Are the wheels about to fall of car finance?
Discussion
daemon said:
Very little in that relating to consumers though - other than the sentence at the end - "be careful"
I think its saying the motor manufacturers / lenders need to tread with extreme caution - they cant rely on being able to give cheap loans in the future to be able to maintain sales volumes
That's probably why the sensible money is in brokering at the moment. Ride on the back of cheap finance, get your commission, no asset risk. My business (fleet management and contract hire) is moving towards lowering its exposure to asset ownership and RV risk.I think its saying the motor manufacturers / lenders need to tread with extreme caution - they cant rely on being able to give cheap loans in the future to be able to maintain sales volumes
VGTICE said:
liner33 said:
I do think that the deals wont be as sweet in the future for sure
When the market collapses the deals on used car market will be amazing, scrap metal kind of deals - after all they've produced and sold so many cars over the recent years when the sauce runs out and the low end isn't willing to buy overpriced used tat they'll either have to sell them on cheaply, export them, or scrap them. Or store them on huge disused airports waiting for market to pick up, which might take a while reducing the value of held stock even further.Theres strong demand right down through the lifecycle for good cars of all ages - that wont change any time soon.
And lets not forget - people who previously might have PCP'd a new car will then be in the position of HPing or getting a bank loan for maybe a 2 or 3 year old car.
Whilst there may be an adjustment in price - lets say 10% for talks sake - it just means people will be able to buy a better lower miles car for their money, so ropey, high miles, very old stuff might end up in the bargain basement / getting scrapped.
The problem - and what needs to be understood - is that the used car market generally speaking is not struggling to find customers, they are struggling to find good retail quality cars. Good cars are harder to find than good customers. Therefore there are more customers for retail quality cars than generally speaking the used car market can service.
Tankrizzo said:
daemon said:
Very little in that relating to consumers though - other than the sentence at the end - "be careful"
I think its saying the motor manufacturers / lenders need to tread with extreme caution - they cant rely on being able to give cheap loans in the future to be able to maintain sales volumes
That's probably why the sensible money is in brokering at the moment. Ride on the back of cheap finance, get your commission, no asset risk. My business (fleet management and contract hire) is moving towards lowering its exposure to asset ownership and RV risk.I think its saying the motor manufacturers / lenders need to tread with extreme caution - they cant rely on being able to give cheap loans in the future to be able to maintain sales volumes
daemon said:
Indeed. And if the market moves to PCH its the brokers operating from an office in an industrial estate and with a big online presence who are going to thrive
Industrial estate, luxury! Some of the more successful brokers we deal with basically run the businesses out of their spare room with a flashy site and a contract with a small call centre. But yes, absolutely agree.daemon said:
And lets not forget - people who previously might have PCP'd a new car will then be in the position of HPing or getting a bank loan for maybe a 2 or 3 year old car.
This may prove to be an incorrect assumption. If there really is a reduction in the availability of credit to consumers I imagine it will hit all products (although not equally). This could be caused by tightening regulation, general unwillingness of banks to lend given rising credit risk or re-pricing upwards due to interest rates. Only today we saw the BoE put up capital requirements for UK banks; consumer credit is clearly something they have an eye on.In a country where so few have significant cash savings, 'effective demand' for purchasing cars (i.e. desire plus means to pay) could dry up significantly once credit is not so freely available.
There will be many (including some enthusiasts here on PH) that will have to get used to driving something a lot more ordinary when their £xxx a month no longer gets them a big German lump. What will the neighbours think
VGTICE said:
liner33 said:
I do think that the deals wont be as sweet in the future for sure
When the market collapses the deals on used car market will be amazing, scrap metal kind of deals - after all they've produced and sold so many cars over the recent years when the sauce runs out and the low end isn't willing to buy overpriced used tat they'll either have to sell them on cheaply, export them, or scrap them. Or store them on huge disused airports waiting for market to pick up, which might take a while reducing the value of held stock even further.NickCQ said:
daemon said:
And lets not forget - people who previously might have PCP'd a new car will then be in the position of HPing or getting a bank loan for maybe a 2 or 3 year old car.
This may prove to be an incorrect assumption. If there really is a reduction in the availability of credit to consumers I imagine it will hit all products (although not equally). This could be caused by tightening regulation, general unwillingness of banks to lend given rising credit risk or re-pricing upwards due to interest rates. Only today we saw the BoE put up capital requirements for UK banks; consumer credit is clearly something they have an eye on.In a country where so few have significant cash savings, 'effective demand' for purchasing cars (i.e. desire plus means to pay) could dry up significantly once credit is not so freely available.
There will be many (including some enthusiasts here on PH) that will have to get used to driving something a lot more ordinary when their £xxx a month no longer gets them a big German lump. What will the neighbours think
Could it prevent people who really cant afford it getting a new car - yes, quite possibly. And any enforced regulation should.
Will it prevent 90% of people? Nope, probably not.
And yes, i think a lot of people could end up driving "lesser" (?) cars...
daemon said:
Genuinely - that will never happen. Not in a million years.
Theres strong demand right down through the lifecycle for good cars of all ages - that wont change any time soon.
And lets not forget - people who previously might have PCP'd a new car will then be in the position of HPing or getting a bank loan for maybe a 2 or 3 year old car.
Whilst there may be an adjustment in price - lets say 10% for talks sake - it just means people will be able to buy a better lower miles car for their money, so ropey, high miles, very old stuff might end up in the bargain basement / getting scrapped.
I really don't like to argue with you but it not only will not not ever happen. It happened in 2008. I bought two second hand cars at the end of 2008 both were roughly 25% off and I was one of very few customers who were in the dealership interested in getting a car back then. The main issue was LACK OF ANY FINANCE for those who would have not had issues getting one until August 2008.Theres strong demand right down through the lifecycle for good cars of all ages - that wont change any time soon.
And lets not forget - people who previously might have PCP'd a new car will then be in the position of HPing or getting a bank loan for maybe a 2 or 3 year old car.
Whilst there may be an adjustment in price - lets say 10% for talks sake - it just means people will be able to buy a better lower miles car for their money, so ropey, high miles, very old stuff might end up in the bargain basement / getting scrapped.
daemon said:
The problem - and what needs to be understood - is that the used car market generally speaking is not struggling to find customers, they are struggling to find good retail quality cars.
The problem is well understood, manufacturers and their finance houses control second hand market by buying ex financed cars up when they get sold at auctions by which they a) make finding good retail quality cars impossible for those who aren't them b) artificially control prices of used cars making the GFV racket possible. Once the sauce runs out they won't be able to carry on doing it (unless they use their balance sheet reserves to support it, but then again their balance sheet position is going to take a hit because GFV is not an off balance sheet item and if it falls it will be nasty)A lot of people have short memories!
We have had 7 years of artaficilly low interest rates but still personal debt has rocketed to a point where banks are being warned to brace themselves.
As for the "shortage of good stock" drive down any Motor Mile and there is a sea of price manipulated cars as far as the eye can see!
We have had 7 years of artaficilly low interest rates but still personal debt has rocketed to a point where banks are being warned to brace themselves.
As for the "shortage of good stock" drive down any Motor Mile and there is a sea of price manipulated cars as far as the eye can see!
Granfondo said:
A lot of people have short memories!
We have had 7 years of artaficilly low interest rates but still personal debt has rocketed to a point where banks are being warned to brace themselves.
As for the "shortage of good stock" drive down any Motor Mile and there is a sea of price manipulated cars as far as the eye can see!
The only shortage of good stock is for the independents who have to scrap over it with punters at BCA - all of the dealers have their pick of the best stock when it rolls in weekly to the Dealer auctions as contracts end We have had 7 years of artaficilly low interest rates but still personal debt has rocketed to a point where banks are being warned to brace themselves.
As for the "shortage of good stock" drive down any Motor Mile and there is a sea of price manipulated cars as far as the eye can see!
"I guess the main difference is that some people think the whole system will implode on itself causing mass devastation a la 2008 and others think the industry will just evolve slightly to be more flexible to change "
If it does the former the press and the opposition political parties will claim it's all Brexit voters fault.
CS Garth said:
Granfondo said:
A lot of people have short memories!
We have had 7 years of artaficilly low interest rates but still personal debt has rocketed to a point where banks are being warned to brace themselves.
As for the "shortage of good stock" drive down any Motor Mile and there is a sea of price manipulated cars as far as the eye can see!
The only shortage of good stock is for the independents who have to scrap over it with punters at BCA - all of the dealers have their pick of the best stock when it rolls in weekly to the Dealer auctions as contracts end We have had 7 years of artaficilly low interest rates but still personal debt has rocketed to a point where banks are being warned to brace themselves.
As for the "shortage of good stock" drive down any Motor Mile and there is a sea of price manipulated cars as far as the eye can see!
daemon said:
It happened to an extent back in 2007 / 2008. People handed back cars in their droves at the end of term rather than trade in / buy as market value was below the residual. It cost the likes of BMW hundreds of millions.
Did it? BMW UK and the two dealer chains I know saw profits rise every year?Dealer sweeteners are geared towards the new car being bought, not the car coming off it's finance.
But aside from that, the risk is wholly with the dealers/manufacturers, not the consumer. Wheels can't fall off. Worst thing is that the deals won't be quite as good....which will prop up used values and the cycle starts again.
A lot of the time, and certainly for the past few years, the smarter money doesn't buy for cash. Illogical to tie up capital when cars can be financed as cheap and the opportunity cost of investing your capital will significantly outweigh even the best cash deals. And thats before the risk profile is considered.
Edited by Ares on Tuesday 27th June 15:56
Ares said:
daemon said:
It happened to an extent back in 2007 / 2008. People handed back cars in their droves at the end of term rather than trade in / buy as market value was below the residual. It cost the likes of BMW hundreds of millions.
Did it? BMW UK and the two dealer chains I know saw profits rise every year?Dealer sweeteners are geared towards the new car being bought, not the car coming off it's finance.
But aside from that, the risk is wholly with the dealers/manufacturers, not the consumer. Wheels can't fall off. Worst thing is that the deals won't be quite as good....which will prop up used values and the cycle starts again.
A lot of the time, and certainly for the past few years, the smarter money does buy for cash. Illogical to tie up capital when cars can be financed as cheap and the opportunity cost of investing your capital will significantly outweigh even the best cash deals. And thats before the risk profile is considered.
Granfondo said:
Ares said:
daemon said:
It happened to an extent back in 2007 / 2008. People handed back cars in their droves at the end of term rather than trade in / buy as market value was below the residual. It cost the likes of BMW hundreds of millions.
Did it? BMW UK and the two dealer chains I know saw profits rise every year?Dealer sweeteners are geared towards the new car being bought, not the car coming off it's finance.
But aside from that, the risk is wholly with the dealers/manufacturers, not the consumer. Wheels can't fall off. Worst thing is that the deals won't be quite as good....which will prop up used values and the cycle starts again.
A lot of the time, and certainly for the past few years, the smarter money does buy for cash. Illogical to tie up capital when cars can be financed as cheap and the opportunity cost of investing your capital will significantly outweigh even the best cash deals. And thats before the risk profile is considered.
VGTICE said:
I really don't like to argue with you but it not only will not not ever happen. It happened in 2008. I bought two second hand cars at the end of 2008 both were roughly 25% off and I was one of very few customers who were in the dealership interested in getting a car back then. The main issue was LACK OF ANY FINANCE for those who would have not had issues getting one until August 2008.
Its probably just me taking your comments literally - apologies. Yes in 2008 prices dropped and we'd a time where prices dropped (an easy 10-15% and maybe on some models as you say - 25%) however we didnt ever reach a point were cars that were otherwise worth ££,£££ were being sold for scrap value.
I think part of the problem was consumer fear (we were in a recession) and there werent great deals to be had. Dealers cant give stock away so there was a period where car prices versus what people could / could afford to pay were misaligned.
Likewise people were holding on to cars longer. Finance was still available - i remember we bought both a new Subaru Impreza Prodrive and a new Passat (via Subaru finance and VW finance respectively) in the same month and with neither car we'd an issue with dealer finance.
VGTICE said:
The problem - and what needs to be understood - is that the used car market generally speaking is not struggling to find customers, they are struggling to find good retail quality cars.
The problem is well understood, manufacturers and their finance houses control second hand market by buying ex financed cars up when they get sold at auctions by which they a) make finding good retail quality cars impossible for those who aren't them b) artificially control prices of used cars making the GFV racket possible. Once the sauce runs out they won't be able to carry on doing it (unless they use their balance sheet reserves to support it, but then again their balance sheet position is going to take a hit because GFV is not an off balance sheet item and if it falls it will be nasty)
You cant artificially control the prices though at auction? They make what they make? Good clean retailable stock makes over book prices, no matter where its sold.The problem is well understood, manufacturers and their finance houses control second hand market by buying ex financed cars up when they get sold at auctions by which they a) make finding good retail quality cars impossible for those who aren't them b) artificially control prices of used cars making the GFV racket possible. Once the sauce runs out they won't be able to carry on doing it (unless they use their balance sheet reserves to support it, but then again their balance sheet position is going to take a hit because GFV is not an off balance sheet item and if it falls it will be nasty)
I still have access to one of the big dealer groups trade auction sites and the retail ready stuff is always snapped up. There are very few "bargains" - only stuff in need of reparatory work makes less.
Again - i could be wrong. Yours is a very valid view. It might well happen. I personally think we'll see a tightening of the finance regulations followed by a drop in used values, but only a short term adjustment not a continual drop towards zero and maybe of 10-15% ish on average. I dont think finance will dry up. It may become harder to get for those who otherwise shouldnt get finance but it will in general be possible to finance a car with relative easy.
i think interesting times are ahead - i've no immediate plans to change "the fleet" so i'm not terribly bothered, other than from a curiosity perspective and something to pass a bit of time debating on a forum
Edited by daemon on Tuesday 27th June 16:28
CS Garth said:
The only shortage of good stock is for the independents who have to scrap over it with punters at BCA - all of the dealers have their pick of the best stock when it rolls in weekly to the Dealer auctions as contracts end
- which represents the position for the vast bulk of the motor industry.Ares said:
daemon said:
It happened to an extent back in 2007 / 2008. People handed back cars in their droves at the end of term rather than trade in / buy as market value was below the residual. It cost the likes of BMW hundreds of millions.
Did it? BMW UK and the two dealer chains I know saw profits rise every year?Dealer sweeteners are geared towards the new car being bought, not the car coming off it's finance.
BMW UK as a group - and franchised dealers - were probably not hit terribly much if at all. I do remember reading though that the sudden amount of hand backs at the end of term or addition VTs cost BMW [finance] several hundred million
Ares said:
But aside from that, the risk is wholly with the dealers/manufacturers, not the consumer. Wheels can't fall off. Worst thing is that the deals won't be quite as good....which will prop up used values and the cycle starts again.
A lot of the time, and certainly for the past few years, the smarter money doesn't buy for cash. Illogical to tie up capital when cars can be financed as cheap and the opportunity cost of investing your capital will significantly outweigh even the best cash deals. And thats before the risk profile is considered.
Exactly.A lot of the time, and certainly for the past few years, the smarter money doesn't buy for cash. Illogical to tie up capital when cars can be financed as cheap and the opportunity cost of investing your capital will significantly outweigh even the best cash deals. And thats before the risk profile is considered.
daemon said:
You cant artificially control the prices though at auction?
Is that strictly true though? Manufacturers can send tame dealers into auction, with a pot-load of "marketing" cash, to artificially bid up the price of sold cars, thereby keeping up the perceived residual values and, by extension, the second-hand prices of their cars. Edited by daemon on Tuesday 27th June 16:28
Fiddly-Dee said:
daemon said:
You cant artificially control the prices though at auction?
Is that strictly true though? Manufacturers can send tame dealers into auction, with a pot-load of "marketing" cash, to artificially bid up the price of sold cars, thereby keeping up the perceived residual values and, by extension, the second-hand prices of their cars. Edited by daemon on Tuesday 27th June 16:28
Gassing Station | General Gassing | Top of Page | What's New | My Stuff