Are the wheels about to fall of car finance?
Discussion
daemon said:
Well thats the problem isnt it? All these people wanting "retribution" against people using PCP to drive cars they clearly cant afford may well find themselves having to pay significantly extra for used cars as supply dries up and those people who would otherwise buy new turn to the used market.
I think manufacturers will just evolve their selling model and do whatever they need to to sell cars.
I personally think leasing will replace PCP deals as the default option to get a new car but thats probably years down the line
I think you’re right but it’s already happening. Of my friends most have used some form of finance to buy cars be it PCP or bank loan in the past but increasingly they’re turning to leases. There are some fantastic cars available for relatively small sums of money and new cars have become just another domestic bill for many. My girlfriend has ordered one of the Cupra 300’s for £249/month, the first time either of us has leased a car. It’s definitely something I will consider next time I want a new car if it’s competitive.I think manufacturers will just evolve their selling model and do whatever they need to to sell cars.
I personally think leasing will replace PCP deals as the default option to get a new car but thats probably years down the line
djc206 said:
daemon said:
Well thats the problem isnt it? All these people wanting "retribution" against people using PCP to drive cars they clearly cant afford may well find themselves having to pay significantly extra for used cars as supply dries up and those people who would otherwise buy new turn to the used market.
I think manufacturers will just evolve their selling model and do whatever they need to to sell cars.
I personally think leasing will replace PCP deals as the default option to get a new car but thats probably years down the line
I think you’re right but it’s already happening. Of my friends most have used some form of finance to buy cars be it PCP or bank loan in the past but increasingly they’re turning to leases. There are some fantastic cars available for relatively small sums of money and new cars have become just another domestic bill for many. My girlfriend has ordered one of the Cupra 300’s for £249/month, the first time either of us has leased a car. It’s definitely something I will consider next time I want a new car if it’s competitive.I think manufacturers will just evolve their selling model and do whatever they need to to sell cars.
I personally think leasing will replace PCP deals as the default option to get a new car but thats probably years down the line
daemon said:
HedgeyGedgey said:
Hypothetically, lets say the market for financing cars crashes somehow. How will that effect used car prices, everyone in PCP'd cars will need some wheels. Are the prices of 5 year old cars gonna rocket, or be so low due to demand?
Well thats the problem isnt it? All these people wanting "retribution" against people using PCP to drive cars they clearly cant afford may well find themselves having to pay significantly extra for used cars as supply dries up and those people who would otherwise buy new turn to the used market.I think manufacturers will just evolve their selling model and do whatever they need to to sell cars.
I personally think leasing will replace PCP deals as the default option to get a new car but thats probably years down the line
If PCP costs rise then people will just buy cheaper and cheaper cars. Car debt is no different from any other retail debt mechanism.
And used cars won't spike because they are not an isolated market but all part of the same mechanism and as the costs of debt are higher for PCP then obviously so will the costs for all other forms of debt. And that means the buying power of almost the entire market will fall.
Asset values don't tend to rise when buying power is falling.
daemon said:
Well, theres been an FSA investigation that seems to have been a damp squib and the ambulance chasers havent been able to make anything stick, so i wouldnt bank on it happening.
Walk into any dealer and they'll talk about monthlies and upsell to the max you can afford. Then load on extras. I've no idea if it's a scam angle but when dealers ask you to sign forms saying you declined gap, paint cover etc etc.
DonkeyApple said:
daemon said:
HedgeyGedgey said:
Hypothetically, lets say the market for financing cars crashes somehow. How will that effect used car prices, everyone in PCP'd cars will need some wheels. Are the prices of 5 year old cars gonna rocket, or be so low due to demand?
Well thats the problem isnt it? All these people wanting "retribution" against people using PCP to drive cars they clearly cant afford may well find themselves having to pay significantly extra for used cars as supply dries up and those people who would otherwise buy new turn to the used market.I think manufacturers will just evolve their selling model and do whatever they need to to sell cars.
I personally think leasing will replace PCP deals as the default option to get a new car but thats probably years down the line
If PCP costs rise then people will just buy cheaper and cheaper cars. Car debt is no different from any other retail debt mechanism.
And used cars won't spike because they are not an isolated market but all part of the same mechanism and as the costs of debt are higher for PCP then obviously so will the costs for all other forms of debt. And that means the buying power of almost the entire market will fall.
Asset values don't tend to rise when buying power is falling.
As rates rise and incomes are squeezed further then 'buyers' will face the choice of PCP'ing a cheaper car or (as leasing is cheaper than the PCP route)getting the same level or brand they have been accustomed to by opting to lease.
Not everyone will lease but I think those who must have the shiny white Audi will go to a cheaper route to maintain standing amongst their equally shallow peers,
DonkeyApple said:
Tripe.
If PCP costs rise then people will just buy cheaper and cheaper cars. Car debt is no different from any other retail debt mechanism.
And used cars won't spike because they are not an isolated market but all part of the same mechanism and as the costs of debt are higher for PCP then obviously so will the costs for all other forms of debt. And that means the buying power of almost the entire market will fall.
Asset values don't tend to rise when buying power is falling.
Yes of course its tripe. It was a tongue in cheek response to the "doomsday scenario" hand wringing of people who were saying that the whole thing was about to crash and burn, as to what "might" happen if that occurred whenever PCP users got their comeuppence If PCP costs rise then people will just buy cheaper and cheaper cars. Car debt is no different from any other retail debt mechanism.
And used cars won't spike because they are not an isolated market but all part of the same mechanism and as the costs of debt are higher for PCP then obviously so will the costs for all other forms of debt. And that means the buying power of almost the entire market will fall.
Asset values don't tend to rise when buying power is falling.
There was no crash, there will be no crash therefore the only big "risk" now is rates rising.
The reality is if PCPs get more expensive, as you say, people will simply PCP a lesser car OR avail of whatever other mechanism that manufacturers will use to sell cars - most likely by leasing coming to the fore.
lord trumpton said:
I thinks he's right to some extent with regard to people switching to leasing.
As rates rise and incomes are squeezed further then 'buyers' will face the choice of PCP'ing a cheaper car or (as leasing is cheaper than the PCP route)getting the same level or brand they have been accustomed to by opting to lease.
Not everyone will lease but I think those who must have the shiny white Audi will go to a cheaper route to maintain standing amongst their equally shallow peers,
Exactly, and manufacturers can hide the selling price of the car, and the residual value through merely leasing the car. They - or their leasing company - then control the "experience" end to end.As rates rise and incomes are squeezed further then 'buyers' will face the choice of PCP'ing a cheaper car or (as leasing is cheaper than the PCP route)getting the same level or brand they have been accustomed to by opting to lease.
Not everyone will lease but I think those who must have the shiny white Audi will go to a cheaper route to maintain standing amongst their equally shallow peers,
daemon said:
lord trumpton said:
I thinks he's right to some extent with regard to people switching to leasing.
As rates rise and incomes are squeezed further then 'buyers' will face the choice of PCP'ing a cheaper car or (as leasing is cheaper than the PCP route)getting the same level or brand they have been accustomed to by opting to lease.
Not everyone will lease but I think those who must have the shiny white Audi will go to a cheaper route to maintain standing amongst their equally shallow peers,
Exactly, and manufacturers can hide the selling price of the car, and the residual value through merely leasing the car. They - or their leasing company - then control the "experience" end to end.As rates rise and incomes are squeezed further then 'buyers' will face the choice of PCP'ing a cheaper car or (as leasing is cheaper than the PCP route)getting the same level or brand they have been accustomed to by opting to lease.
Not everyone will lease but I think those who must have the shiny white Audi will go to a cheaper route to maintain standing amongst their equally shallow peers,
I also recall that Maserati offered decent leases for the Ghibli when it was launched, but zero discount.
Iam sure there are various reasons why they want to control the pricing and leasing allows them to do that. It also avoids customers hanging onto vehicles for too long and keeps the orders flowing in for new cars. The best leases are achieving the same cost per month over 24 months as a good PCP will do over 48 months, so leasing looks like better value to anyone who will want a new car every couple of years.
I believe leasing is the most popular way to finance a new car in the US and expect the lease market in the UK to grow.
PCH and PCP are being driven heavily by the German brands.
MB, Audi, BMW and VW have (cleverly) tapped into people's desire for status and crafted finance packages that give you a posh German car at Vauxhall-like pricepoints.
Also, dealers love PCH and PCP because it means you're more likely to get your shiny new car serviced round the back of their shiny new showroom. Big dealers now make huge 40-50% profit margins on servicing new cars and it's become by far their biggest earner.
MB, Audi, BMW and VW have (cleverly) tapped into people's desire for status and crafted finance packages that give you a posh German car at Vauxhall-like pricepoints.
Also, dealers love PCH and PCP because it means you're more likely to get your shiny new car serviced round the back of their shiny new showroom. Big dealers now make huge 40-50% profit margins on servicing new cars and it's become by far their biggest earner.
daemon said:
Well thats the problem isnt it? All these people wanting "retribution" against people using PCP to drive cars they clearly cant afford may well find themselves having to pay significantly extra for used cars as supply dries up and those people who would otherwise buy new turn to the used market.
I think manufacturers will just evolve their selling model and do whatever they need to to sell cars.
I personally think leasing will replace PCP deals as the default option to get a new car but thats probably years down the line
The used market is kept artificially high by 'reputable' dealerships anyway. They don't put every car returned to them on PCP on to their own forecourt, as to do so would drive down used prices to the point that it would no longer make sense to PCP, except to those who 'have' to have new metal. I think manufacturers will just evolve their selling model and do whatever they need to to sell cars.
I personally think leasing will replace PCP deals as the default option to get a new car but thats probably years down the line
The used car market does not follow the normal rules of supply and demand as it is artificially massaged by dealerships, who know people don't generally want to buy from some bloke's front drive, or from a local independent dealer. There is no reason to suspect that would change if the PCP market dropped an unmentionable in its Huggies®.
HumanDoing said:
The used market is kept artificially high by 'reputable' dealerships anyway. They don't put every car returned to them on PCP on to their own forecourt, as to do so would drive down used prices to the point that it would no longer make sense to PCP, except to those who 'have' to have new metal.
Cars returned on PCP deals at the end of term dont go back to the dealer - they have nothing to do with them - they go back to the finance company. Moreoften they'll be sent straight to a BCA trade auction or sometimes held for a specfic auction.Grade A Cars tend to be held and offered back to the franchised dealers, Grade B cars usually to indies and car supermarkets and Grade C cars will go through general auctions and end up bought and tidied up and usually end up on forecourts too.
This was bourne out recently when i bought my year old Passat earlier in the year. I basically bought it off a spreadsheet at my local VW dealers - choice of colours, specs, miles, etc - who then bought it off VW Finance and had it shipped to them within a week.
HumanDoing said:
The used car market does not follow the normal rules of supply and demand
Broadly speaking it does - people buy pretty much based on price, so if your car is too expensive, the phone wont ring. Gone are the days when main dealers could command £,£££s more for their cars. When i got my Passat it was pretty much at car supermarket pricing as that was the price point people were buying at.HumanDoing said:
it is artificially massaged by dealerships, who know people don't generally want to buy from some bloke's front drive, or from a local independent dealer.
They can charge a bit more, but rarely very much more now. People will buy cars off a local indie if its the right car at the right price. Theres a small indie close to me - maybe stocks 75 cars. All around a year old. Hes not really much cheaper than a main dealer - if anything - but he makes a decent enough living because the demand is there. My brother bought a year old SEAT Leon off him a couple of years ago. The main dealer was no more expensive, but this guy had a silver one and the main dealer only had a white one so he bought the silver.HumanDoing said:
There is no reason to suspect that would change if the PCP market dropped an unmentionable in its Huggies®.
If the supply of year old, two year old cars dropped dramatically, then that will force used car prices up. Its already tough enough buying good quality, retailable used stock so less cars will translate to higher prices. Not necessarily by thousands but less availability will lead to a price increase.Just on a similar vein RE: supply and demand. Any amount of 1 year old Passats about as they are popular on the lease / hire car fleets. At a year old that mean i was able to buy a year old Passat for less than the price of a year old Superb. Lots of Passats about thus prices are relatively low, Superb relatively scarce so prices higher - yet in theory the Superb should have been a thousand or two cheaper.
Granfondo said:
One good thing has come out of the very low interest rates after the last crash is that people have used it to reduce their debt burden and now will be more able to cope with any rate rises!
There is very little evidence to suggest lower interest rates has encouraged the reduction of personal debt. The Bank Of England has expressed their concerns on a number of occasions recently about spiralling household debt.I do wonder how many of these expensive leased German cars are being subsidised by artificially cheap interest only mortgages, and very low or zero personal pension contributions.
Gunk said:
I do wonder how many of these expensive leased German cars
Why would they necessarily be expensive ? If they beat depreciation, which they can do IME, I would call them good value.Any money saved can therefore be used to pay off debt and/or go towards additional pension contributions.
That's precisely what we're doing as the 40% fiscal incentive is too good to ignore although I wonder how long that will last !
Gunk said:
Granfondo said:
One good thing has come out of the very low interest rates after the last crash is that people have used it to reduce their debt burden and now will be more able to cope with any rate rises!
There is very little evidence to suggest lower interest rates has encouraged the reduction of personal debt. The Bank Of England has expressed their concerns on a number of occasions recently about spiralling household debt.I do wonder how many of these expensive leased German cars are being subsidised by artificially cheap interest only mortgages, and very low or zero personal pension contributions.
nickfrog said:
Why would they necessarily be expensive ? If they beat depreciation, which they can do IME, I would call them good value.
Any money saved can therefore be used to pay off debt and/or go towards additional pension contributions.
That's precisely what we're doing as the 40% fiscal incentive is too good to ignore although I wonder how long that will last !
Frog you keep pontificating about how cheap a deal is if it beats depreciation on new but what about buying at 2 years? Any money saved can therefore be used to pay off debt and/or go towards additional pension contributions.
That's precisely what we're doing as the 40% fiscal incentive is too good to ignore although I wonder how long that will last !
Most PCP deals I see charge over 3 years roughly what itd cost to buy outright at 2 or 3 years, e.g. £20,000 of PCP payments to PCP an m140i for 3 years, when we can reasonably assume based on the m135 that the m140 will be trading for about 20k at 3 years.
How is that value? There's a reason people dont PCP toasters but do PCP cars. In what other field of life is it 'good value" to pay the whole value of an item at 3 years to borrow it for the previous 3 years?
HumanDoing said:
Frog you keep pontificating about how cheap a deal is if it beats depreciation on new but what about buying at 2 years?
Most PCP deals I see charge over 3 years roughly what itd cost to buy outright at 2 or 3 years, e.g. £20,000 of PCP payments to PCP an m140i for 3 years, when we can reasonably assume based on the m135 that the m140 will be trading for about 20k at 3 years.
How is that value? There's a reason people dont PCP toasters but do PCP cars. In what other field of life is it 'good value" to pay the whole value of an item at 3 years to borrow it for the previous 3 years?
What about buying at 10 years old ? Most PCP deals I see charge over 3 years roughly what itd cost to buy outright at 2 or 3 years, e.g. £20,000 of PCP payments to PCP an m140i for 3 years, when we can reasonably assume based on the m135 that the m140 will be trading for about 20k at 3 years.
How is that value? There's a reason people dont PCP toasters but do PCP cars. In what other field of life is it 'good value" to pay the whole value of an item at 3 years to borrow it for the previous 3 years?
People want to buy new cars , older cars arent even an option for many people , the decision for most is "I want to drive a new car , whats the best way to do that?"
HumanDoing said:
nickfrog said:
Why would they necessarily be expensive ? If they beat depreciation, which they can do IME, I would call them good value.
Any money saved can therefore be used to pay off debt and/or go towards additional pension contributions.
That's precisely what we're doing as the 40% fiscal incentive is too good to ignore although I wonder how long that will last !
Frog you keep pontificating about how cheap a deal is if it beats depreciation on new but what about buying at 2 years? Any money saved can therefore be used to pay off debt and/or go towards additional pension contributions.
That's precisely what we're doing as the 40% fiscal incentive is too good to ignore although I wonder how long that will last !
Most PCP deals I see charge over 3 years roughly what itd cost to buy outright at 2 or 3 years, e.g. £20,000 of PCP payments to PCP an m140i for 3 years, when we can reasonably assume based on the m135 that the m140 will be trading for about 20k at 3 years.
How is that value? There's a reason people dont PCP toasters but do PCP cars. In what other field of life is it 'good value" to pay the whole value of an item at 3 years to borrow it for the previous 3 years?
I bought my new LCI M135i as I felt that the finance route wasn't best for this particular car at the time and second hand cars were more expensive. £315/month amortised vs £250 monthly depreciation that I actually experienced selling at 12 months ; having said that, I am ignoring the opportunity cost so not that much in it in reality.
As for new leased/PCPed vs 2-year old, I have shared my experience with you and demonstrated that it CAN work well (but it doesn't always of course). You have replied to my message then ignoring the rationale but only focusing on the farting aspect (which was a detail). You have then forgotten that you replied to it (even though it was less 24h after) and had a go at me for not replying, which I had done.
Do you want me to copy the post, for your convenience ? (it makes amusing reading IMO)
Cheers
Nick
Edited by nickfrog on Monday 30th October 10:22
Another example that has sprung up over the past 2 weeks : you can rent a S-Line A4 1.4TSI 150 for £5,640 over 24 months/8k miles pa. This is taxed and probably won't need a service nor any consumables.
I have no issues if this is poor value for someone but if this is the car for you, the relevant question is how much would the car actually cost if bought at 2-years old with cash ?
As patiently explained, some PCP/lease/cash/new/used deals are terrible, some are excellent VFM.
It's the lack of critical thinking and the bizarre assumptions that confuses people on this subject.
I have no issues if this is poor value for someone but if this is the car for you, the relevant question is how much would the car actually cost if bought at 2-years old with cash ?
As patiently explained, some PCP/lease/cash/new/used deals are terrible, some are excellent VFM.
It's the lack of critical thinking and the bizarre assumptions that confuses people on this subject.
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