Are the wheels about to fall of car finance?

Are the wheels about to fall of car finance?

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Discussion

CS Garth

2,093 posts

52 months

Saturday 25th March 2017
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brickwall said:
CS Garth said:
brickwall said:
What I don't understand is why car residuals have held up so well, in the face of booming new-car sales for the last 3-5 years - supposedly driven by (typically 2-5 year) PCP deals. Surely this should have fed through into a greater supply of used cars - depressing values. But this doesn't seem to have happened - what is keeping used car prices so high? .
Because the manufacturers now control the used car market as the pcp market has the brucie bonus of their getting the cars back they have "sold" at the end of term. Thus they can dictate price and keep it artificially high. Remember the old days when a new car would lose 20 percent the minute it drive off the forecourt? Not any more (or at least ignoring trade values). That's also why nearly new cars at dealers cost more than new cars from the brokers.
Sure the dealer can stick whatever price they like on cars they get back off PCP deals, but that doesn't mean people will buy them! Are there stacks of unsold 2-4 year old cars sitting around? If so, on who's books? And on what basis are they writing them down?
But they do because the dealers control the finance - ie if you give someone the means to pay for something they will buy it. Look at DFS , Brighthouse, even Black circles. People don't look at the price, they look at the monthlies. This enables you to manipulate price upwards.

Sheepshanks

18,431 posts

66 months

Saturday 25th March 2017
quotequote all
brickwall said:
Sure the dealer can stick whatever price they like on cars they get back off PCP deals, but that doesn't mean people will buy them! Are there stacks of unsold 2-4 year old cars sitting around? If so, on who's books? And on what basis are they writing them down?
I suppose what happens is people gravitate towards newer cars, and anything 8yrs or so old becomes practically worthless.

This doesn't seem to happen elsewhere in Europe - colleagues there are gobsmacked by how cheap our older used cars are.

nickfrog

10,503 posts

164 months

Saturday 25th March 2017
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Yipper said:
One thing is certain -- the vast majority of UK consumers on PCP and lease deals must be getting royally ripped off. Like, absolutely wallet-raped. Because when I check all the PCP and lease deals online and in showrooms, ~98% of them are overpriced and absolutely rubbish. If 70-80% of buyers are PCPing and leasing, that is a million people getting screwed over by dealers and manufacturers every year...
Have you got any data to back up your claims ?

Lease deals are yield managed so by definition, some deals are better than average, some deals are worse than average, think Easyjet. The average being very close to actual depreciation of the asset.

The majority of buyers are far more clued up than you think. If they're not, what do you care anyway ? It's the same thing irrespective of payment method : some people invest more time than others in due diligence, that's all.



Mandat

2,918 posts

185 months

Saturday 25th March 2017
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Krikkit said:
I think he means that a lot of lease/finance deals direct from the manufacturer can be over-priced compared to the standard broker deals. Sometimes they're hundreds/month higher, which adds up.

Most people will go direct to the showroom rather than a broker I think (would be interesting to see some data on that).
If the claimed ~98% of PCP & lease deals are priced at the level that they apparently are, it would suggest that this is the actual marked price. I'e therefore interested to see where the claimed rip off is happening.

BigLion

1,497 posts

46 months

Saturday 25th March 2017
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People deserve what they get - there are people on other forums driving brand new m4s and yet they then change to another m4 to get a different colour or spec a couple of years into the deal. These people know what they are paying but have no discipline.

I just hope it doesn't turn into a PPI type issue where people enjoy the high life and then when it comes crashing down look for others to blame etc.

skinnyman

834 posts

40 months

Saturday 25th March 2017
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I'm on a PCP. Got 20% off list through an online broker, and I'm paying the final payment to keep the car when it finishes in June.

My mother is also on PCP, she had a Fiesta, at the end of the 2yrs she went back to Ford and they used the equity for a deposit on another one, she moved out of a 2yr old Fez into a new one of identical spec for the same payments.

Sheepshanks

18,431 posts

66 months

Saturday 25th March 2017
quotequote all
nickfrog said:
The majority of buyers are far more clued up than you think. If they're not, what do you care anyway ? It's the same thing irrespective of payment method : some people invest more time than others in due diligence, that's all.
I reckon a lot of people don't realise you can negotiate on a PCP deal, or they'll accept a trivial reduction on the monthly.

They also get stitched up with protection packages. A VW dealer offered us a Tiguan PCP at list and added £100/mth of other stuff. I asked for a print out as I couldn't believe how absurd it was but he refused so we just made our excuses and left.

mstrbkr

7,104 posts

145 months

Sunday 26th March 2017
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Olf said:
I am rally struggling when I hear friends who suddenly have a Range Rover saying - 'and the dealer said we can chop in in for another one in two year
This! People say that as if it's a plus. In reality they will have built little to no equity and simply lose thousands of £s in the exchange.

On that subject, and in regards to mis-selling, Ford tried tell me that changing up to the next level of Fiesta ST after 1 year of my 2 year PCP was a good idea. You know how it goes "we can get you in a new car for the same monthly payment", but I had to ask what this did to the total amount I had borrowed. Then they spilled the beans that this would take my total amount borrowed back up to the same amount it had been a year previously, so I would have no equity whatsoever. I'm not sure I'd say it is a scam, but they are certainly being economic with the truth to hoodwink people into these early swaps.

I then had to be quite firm with the person on the phone when declining their offer, who kept telling me I shouldn't keep my car for the whole 2 year term. They tried to say that I would "save money" because it was due a service soon. A service that costs less than £150. Service the car for £150 or take on another few £k in debt, but they are telling people "save yourself the cost of the servicing by swapping to a new car for the same monthly payment". fkers. I paid the balance off a few months later, saved myself the expense of the finance, and sold the thing privately.

gizlaroc said:
especially on used cars where the APR is sky high.
I had a quick look at used FK2 Type-Rs the other day. Thought I'd get a quick finance calculation with a £10k deposit (40% ish). £400-£500 a month because it's 10% APR! TEN!

Edited by mstrbkr on Sunday 26th March 08:27

powerstroke

8,642 posts

107 months

Sunday 26th March 2017
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Yipper said:
The FT article is just a rehash of a Guardian article that has been rehashed every year or two since about 2011...

For sure, the PCP upcycle will end at some point. UK new car sales will decline this year, so 2017 may well be the start of the end (until the next cycle).

One thing is certain -- the vast majority of UK consumers on PCP and lease deals must be getting royally ripped off. Like, absolutely wallet-raped. Because when I check all the PCP and lease deals online and in showrooms, ~98% of them are overpriced and absolutely rubbish. If 70-80% of buyers are PCPing and leasing, that is a million people getting screwed over by dealers and manufacturers every year...
No , if they are too stupid to put the monthly payment amount x number of payments plus any doc fees in to a calculator so as to work out how much they will be paying to
RENT a car then tough luck,go forth and multiply ....

Edited by powerstroke on Sunday 26th March 08:04

Welshbeef

38,277 posts

145 months

Sunday 26th March 2017
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For the last year or two mortgage companies have really started to take HP or PCP or PCH onto account for mortgage borrowing.

So in some ways it is hitting people's total debt that they can take.

A lady in work had a base spec 320d had 60k on it owned from new loved it but 3 years was up the sales guy basically said you can put this car in against a brand new one for no extra deposit down and as interest rates are lower now it's slightly less PCM for the next 4 years.

So I asked her do you still like your car? Yes utterly love it.
Anything wrong with it? No it's still like new.
Happy with the spec and colour? Yes.
How much is outstanding on this? £10k.
Ok so take a loan out for £10k - I worked it out that at the same pcm as she paid currently it would take 2 -3years to pay it off then own it outright.
It would then be a 6-7year old car and we guessed 100-120k.
And then I said after paying it off you the have a few choices. Carry on running for years and banking the previous PCM for savings towards the next car or holidays or whatever. Give it/sell it to her son who would love to have a car with totally known history and be good value + keep it in the family. Also get over the fact 100k is a big number cars don't fall apart - in reality the engine is good for 300k maybe more so don't worry about it.

Anyway this was probably a year ago - she went for my idea in the end and is not too far away from cleaning the loan - she opted for a shorter period to clear it. As it turns out not a single thing has gone wrong with it.


Oh and another point she had new tyres plus discs and pads fitted a few k miles before the sales guy had suggested the next car move.

Hungrymc

4,181 posts

84 months

Sunday 26th March 2017
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These finance packages have changed the entire industry. They have produced growth when it looked like there was a huge over capacity and inevitable hard times.

Thing is, the manufacturers aren't stupid, it was deliberate and has been very successful for them. They are well on the way to the next phase / the next big change in how we buy (Use) cars.

I don't like it, it's not how I buy cars, but its only heading in one direction.

wemorgan

3,355 posts

125 months

Sunday 26th March 2017
quotequote all
skinnyman said:
My mother is also on PCP, she had a Fiesta, at the end of the 2yrs she went back to Ford and they used the equity for a deposit on another one, she moved out of a 2yr old Fez into a new one of identical spec for the same payments.
Without knowing the numbers it's impossible to say whether that's a good deal or not. On the face of it, it may seem good, but if the equity was based on her paying a too high deposit and the new car not being discounted it could be a terrible deal. Who knows, and this is partly why PCP can be so ambiguous.

powerstroke

8,642 posts

107 months

Sunday 26th March 2017
quotequote all
I think the next stage will be the manufactures doing 2 PCP deals on the more white goods cars , then taking back and scrapping
at the end of the second term ....

mstrbkr

7,104 posts

145 months

Sunday 26th March 2017
quotequote all
wemorgan said:
skinnyman said:
My mother is also on PCP, she had a Fiesta, at the end of the 2yrs she went back to Ford and they used the equity for a deposit on another one, she moved out of a 2yr old Fez into a new one of identical spec for the same payments.
Without knowing the numbers it's impossible to say whether that's a good deal or not. On the face of it, it may seem good, but if the equity was based on her paying a too high deposit and the new car not being discounted it could be a terrible deal. Who knows, and this is partly why PCP can be so ambiguous.
I bet she had very little equity there. You can move to an identical car for the same payments with zero equity, easily. They will just whack the total amount borrowed back up.

Momentofmadness

2,348 posts

188 months

Sunday 26th March 2017
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An interesting thread, but while some may care (or not hehe) about people being 'ripped off' and how the elderley are victims etc, the likely truth is those buying the cars just don't care and are happy with the monthly cost.

E.g.a girl a work wanted a brand new mini, not bothered on spec just had to be white and her budget was £200 a month - she's over the moon and already had an upgrade to a new on in year 2. Some may feel indignant about how she is being ripped off / scammed / misold but the reality is that she is totally satisfied to have the car she wants within her monthly budget and was especially pleased to get a new one at just 2 years for the same payment smile

trickywoo

8,147 posts

177 months

Sunday 26th March 2017
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I saw a buy to let cars 'investment opportunity' in my local rag last week guaranteeing a 7% return in exchange for putting up the funds.

This week there is an ad in the same rag for personal car leasing for people with poor credit ratings - 95% acceptance rate scratchchin

Welshbeef

38,277 posts

145 months

Sunday 26th March 2017
quotequote all
With EVs it might be forced upon us that we never own all the car ie the batteries are owned by the OEM not you to ensure recycling.

However generally as a society we are owning less and less.
40 year mortgages interest only
HP or PCP into perpetuity.

However it can actually be cheaper owning a brand new car v an older one IF there is a great deal on it and also you might have a few servicing issues with the older one?


IIRC not too long ago there was a great deal on an M5 /E63/ M3/4 which as it turns out is cheaper/near identical to what I'm actually paying out in total ownership costs for a 60 reg 535d.

mstrbkr

7,104 posts

145 months

Sunday 26th March 2017
quotequote all
Welshbeef said:
40 year mortgages interest only
yikes

You can get those? Who is getting those?!

Bill

40,046 posts

202 months

Sunday 26th March 2017
quotequote all
Momentofmadness said:
An interesting thread, but while some may care (or not hehe) about people being 'ripped off' and how the elderley are victims etc, the likely truth is those buying the cars just don't care and are happy with the monthly cost.
I suspect they don't actually think to deeply about it. The car industry has persuaded them that the same monthly payment for a normal loan for a used car will get them something new. They don't care that they have nothing to show for it at the end, because by that stage they have another new car.

I want to know where all the cheap used cars are. hehe If only they weren't all diesel white goods.

Derek Smith

34,794 posts

195 months

Sunday 26th March 2017
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I was brought up with the idea of never buying anything but a house on credit. Now I'm in my dotage and am looking to replace my car I find the plethora of different type of credit confusing. In fact that's putting it mildly. I'm not stupid but have found balancing one against another is impossible.

I've only ever had s/h cars so a new one would be nice but there's got to be a catch at the 'benefits' I've been offered.

I went to a dealer to see the price for a mid-sized car. As I asked the sales bloke about the terms he was offering it was apparent he hadn't a clue of the details.

I've got around £10k cash to splash on a car but when I asked what would be best for me I was told to put all but 1k in the bank (where it'd earn little interest) and take the full offer on leasing. That's counter-intuitive, but so tempting.

I get the feeling that many of those entering into these arrangements, especially of my vintage, are just about as blind as I am as to what they are committing to.

It's got to the stage where I'm considering a 190E in vg condition.