Are the wheels about to fall of car finance?

Are the wheels about to fall of car finance?

Author
Discussion

Bonefish Blues

14,046 posts

170 months

Sunday 26th March 2017
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Thought-provoking thread, thanks all. (2x12 y.o. Volvos, owned BTW smile)

Venturist

2,809 posts

142 months

Sunday 26th March 2017
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My main question with it is what is happening to all the off-lease cars. The financial model is built around the manufacturer being able to get a particular value for the car when it comes back and enters the second hand market. But even if they are stockpiling them to artificially preserve second hand values, that just means they've got a huge pile of assets that they can say is worth £X billion but in actuality if they had to liquidate the market would be flooded and values would drop through the floor.
What is the advantage to them of keeping the stockpiled cars? The payments from the lease period surely hasn't covered the cost of manufacturing the car let alone turned a profit, and the longer they stockpile the car before releasing it onto the used market, the less it's worth... and if they keep the values high then most people would prefer to jump up to a new car instead of making a slight saving on buying second hand.
I speak as someone who embraces the PCP method because it works for me and I don't mind that I'm indirectly paying for the privilege, but there is a big hole in the system on the manufacturer's end that I don't understand.

Edited by Venturist on Sunday 26th March 10:21

horsemeatscandal

478 posts

51 months

Sunday 26th March 2017
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CS Garth said:
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.
People are buying their tyres on finance? Bloody hell.

This is an interesting thread. I bought my car on HP and while the APR was stupid I paid it off relatively quickly afterwards. In hindsight of course it would have been better to save for a year or so and then save myself a few hundred quid. I'll probably get a bank loan next time round if I don't pay cash. However, I have absolutely no interest whatsoever in PCP deals, although I can sometimes see the appeal. I just couldn't stomach paying so much money for something and probably never actually owning it. Is it just me or are new car radio/TV ads now making it much more clear that 'you will not own the vehicle'?

Welshbeef

38,277 posts

145 months

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

You can get those? Who is getting those?!
Sarnie has confirmed the 40 year mortgage term.

Bonefish Blues

14,046 posts

170 months

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

You can get those? Who is getting those?!
Sarnie has confirmed the 40 year mortgage term.
Interest only?

jimmy156

3,258 posts

134 months

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

You can get those? Who is getting those?!
Sarnie has confirmed the 40 year mortgage term.
I know people with 40 year terms, we have just extended ours for our forthcoming move (albeit not to 40 years) The issue is, living in the south east at least, that with my wife and i have having good but relatively modestly paying jobs (I am a teacher, and my wife works in marketing) you have to push the boundries of what you can borrow to buy even a modest home.

With regard to finance, my car is PCP'd and probably not at a very good interest rate either (it was 2 y/old when i bought it.) But it works for me, and was the only way i could buy a modern car with a warrenty etc. and that was important to me. Unlike others however i do not want to be trapped into the never ending cycle of car finance, with never ending payments being made at £xxx per month. It was interesting to note the salesmen's focus on "affordability" (monthlies) rather than actually looking at what the thing costs to buy. I hate thought of paying years (decades?) of interest on car loans, as one PCP is chopped in for another, ad infinitum.

Bonefish Blues

14,046 posts

170 months

Sunday 26th March 2017
quotequote all
40 year mortgages are a fact, I think the query was 40-year interest only.

TheAngryDog

9,421 posts

156 months

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

You can get those? Who is getting those?!
Stupid people.

MuscleSaloon

834 posts

122 months

Sunday 26th March 2017
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BigLion said:
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.
Agree with this, happens more than ever. Due to no other reason than people can.

Happens across the board with premium / performance owners best at wanting the latest thing at any cost. Its constantly having the latest phone applied to cars. Golf 7R as an example - facelift with the smallest amount of revisions but enough to mark it out as different for those interested, promote it as the must have Golf 7.5R and the amount of nearly new 7R owners wanting figures to change up is silly.

I personally see people 'upgrade' to a new car from their current 3 year old or less car with under 5k miles on the clock. Which costs them many, many thousands of pounds. Wasteful yes but good for the motor trade.

LordLoveLength

698 posts

77 months

Sunday 26th March 2017
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Venturist said:
My main question with it is what is happening to all the off-lease cars. The financial model is built around the manufacturer being able to get a particular value for the car when it comes back and enters the second hand market. But even if they are stockpiling them to artificially preserve second hand values, that just means they've got a huge pile of assets that they can say is worth £X billion but in actuality if they had to liquidate the market would be flooded and values would drop through the floor.

Edited by Venturist on Sunday 26th March 10:21
In Steven Wards 'Dealers Diary' pages in the latest Car Mechanics magazine he comments on the record stock levels appearing at bca car auctions over the last month. He feels that this will be bad for residuals.

Looking at how the finance models work (earlier in this thread) there could certainly be something in the OPs original question.
Next question - anyone brave enough to short the lenders?

BigLion

1,497 posts

46 months

Sunday 26th March 2017
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I wonder if the used cars are getting shipped off to developing countries for resale?

Welshbeef

38,277 posts

145 months

Sunday 26th March 2017
quotequote all
BigLion said:
I wonder if the used cars are getting shipped off to developing countries for resale?
Our old diesels should be maximise their life with the caveat they must scrap the dire diesels they are currently using.

Sheepshanks

18,431 posts

66 months

Sunday 26th March 2017
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mstrbkr said:
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.
I don’t know how true it is, but a Honda salesman told me that virtually no-one keeps the car for the full term. We’d got a Jazz on a 0% deal that Honda gave an extra £500 contribution for, on top of all other discounts. I couldn’t understand why they’d do this, and the salesman basically said it’s to get you onto the PCP treadmill.

Sure enough they called 18mths into a 2yr deal and tried to get us to swap to a HR-V, a more expensive car, for a lower monthly payment. The salesman seemed genuinely gobsmacked that I didn’t snatch his hand off. It took some digging to establish this was a 3yr deal and he really didn’t want to tell us the GFV – he made out like it was completely irrelevant as no one gets to the end of the term anyway.

Perhaps I am missing something, and should have gone for it?

Welshbeef

38,277 posts

145 months

Sunday 26th March 2017
quotequote all
Sheepshanks said:
I don’t know how true it is, but a Honda salesman told me that virtually no-one keeps the car for the full term. We’d got a Jazz on a 0% deal that Honda gave an extra £500 contribution for, on top of all other discounts. I couldn’t understand why they’d do this, and the salesman basically said it’s to get you onto the PCP treadmill.

Sure enough they called 18mths into a 2yr deal and tried to get us to swap to a HR-V, a more expensive car, for a lower monthly payment. The salesman seemed genuinely gobsmacked that I didn’t snatch his hand off. It took some digging to establish this was a 3yr deal and he really didn’t want to tell us the GFV – he made out like it was completely irrelevant as no one gets to the end of the term anyway.

Perhaps I am missing something, and should have gone for it?
Nothing wrong with going for it provided you know the full cost to do it.

If your happy with the Jazz keep going it's a bloody good car.

powerstroke

8,642 posts

107 months

Sunday 26th March 2017
quotequote all
Venturist said:
My main question with it is what is happening to all the off-lease cars. The financial model is built around the manufacturer being able to get a particular value for the car when it comes back and enters the second hand market. But even if they are stockpiling them to artificially preserve second hand values, that just means they've got a huge pile of assets that they can say is worth £X billion but in actuality if they had to liquidate the market would be flooded and values would drop through the floor.
What is the advantage to them of keeping the stockpiled cars? The payments from the lease period surely hasn't covered the cost of manufacturing the car let alone turned a profit, and the longer they stockpile the car before releasing it onto the used market, the less it's worth... and if they keep the values high then most people would prefer to jump up to a new car instead of making a slight saving on buying second hand.
I speak as someone who embraces the PCP method because it works for me and I don't mind that I'm indirectly paying for the privilege, but there is a big hole in the system on the manufacturer's end that I don't understand.

Edited by Venturist on Sunday 26th March 10:21
See my earlier comment about scrapping 2x PCP deals and off to the baler , build in the cost to the two deals and deny the second hand market stock and sell more units !!! win win ....

MuscleSaloon

834 posts

122 months

Sunday 26th March 2017
quotequote all
LordLoveLength said:
In Steven Wards 'Dealers Diary' pages in the latest Car Mechanics magazine he comments on the record stock levels appearing at bca car auctions over the last month. He feels that this will be bad for residuals.
And yet average prices are up year on year and auction demand has remained strong.

daemon

23,902 posts

144 months

Sunday 26th March 2017
quotequote all
MuscleSaloon said:
I personally see people 'upgrade' to a new car from their current 3 year old or less car with under 5k miles on the clock. Which costs them many, many thousands of pounds. Wasteful yes but good for the motor trade.
That has been the case for decades though and predates the prevalent use of PCP and leasing too.

When i was selling new Rovers 27 years ago now, you'd get people who came in when their car was three years old and openly say "well i'm used to pay £X per month so i may as well just continue doing that so i'm here to get a new one"

daemon

23,902 posts

144 months

Sunday 26th March 2017
quotequote all
MuscleSaloon said:
LordLoveLength said:
In Steven Wards 'Dealers Diary' pages in the latest Car Mechanics magazine he comments on the record stock levels appearing at bca car auctions over the last month. He feels that this will be bad for residuals.
And yet average prices are up year on year and auction demand has remained strong.
More people year on year driving now, not less, so its not unsurprising.

Again, thinking back to my childhood, say 40 years ago, a one car family was prevalent, with two cars being the exception. Then it became two car families were the norm, now its (one the kids hit 17) three and four cars you see outside houses.

ChemicalChaos

8,974 posts

107 months

Sunday 26th 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?
Go to somewhere like Bruntingthorpe. There's are tens of thousands of ex finance cars there, filling up the site quicker than they can be sold on

Mandat

2,918 posts

185 months

Sunday 26th March 2017
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Bill said:
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.
Why does this fallacy get quoted on each leasing / finance thread?

Not much deep though being demonstrated it seems.