers. Not necessarily for the wrong reasons either, the point OP makes about inflated car prices over the last few years stands true. If the manufacturers can't flog so many cars on a pseudo-cheap finance package, they will be forced to lower the prices.
ToastMan76 said:
(remember when the Tesla3 was meant to be £29999 RRP?)
$35k before tax and delivery, and for a function disabled small battery modeland since they can sell all they can build they only sold a few of them
reports were that the car market was over producing by 30% before the zombie appocolypse, it wont surpise me if some go
It is much more complicated than that. As you state, car prices have been rising at inflation-busting rates, but the manufacturers have been creative in finding ways of financing said cars at affordable monthly premiums for the masses.
New cars are expensive so this feeds down to the cost of 2nd hand cars, which in most cases are also overpriced, which therefore makes sense for buyers to buy new than 2nd hand.
New cars are also complicated while dealer service costs are exorbitant, so it represents a significant risk to buy outside of the manufacturer warranty.
In the end, car prices need to fall, but I wouldn't hold your breath waiting.
New cars are expensive so this feeds down to the cost of 2nd hand cars, which in most cases are also overpriced, which therefore makes sense for buyers to buy new than 2nd hand.
New cars are also complicated while dealer service costs are exorbitant, so it represents a significant risk to buy outside of the manufacturer warranty.
In the end, car prices need to fall, but I wouldn't hold your breath waiting.
The relationship between finance and list prices is a strange one. It is logical to say that manufacturers have stuck prices up because PCP etc softens the blow with accessible monthlies, but I'm not sure that tells the whole story. While historically cheap money and increasingly flexible finance options have undoubtedly made more expensive cars more accessible to more people, I'm not sure the real world prices have actually gone up by much at all due to the RRP being virtually meaningless today. If you look at what people are actually paying (whether finance or cash), I don't think the real inflation is anywhere near 40%.
I PCP'd an M140i in 2017. List price with the options I chose was £36,500. After the various discounts and my £2,000 deposit, the balance to finance was £26,500. In other words I "paid" £28,500 for the car. An £8k, 22% discount.
Go back 10 years from 2017 to 2007, and that £28,500 was the equivalent £21,600. There was no M140i then of course, but ballpark hot hatch money at the time (CTR, Golf GTI, Focus ST, RS Megane etc) was between £18k-£20k (£23-£26k 2017 equivalent). A 130i would set you back about £25k (£33k 2017 equivalent). Yes there would be discounts available, but not the 20+% we routinely see today unless you were a fleet buyer.
I PCP'd an M140i in 2017. List price with the options I chose was £36,500. After the various discounts and my £2,000 deposit, the balance to finance was £26,500. In other words I "paid" £28,500 for the car. An £8k, 22% discount.
Go back 10 years from 2017 to 2007, and that £28,500 was the equivalent £21,600. There was no M140i then of course, but ballpark hot hatch money at the time (CTR, Golf GTI, Focus ST, RS Megane etc) was between £18k-£20k (£23-£26k 2017 equivalent). A 130i would set you back about £25k (£33k 2017 equivalent). Yes there would be discounts available, but not the 20+% we routinely see today unless you were a fleet buyer.
Edited by Limpet on Thursday 4th June 12:32
I reckon given the bill of materials for a car is low and most of it is amortised R&D costs a permanent drop in sales would result in longer-lived models and maybe more carry-over between generations.
As for used - all those used cars have to come from somewhere, and if people are hanging on to their cars longer you'll see correspondingly fewer high-quality 1/2/3/5 year old used cars on the market, all the way through until you get to the banger level where everything's on sale because it's buggered and uneconomical to repair. End result is used cars get more expensive and harder to find, and the price/hassle differential to new becomes smaller again.
Realistically I'd expect things to follow the trend of 2008. A few deferred replacement cycles, some sales incentives to get people back in the showrooms, trimming/rationalisation of bloated model ranges, killing off a few badges and longer term more consolidation and sharing between manufacturers. Whether the trend for PCP to be subsidised while cash prices are inflated continues is a question, but I suspect most manufacturers will want to keep the sales model with the inbuilt incentive to return to the dealer 36 months later.
As for used - all those used cars have to come from somewhere, and if people are hanging on to their cars longer you'll see correspondingly fewer high-quality 1/2/3/5 year old used cars on the market, all the way through until you get to the banger level where everything's on sale because it's buggered and uneconomical to repair. End result is used cars get more expensive and harder to find, and the price/hassle differential to new becomes smaller again.
Realistically I'd expect things to follow the trend of 2008. A few deferred replacement cycles, some sales incentives to get people back in the showrooms, trimming/rationalisation of bloated model ranges, killing off a few badges and longer term more consolidation and sharing between manufacturers. Whether the trend for PCP to be subsidised while cash prices are inflated continues is a question, but I suspect most manufacturers will want to keep the sales model with the inbuilt incentive to return to the dealer 36 months later.
Edited by Timberwolf on Thursday 4th June 12:52
Muddle238 said:
If people choose to forget the new car smell, forget 3-year warranty and budget for the odd repair, ignore the badge on the front or ignore the age on the number plate, they could save themselves an awful lot of money by having a second hand car.
You can make that rational argument on almost any product consumers buy. Why buy new clothes when you can save a fortune buying from a charity shop. And some people do.But buying goods and services is not a rational thing for most people. Its driven by emotion. Why do you think companies spend so much on marketing? When I buy a car, I consider how it makes me feel as much as is it practical, affordable etc.
The other consideration is that if no one bought a new car, the used car market would dry up, used car prices would be sky high and a big part of the economy would be lost.
Some people would argue that only the most "deserving" should be able to buy a new car. The good news is we don't live in a communist country where the few have it all and the many have nothing.
Limpet said:
I PCP'd an M140i in 2017. List price with the options I chose was £36,500. After the various discounts and my £2,000 deposit, the balance to finance was £26,500. In other words I "paid" £28,500 for the car. An £8k, 22% discount.
Go back 10 years from 2017 to 2007, and that £28,500 was the equivalent £21,600. There was no M140i then of course, but ballpark hot hatch money at the time (CTR, Golf GTI, Focus ST, RS Megane etc) was between £18k-£20k (£23-£26k 2017 equivalent). A 130i would set you back about £25k (£33k 2017 equivalent). Yes there would be discounts available, but not the 20+% we routinely see today unless you were a fleet buyer.
Whilst I think you have a point to an extent, your case isnt the ‘norm’. Was yours the M140i model where they were offering ridiculous finance packages to drive sales (I think there was even a 0% finance offer at the time)? My point is more towards the lower end of the market - your 118i’s. List of these is in M Sport is £27,995 (excluding discounts). Id say that is hugely overpriced to the the of around £10k. Now previously it might have looked reasonable since there would be an inflated GFV making payments £250 or so. With the big correction due to Cv19 GFV values have plummeted so that same practically base model is £335 a month now. The problem for manufacturers, they loved it when PCP could mean higher profits on their cars with volumes not decreasing, but they caused themselves a bubble. Yes, a lot of people will still pay those kind of monthlies for what isnt a lot of car really, but a lot of others will be priced out. The used market is a whole kettle of fish since its been used as a further profit source for traders to drove new sales through high prices. Case in point in 2008 I bought a 3 year old Astra for £3300. If I tried to buy equivalent now it would be £7-8k minimum. Go back 10 years from 2017 to 2007, and that £28,500 was the equivalent £21,600. There was no M140i then of course, but ballpark hot hatch money at the time (CTR, Golf GTI, Focus ST, RS Megane etc) was between £18k-£20k (£23-£26k 2017 equivalent). A 130i would set you back about £25k (£33k 2017 equivalent). Yes there would be discounts available, but not the 20+% we routinely see today unless you were a fleet buyer.
I think now people are much more brand focused because they have been easily able to buy into a merc/audi/rr and are more unwilling to trade into lower marques. Young kids dont want a second hand rust mobile as a first car they want a brand new bimmer. But will people be able to afford it?
The auto industry is in a state of intense flux at the moment, and all manufacturers are investing heavily in emerging technologies, as well as hedging their bets as to what direction the industry will take over the next 10-20 years. This require a lot of capital outlay and of course this needs to be recouped. Add to this the ever increasing demands of consumers and regulators and it becomes more clear where the rise in cost has come from.
Take a mid-2000s B-car. Cast your mind back to the Corsas, 206s, Polos etc. of the day and remember that none of them had self-parking, lane assist, active cruise (or any cruise in most cases), CarPlay/Android Auto enabled stereos, or even A/C in some very basic applications; none had GPFs, mandatory DPFs, SCR... the cost to provide these items in contemporary Corsas, 208s, Polos etc. and their associated development and homologation costs has been enormous and the resultant margins have shrunk.
Frankly it’s a marvel that cars are as cheap as they are! Perhaps once we see the fruits of consolidating platforms and commonising parts, we will start to see prices levelling off a little. Once we get real scale in EV sales the relative simplicity of those vehicles will help drive costs down a little.
Take a mid-2000s B-car. Cast your mind back to the Corsas, 206s, Polos etc. of the day and remember that none of them had self-parking, lane assist, active cruise (or any cruise in most cases), CarPlay/Android Auto enabled stereos, or even A/C in some very basic applications; none had GPFs, mandatory DPFs, SCR... the cost to provide these items in contemporary Corsas, 208s, Polos etc. and their associated development and homologation costs has been enormous and the resultant margins have shrunk.
Frankly it’s a marvel that cars are as cheap as they are! Perhaps once we see the fruits of consolidating platforms and commonising parts, we will start to see prices levelling off a little. Once we get real scale in EV sales the relative simplicity of those vehicles will help drive costs down a little.
ToastMan76 said:
Was yours the M140i model where they were offering ridiculous finance packages to drive sales (I think there was even a 0% finance offer at the time)?
Finance was at 3.9% so not that cheap, but yes there was a finance incentive through a 'deposit contribution' of £3,000 from BMW Finance. It would have applied to the straight HP option as well. The remaining discount came from the dealer.Of course there is nothing to stop a cash buyer taking the finance to get these additional discounts and contributions, and then settling the finance shortly afterwards.
A500leroy said:
So which badges do we think will go? Vauxhall/opel, Fiat,Renault?
You have got to wonder how many people actually go to a dealer and buy one of these models of car? They are not even listed on our company car list so I can only assume the vast majority of second hand cars you see for sale are ex hire/motability cars?If we take out Motability/Lease and company cars, what percentage of new cars are actually purchased by an individual?
Muddle238 said:
I suspect it'll make people look clearly at their finances; funding the depreciation on a depreciating rental product, through it's steepest period of depreciation, with interest, to only hand it back after a few years and start again on the "cycle", rinse and repeat, is not the cheapest method of having a car on the driveway.
If people choose to forget the new car smell, forget 3-year warranty and budget for the odd repair, ignore the badge on the front or ignore the age on the number plate, they could save themselves an awful lot of money by having a second hand car. Perhaps furlough or loss of jobs for some has been a wake up call to the expense of car finance.
I mention this because a vast majority of new car sales come through finance of some sort. If people en masse start avoiding manufacturer and finance deals, instead opting to turn to the used market, it will have a huge affect on manufacturers and dealers. Not necessarily for the wrong reasons either, the point OP makes about inflated car prices over the last few years stands true. If the manufacturers can't flog so many cars on a pseudo-cheap finance package, they will be forced to lower the prices.
Buying nw, taking dealer finance and getting the discounts works in some cases. I opted out and took the cash last year because as a higher rate tax payer, the BIK was getting ridiculous. There are restrictions regarding age on what we buy, so I bought new. Excluding fuel, the car I bought was £50 less per month than my old company car, bought on a no deposit deal. If I just walk away after four years I’m in no different position than if I’d had another company car for four years other than having a car that I actually wanted.If people choose to forget the new car smell, forget 3-year warranty and budget for the odd repair, ignore the badge on the front or ignore the age on the number plate, they could save themselves an awful lot of money by having a second hand car. Perhaps furlough or loss of jobs for some has been a wake up call to the expense of car finance.
I mention this because a vast majority of new car sales come through finance of some sort. If people en masse start avoiding manufacturer and finance deals, instead opting to turn to the used market, it will have a huge affect on manufacturers and dealers. Not necessarily for the wrong reasons either, the point OP makes about inflated car prices over the last few years stands true. If the manufacturers can't flog so many cars on a pseudo-cheap finance package, they will be forced to lower the prices.
I’d I bought used older, I’d likely be changing my car more due the six year age limit that we’re limited with. This didn’t used to be the case and a few guys took the cash and ran sheds, but that option was removed.
I do however get the point that those who just get a new car every three / four years may well take stock.
I think the market will adjust..it has to. Part of the problem is that the cars designed during the boom period are the cars now being produced and it is difficult to suddenly build cheap cars for the market.
I am writing for some enterprising individual to start importing cheap Chinese cars that bottom-feed. Then the familiar cries of "cheap junk" will be heard..and they will sell like hot cakes.
In terms of new cars...I am a committed new car buyer and pay cash. Well aware that this is not a smart economic decision but I like the ability to build a specification that works for me, so I never buy a new car already in the showroom.
I have only one car on order and it will not show up till 2021 earliest and if I suffer devastating financial losses I can think about it then.
Overall the car manufacturers have to go through a huge restructure to deal with a changed world.
I am writing for some enterprising individual to start importing cheap Chinese cars that bottom-feed. Then the familiar cries of "cheap junk" will be heard..and they will sell like hot cakes.
In terms of new cars...I am a committed new car buyer and pay cash. Well aware that this is not a smart economic decision but I like the ability to build a specification that works for me, so I never buy a new car already in the showroom.
I have only one car on order and it will not show up till 2021 earliest and if I suffer devastating financial losses I can think about it then.
Overall the car manufacturers have to go through a huge restructure to deal with a changed world.
ToastMan76 said:
Whilst I think you have a point to an extent, your case isnt the ‘norm’. Was yours the M140i model where they were offering ridiculous finance packages to drive sales (I think there was even a 0% finance offer at the time)? My point is more towards the lower end of the market - your 118i’s. List of these is in M Sport is £27,995 (excluding discounts). Id say that is hugely overpriced to the the of around £10k. Now previously it might have looked reasonable since there would be an inflated GFV making payments £250 or so. With the big correction due to Cv19 GFV values have plummeted so that same practically base model is £335 a month now. The problem for manufacturers, they loved it when PCP could mean higher profits on their cars with volumes not decreasing, but they caused themselves a bubble. Yes, a lot of people will still pay those kind of monthlies for what isnt a lot of car really, but a lot of others will be priced out. The used market is a whole kettle of fish since its been used as a further profit source for traders to drove new sales through high prices. Case in point in 2008 I bought a 3 year old Astra for £3300. If I tried to buy equivalent now it would be £7-8k minimum.
I think now people are much more brand focused because they have been easily able to buy into a merc/audi/rr and are more unwilling to trade into lower marques. Young kids dont want a second hand rust mobile as a first car they want a brand new bimmer. But will people be able to afford it?
Yes, there were 0% deals. A colleague bought one in August 18 on such a deal.I think now people are much more brand focused because they have been easily able to buy into a merc/audi/rr and are more unwilling to trade into lower marques. Young kids dont want a second hand rust mobile as a first car they want a brand new bimmer. But will people be able to afford it?
I bought mine last March and the discount was £10.5k and I agree that it makes lesser models look expensive. I considered an AUC, but a year old car was only £1-2k different to new.
I also agree that we’re massively brand obsessed in the UK. Most of the young lads at work are driving A3 S Lines etc, even those with little interest in cars still want the German badge. That might sound ironic from someone who drives a BMW, but the badge didn’t come into it for me. My last company car was an Octavia vRS and I got no end of stick from colleagues for choosing that over the smaller, slower, worse spec’d A3 or 1 Series etc.
Joey Deacon said:
A500leroy said:
So which badges do we think will go? Vauxhall/opel, Fiat,Renault?
You have got to wonder how many people actually go to a dealer and buy one of these models of car? They are not even listed on our company car list so I can only assume the vast majority of second hand cars you see for sale are ex hire/motability cars?If we take out Motability/Lease and company cars, what percentage of new cars are actually purchased by an individual?
On private sales, a lot of them come from:
- People who just want a "brand new car" and don't care about the badge. Especially if they're sensitive to purchase and (particularly) servicing costs.
- Old people, especially for Ford/Vauxhall where these are seen as dependable makes.
- New drivers, either as gifted/shared cars for teenagers or people who start driving later in life.
- Spec list optimisers looking to get a fully optioned Insignia/Mondeo/whatever instead of something German with minimal kit and a Sinclair Microvision for a nav screen.
- Loyalty - especially the French brands seemed to have a lot of "always had Renaults"/"always driven a Peugeot".
I think the future here will be more of what's already happening: consolidation of brands, badge engineering, and looking for ways to get more life out of R&D investments (e.g. recycling old platforms into budget brands, such as the Clio-based Dacias)
Camelot1971 said:
Some people would argue that only the most "deserving" should be able to buy a new car. The good news is we don't live in a communist country where the few have it all and the many have nothing.
No, we live in a capitalist country where the few have it all and the many have nothing.Muddle238 said:
I suspect it'll make people look clearly at their finances; funding the depreciation on a depreciating rental product, through it's steepest period of depreciation, with interest, to only hand it back after a few years and start again on the "cycle", rinse and repeat, is not the cheapest method of having a car on the driveway.
But is usually the cheapest way to have a new car on the drive. And certainly the option with the least risk.3 year lease for a fairly low mileage driver is fixed cost motoring. Petrol and insurance and zero worries.
Mrs Ares 1-series MSport Shadow costs her (or rather costs me) pennies over £200/mth. 'We' will never need to pay for servicing, tyres, brakes, repairs, anything...merely c£45/50/mth on fuel and £205/yr insurance.
Just over £3,000 per year fully inclusive, zero-risk motoring in a brand new 1-series. When people are looking at finances, that kind of thing can make sense.
For comparison, her last car was a Mini. Bought cash for £15,000 at 18mths old (had cost £23k), sold 3.5 years later for £7,500.
Om said:
Camelot1971 said:
Some people would argue that only the most "deserving" should be able to buy a new car. The good news is we don't live in a communist country where the few have it all and the many have nothing.
No, we live in a capitalist country where the few have it all and the many have nothing.Om said:
Camelot1971 said:
Some people would argue that only the most "deserving" should be able to buy a new car. The good news is we don't live in a communist country where the few have it all and the many have nothing.
No, we live in a capitalist country where the few have it all and the many have nothing.(it's actually the few that PAY for everything and the many think they deserve everything)
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