Are the wheels about to fall of car finance?

[W124]

Sheepshanks said:

W124 said:

It's more the physical reality of them. There are tens, possibly hundreds, of thousands of ex lease/PCP/PCH cars stored in massed ranks all over the place. I've seen them - they just sit there exposed to the weather. I cannot see how they can be physically dealt with as they can't be sold on. There are just too many. They have no real asset value. Coupled with the brutal manipulation of the market to which you allude, the consequences of cheap credit credit trapping million in the hole for cars and other things, inflation rising as it is and the corresponding rise in rates that has to come. It's quite a big problem this. Winter is coming etc. etc.

When you see shots in the press of airfield full of cars there often aren't as many as indicated. Plus the new car market in the UK is 2 million units so that's 40K cars every week. The used market is 3x that. OK, thats cars at all ages but still the market for 2 or 3 year old ex-lease cars must be huge.

No, I mean I've actually seen them. I deliver cars for a huge auction house. Those cars you speak of are mostly leased. The more they lease - the more get shunted into storage at 2/3/4 years. Why would you buy a used car when you can, in the main, lease one so cheaply. You see the problem?

[CS Garth]

W124 said:

Why would you buy a used car when you can, in the main, lease one so cheaply. You see the problem?

Precisely, you would only buy one if it was significantly cheaper than a new one. Which they can't be, for now anyway, as the prices cannot be reduced without affecting the balance sheet values of the book. The manufacturers are essentially victims of their own success.

[FN2TypeR]

CS Garth said:

W124 said:

Why would you buy a used car when you can, in the main, lease one so cheaply. You see the problem?

Precisely, you would only buy one if it was significantly cheaper than a new one. Which they can't be, for now anyway, as the prices cannot be reduced without affecting the balance sheet values of the book. The manufacturers are essentially victims of their own success.

I'm waiting for the day that cheaper models get scrapped off after their initial lease to take them out of the market so they can't do any damage to new sales - that's when it'll be looking desperate.

[mikey P 500]

Interesting thread. Are there really loads of used cars being stocked up in air fields etc as they can't be sold because of damaging residual values? How many left doesn't show excessive numbers of sorn cars at 2 to 5 yrs old.

Also how do people go about modifications on PCP or leased cars or even using them on track days, as both are common, but surely must be a grey area when it's not really your car. This would be large part of what keeps me from PCP or leasing. (Although i did use a loan to by my car so not anti finance).

[RDMcG]

Very nasty US news today , and there have been many recent signs....sounds like the US housing crash again, and that sort of problem spreads across the globe in terms of recession:

https://www.bloomberg.com/news/articles/2017-03-28...

[Stormfly1985]

My partner and I are in our 40's and used to "own" a house - sold it, paid the mortgage off and will rent for the rest of our lives. Why? We don't have kids and why should we lock up our money in an asset that will just go to the state when we die. Renting gives us the flexibility and freedom to move easily, to have a bigger house than we could get a mortgage on and no running costs. Of course there are downsides to renting however there are downsides to getting a mortgage too. I remember when interest rates for mortgages were 17%!

We earn good money between us, have £70k in the bank and enjoy life. We leased a new car (Octavia VRS) last year and consider the cost no differently than someone who spends £80 a week on fags and booze.

If people want to save every penny for their kids, or for "a rainy day", or they are just fking tight, that's up to them. Money is only useful if you exchange it for goods or services. We are going to die penniless but having had a great life full of amazing experiences! You can't take it with you!

[patch5674]

I am slightly curious as to how many people on this thread actually read the article I posted ( I appreciate it was behind a paywall and the mods deleted my copying and pasting of it).

[BlueHave]

Checked my inbox this evening and find an email from Aston Martin offering me a DB11

Initial Rental - £32k

23 monthly payments of - £999

with an optional final payment of £109k

Lets just say I won't be taking them up on it

[daemon]

mikey P 500 said:

Are there really loads of used cars being stocked up in air fields etc as they can't be sold because of damaging residual values?

No.

[paul789]

BlueHave said:

Checked my inbox this evening and find an email from Aston Martin offering me a DB11

Initial Rental - £32k

23 monthly payments of - £999

with an optional final payment of £109k

Lets just say I won't be taking them up on it

fk it - chuck it all on the neva-neva!!

[daemon]

mikey P 500 said:

Also how do people go about modifications on PCP or leased cars or even using them on track days, as both are common

99% of leased or PCP'd cars are not the sort of cars you'd use on track days.

In terms of mods, if you were to mod them, you would be best only doing something thats bolt on and easily reversible. Though personally i wouldnt bother.

[Granfondo]

daemon said:

mikey P 500 said:

Are there really loads of used cars being stocked up in air fields etc as they can't be sold because of damaging residual values?

No.

Why are they there?

[mondeoman]

DonkeyApple said:

The US is in a genuinely awful state at the moment and this is an interesting article and one which contains many synergies with the South East of the UK.

http://www.marketwatch.com/story/how-you-can-still...

Somewhat misleading - the articel makes it clear that after paying for all their expenses, including child care, student debt, 3 holidays a year, clothes, cars, mortgage etc.. they STILL have $7500 left over as well as having donated $18k to charity! Hardly broke, by anyones standards.

[Tonsko]

So I've just arrived in the PCP market a month or so back. Never had PCP before, always preferred owning my cars via bank loans or savings etc. Preferred PCP over lease though.

2016 Scirocco R - £26K, 7800 miles. £5K deposit, 298(ish) monthly payments over 4 years with a £10K(ish) final settlement. This was at 5.9% APR on 15K miles per year. Am basically waiting a few months (for credit check reasons) and am planning to get a loan (at around 3-4% APR to pay off to reduce monthly payments to ~£49 (which apparent is VW finance's lower limit before they ask for full settlement), then carry on paying a lower interest rate on the loan (think it works out to roughly 240-260pm) saving around £40pm over 4 years.

Now, the finance guys phoned me and said that they will probably phone me up after 2 1/2 years and ask if I want to change my car. So far, so standard it seems.

What does it mean by 'building equity' in your car? Why should I not chop the car in after a couple of years?

[Sheepshanks]

RDMcG said:

Very nasty US news today , and there have been many recent signs....sounds like the US housing crash again, and that sort of problem spreads across the globe in terms of recession:

https://www.bloomberg.com/news/articles/2017-03-28...

I don't know if it still is, but leasing used to be staggeringly cheap in the US - I recall seeing BMW 328i's aimed at college kids for $249/mth, and there's no massive upfront payment.

A business associate got a Cayenne for his missus for $599 and he had an E63 that wasn't much dearer.

Bear in mind this was when the dollar was much lower against the £, so in £ they'd be little more than half those amounts.

[rxe]

Building Equity is the same concept as a mortgage. You've borrowed £X for a thing, and you sell it for £Y. If Y > X then you "have equity" which can be used to offset the upsell when they try and flog you another one.

The trick is this. Sensible people will over pay and thus may be attracted by "I can put you in a <insert model here> for only £50 a month more", as they don't realise that all the overpayment they made 2 years ago is being consumed. A mate of mine progressed through the Audi range to an A8 by doing this - then he suddenly added up what he had spent with Audi over the last 7 years and nearly died.

The inverse is what happens in the US. Payments are low, you don't build equity. After 2 years, they phone up and say, 2I can put you in a new one of what you have for no more money". People take it, not realising that the deal has now been extended to 5 years.

Though the concept of "building equity" in a depreciating asset does stick in my throat a bit. Basically the product to be sold is finance, not the car.

[Welshbeef]

Tonsko said:

So I've just arrived in the PCP market a month or so back. Never had PCP before, always preferred owning my cars via bank loans or savings etc. Preferred PCP over lease though.

2016 Scirocco R - £26K, 7800 miles. £5K deposit, 298(ish) monthly payments over 4 years with a £10K(ish) final settlement. This was at 5.9% APR on 15K miles per year. Am basically waiting a few months (for credit check reasons) and am planning to get a loan (at around 3-4% APR to pay off to reduce monthly payments to ~£49 (which apparent is VW finance's lower limit before they ask for full settlement), then carry on paying a lower interest rate on the loan (think it works out to roughly 240-260pm) saving around £40pm over 4 years.

Now, the finance guys phoned me and said that they will probably phone me up after 2 1/2 years and ask if I want to change my car. So far, so standard it seems.

What does it mean by 'building equity' in your car? Why should I not chop the car in after a couple of years?

The point is you at no time will have paid the car off nor it's replacement.
As long as you know that is the case and it is a costlier way than say a banger /you know the pros and cons. If you don't realise that or somehow the sales guys mislead you then there is an issue.

I couldn't care less how often someone changes a vehicle be it brand new be it loads of bangers or anywhere in between. I couldn't care less how they paid for it
I do however take interest in someone owning nice performance cars, nothing to do with how they can afford it (or not) but instead if it's a car I'd consider as a future buy to know what it's like to actually own

[MrBarry123]

DA - as always, insightful stuff from you.

So if I understand what you're saying, what's happened over the past few years is that the middle-classes have used what cash they had to, ironically, increase their own leverage? This meaning that the middle-classes have been able to live a lifestyle that previously was out of reach to many, increasing the profit of these markets and, consequently, allowing more and more people to join in on the fun.

Two examples which perhaps spring to mind are...
1. In 2016, Bob had a house that was worth £300k; a house he'd owned since 1995 and one which he had £200k of equity in. In 2016, Bob decided to sell his house to upgrade to a bigger house. He used a combination of his £200k equity and a much larger mortgage to buy a £650k house.
2. In November 2016, Bob also had a nice car worth £10k that he owned outright, having paid off the loan he purchased the car with since 2012. However, Bob got bored of said car and decided to use the £10k he had in the car and £40k worth of finance to buy a really nice car worth £50k.

Now, Bob has a really nice house and a really nice car and Bob has become acclimatised to living the kind of life he does now. However, Bob could also be really fked if interest rates rise significantly, in comparison with his potential to be fked in 2013.

For clarity, I'm not saying Bob has made bad financial decisions. I'm just trying to imagine DA's explanation of how the middle-classes' financial situations have changed over the past few years.

ETA: I accept my two examples are quite extreme and in reality what's actually happened is a more gradual increase in people's leverage.

Edited by MrBarry123 on Tuesday 28th March 23:30

[Tonsko]

Welshbeef said:

The point is you at no time will have paid the car off nor it's replacement.
As long as you know that is the case and it is a costlier way than say a banger /you know the pros and cons. If you don't realise that or somehow the sales guys mislead you then there is an issue.

I couldn't care less how often someone changes a vehicle be it brand new be it loads of bangers or anywhere in between. I couldn't care less how they paid for it
I do however take interest in someone owning nice performance cars, nothing to do with how they can afford it (or not) but instead if it's a car I'd consider as a future buy to know what it's like to actually own

Yeh, I said to the salesman that I know that they're not in the business of selling cars any more - they're a finance reseller who also happen to shift cars. He actually seemed relieved. I went into it treating the agreement like an extended hire. It might not be exactly the right way to think about it, but it's probably 'more' right than thinking that I own it.

Was also planning to overpay. Am aware that at no point do I 'own' the vehicle unless I choose to go with that final payment of 10K. Tbh, I could afford the car with savings, but as someone else mentioned, the loss of liquidity worries me more than anything else.

I do treat it like I 'own' it - always waiting until engine & oil are at temp before giving it a thrash, and allowing things to cool down before switching off. Intend to follow the servicing schedule too - not least because it's still in warranty.

The one freedom that it has given me is that I don't worry about it as much... For instance, I'd only had it two weeks and some kind soul put a chip in the paintwork at an airport carpark. I will get it sorted, but it's released any pressure that I may have form owning it to some degree. Or it maybe because I'm a bit older.

In other news, it's totally different from my old car - 2WD vs AWD, Turbo vs NA, DSG vs manual. Went to a rally day in South Shropshire the other day, and the trip down there and back was the icing on the cake from a great day. Was able to really drive the thing properly, not just sit in it on the way to work and back, or going to the shops or whatever. I really like the DSG box, seems to queue the gears up nicely, surprises me with how hard it pulls if you really try (far far more than the golf, and ostensibly only another 20 or so brake, but the torque is probably nearly 50% better). The handling seems good too, although not given it too much as I'm still getting used to all the differences. That said, I think I understand what car journos mean when they say 'a disconnect' with the steering feel. I had my old car nearly 10 years, so knew it inside out.

[Mandat]

mikey P 500 said:

Also how do people go about modifications on PCP or leased cars or even using them on track days, as both are common, but surely must be a grey area when it's not really your car. This would be large part of what keeps me from PCP or leasing.

The car is really yours under a PCP, in much the same way as with HP.

If you decide at the outset of a PCP that you want to keep the car at the end by paying the final balloon payment, then you are free to do what you want with the car, in the same way if you had bought it on HP or even outright with cash.

Substantially modding a car that you will want to hand back at the end of the term will be a different matter, as there will be return T&C's to consider.