If used car prices are here to stay...
Discussion
... How come the GFV isn't reflected in the PCP quotes online?
Appreciate if you get to the end of the deal and your car is worth more, then great, but kind of annoying that you had to finance a much larger amount of money, due to a very low GFV.
Looking at some Giulia QV PCP deals for example, they're still estimating a value of £33k after 3 years and 24k miles, on a £68k car. In reality, the cheapest Giulia QV on Autotrader at the moment is a 2017 model that has covered over 100k miles for £35k. The 2018 model cars are all £45 - £55k.
Shouldn't this be reflected in the GFV of new PCP deals, given that is what the manufacturer assumes the car will be worth?
Would it be better to PCP rather than pay cash given these uncertain circumstances?
Am I missing something?
Appreciate if you get to the end of the deal and your car is worth more, then great, but kind of annoying that you had to finance a much larger amount of money, due to a very low GFV.
Looking at some Giulia QV PCP deals for example, they're still estimating a value of £33k after 3 years and 24k miles, on a £68k car. In reality, the cheapest Giulia QV on Autotrader at the moment is a 2017 model that has covered over 100k miles for £35k. The 2018 model cars are all £45 - £55k.
Shouldn't this be reflected in the GFV of new PCP deals, given that is what the manufacturer assumes the car will be worth?
Would it be better to PCP rather than pay cash given these uncertain circumstances?
Am I missing something?
The GFV is effectively the backstop they use to manage their risk I assume. The lower the GFV the more the customer takes the risk the higher the more they take the risk.
Imagine that risk across the many cars they will be holding on finance!
On the flip side the higher payments should in theory mean your gaining that back if the cars worth substantially more than the GFV at end of term.
Not sure how the interest works but it does mean your paying out more upfront hoping a gain at the end.
Just a guess tho
Imagine that risk across the many cars they will be holding on finance!
On the flip side the higher payments should in theory mean your gaining that back if the cars worth substantially more than the GFV at end of term.
Not sure how the interest works but it does mean your paying out more upfront hoping a gain at the end.
Just a guess tho
So, if they keep the GFV low then you have a lower balloon payment, if you keep the car. But you have already paid for that lower balloon in your monthlies so no risk to them.
If you hand the car back (or trade it?), they can sell it for what they like, so making a profit on the GFV to actual value.
So there is only an upside for them. You come out even or down depending on whether you keep it.
Why would they want to reduce the GFV? Only if it was the only way to get custom I guess. And at the moment I suspect they have more customers than they can supply cars to so there is no incentive to chase business?
Or something like that?
If you hand the car back (or trade it?), they can sell it for what they like, so making a profit on the GFV to actual value.
So there is only an upside for them. You come out even or down depending on whether you keep it.
Why would they want to reduce the GFV? Only if it was the only way to get custom I guess. And at the moment I suspect they have more customers than they can supply cars to so there is no incentive to chase business?
Or something like that?
Yes, if it was 100% certain that the current elevated used car prices were set to continue for the next three years, manufacturers would compete to offer lower monthly payments by pushing up their GFVs.
The fact that they're not simply reflects the fact that, notwithstanding what certain noisy forum commenters may claim, no-one knows what used car values will be in the future. The current situation is a result of a temporary disturbance to the system, it's not known how long the chip shortage will last nor what level the system will stabilise at afterwards.
It would be a brave person today to bet on residual values of a car that reaches the end of its PCP in 2024 or 2025. Hence the manufacturers are limiting themselves to what they can reasonably predict, that residuals will be not much worse than they have been historically.
david-j8694 said:
... How come the GFV isn't reflected in the PCP quotes online?
Appreciate if you get to the end of the deal and your car is worth more, then great, but kind of annoying that you had to finance a much larger amount of money, due to a very low GFV.
Looking at some Giulia QV PCP deals for example, they're still estimating a value of £33k after 3 years and 24k miles, on a £68k car. In reality, the cheapest Giulia QV on Autotrader at the moment is a 2017 model that has covered over 100k miles for £35k. The 2018 model cars are all £45 - £55k.
Shouldn't this be reflected in the GFV of new PCP deals, given that is what the manufacturer assumes the car will be worth?
Would it be better to PCP rather than pay cash given these uncertain circumstances?
Am I missing something?
With PCP you are financing the full amount borrowed, regardless of how high or low the GFV is. You are also paying interest on the full amount borrowed. This is why you’ll pay more interest with PCP than an equivalent Hire Purchase deal of the same length/with the same deposit - as you’d have more debt for longer with PCP, because you’re paying off the finance balance slower due to the lower monthly payments.Appreciate if you get to the end of the deal and your car is worth more, then great, but kind of annoying that you had to finance a much larger amount of money, due to a very low GFV.
Looking at some Giulia QV PCP deals for example, they're still estimating a value of £33k after 3 years and 24k miles, on a £68k car. In reality, the cheapest Giulia QV on Autotrader at the moment is a 2017 model that has covered over 100k miles for £35k. The 2018 model cars are all £45 - £55k.
Shouldn't this be reflected in the GFV of new PCP deals, given that is what the manufacturer assumes the car will be worth?
Would it be better to PCP rather than pay cash given these uncertain circumstances?
Am I missing something?
Manufacturers are cautious with how they set the GFV - they typically set it lower than they expect the resale value to be to reduce their chance of losing money. If you hand back a car that’s worth more than the GFV the manufacturer gets a more valuable car back, or you can use some of the amount you’ve effectively overpaid to put towards your next car, typically often tying people back into buying another new car.
Meanwhile, if you handed a car back that’s worth less than the GFV, the manufacturer loses out, as the current value of the car and what’s been paid to date could be less than the car’s original price.
I have often thought about this with lease deals, if vehicles were to suddenly retain a greater proportion of their value after 2-3 years then in theory a lease should be cheaper as there is less depreciation.
But then having said that the last 3 leases I have taken have cost less than the depreciation over the term so not quite sure how it all works.
Anyhow I think it is a bit early to see the spike in used values reflected in PCP deals, if we see used values holding for another 2-3 years then maybe yes so that they are able to offer lower monthlies to attract buyers, again this depends on demand and availability of new vehicles, at the moment they can pretty much sell everything they can get their hands on, that is not going to be the case forever.
With new electric vehicles starting to take a bigger piece of the market, who knows what an electrical vehicle used value will be in 3 years, alot of these are new models, and then any ICE vehicle taken on PCP today may see a sudden drop in residual value when electric becomes the norm for a new car purchase. Tax, restricted access to cities, fuel stations closing, EV costs falling, better range, charging network will all accelerate the transition to Electric as we seen during diesel gate when almost overnight people turned away from diesel and the used prices fell below petrol models, how many GFV did that affect. Dealers / manufacturers were burnt then and have learnt how quite the market can change direction.
But then having said that the last 3 leases I have taken have cost less than the depreciation over the term so not quite sure how it all works.
Anyhow I think it is a bit early to see the spike in used values reflected in PCP deals, if we see used values holding for another 2-3 years then maybe yes so that they are able to offer lower monthlies to attract buyers, again this depends on demand and availability of new vehicles, at the moment they can pretty much sell everything they can get their hands on, that is not going to be the case forever.
With new electric vehicles starting to take a bigger piece of the market, who knows what an electrical vehicle used value will be in 3 years, alot of these are new models, and then any ICE vehicle taken on PCP today may see a sudden drop in residual value when electric becomes the norm for a new car purchase. Tax, restricted access to cities, fuel stations closing, EV costs falling, better range, charging network will all accelerate the transition to Electric as we seen during diesel gate when almost overnight people turned away from diesel and the used prices fell below petrol models, how many GFV did that affect. Dealers / manufacturers were burnt then and have learnt how quite the market can change direction.
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