Negative equity - is this normal?

[maz8062]

Deep Thought said:

GR_WILL said:

Deep Thought said:

GR_WILL said:

nickfrog said:

Welshbeef said:

Deep Thought said:

Welshbeef said:

He be losing the VAT as soon as driving off the forecourt.

Vat has nothing to do with it.

You drive it off the forecourt and end of the day drive it back to the garage and sell it back to them or sell if private on that same day everyone will knock the 20% vat off

I can't believe you still come up with this, particularly for a Finance Director. It has absolutely nothing to do with the VAT but with inherent depreciation and dealer spread.

I’ve seen this on a website, are they incorrect?

They're not incorrect, no. But thats not the reason why a nearly new car depreciates.

Their subheading of "VAT – the Government’s contribution towards depreciation" is slightly misleading. They're really saying "if the dealer didnt have to pay vat, the car would retail at £16K", but then everything would move downwards from there in terms of the value of nearly new and used cars anyway.

Bearing in mind the OP bought brand new, thereby meaning there is a VAT element to his purchase, does that mean Welshbeef was actually correct then?

No.

Hes not correct.

The VAT element of 20% has no bearing at all on the resale value of the car. ie, the dealer does not just "knock the VAT off" the value of any new car being traded back in once its driven off the forecourt. Its retail value is relative to the new car price and what the car buying public will likely pay for the car and that value will then be subject to the dealers margin.

Yes, but does the new car price include VAT or not? If it doesn’t include VAT I.e. VAT is added at the point of sale, what is the new price of the car?

[Deep Thought]

maz8062 said:

Yes, but does the new car price include VAT or not? If it doesn’t include VAT I.e. VAT is added at the point of sale, what is the new price of the car?

The resale price of a used one will be relative to the price, including VAT of a new one.

[CarlosFandango11]

GR_WILL said:

Bearing in mind the OP bought brand new, thereby meaning there is a VAT element to his purchase, does that mean Welshbeef was actually correct then?

If Welshbeef was correct, then you’d be able to buy a nearly new Yaris GR for under £30k...

[maz8062]

CarlosFandango11 said:

GR_WILL said:

Bearing in mind the OP bought brand new, thereby meaning there is a VAT element to his purchase, does that mean Welshbeef was actually correct then?

If Welshbeef was correct, then you’d be able to buy a nearly new Yaris GR for under £30k...

I get it, finally. There used to be a time when dealers used to make it clear that cars depreciated by at least the VAT once it left the showroom, but it seems more like a tactic to buy cars at a lower price than any actual formula involved.

[RichardAP]

maz8062 said:

CarlosFandango11 said:

GR_WILL said:

Bearing in mind the OP bought brand new, thereby meaning there is a VAT element to his purchase, does that mean Welshbeef was actually correct then?

If Welshbeef was correct, then you’d be able to buy a nearly new Yaris GR for under £30k...

I get it, finally. There used to be a time when dealers used to make it clear that cars depreciated by at least the VAT once it left the showroom, but it seems more like a tactic to buy cars at a lower price than any actual formula involved.

I agree, VAT is a red herring in terms of depreciation of new cars, however when a dealer buys a used car they will have to pay VAT on the margin they make when they resell it, which is just one of the reasons why they should be more expensive than buying privately.

[CarlosFandango11]

maz8062 said:

CarlosFandango11 said:

GR_WILL said:

Bearing in mind the OP bought brand new, thereby meaning there is a VAT element to his purchase, does that mean Welshbeef was actually correct then?

If Welshbeef was correct, then you’d be able to buy a nearly new Yaris GR for under £30k...

I get it, finally. There used to be a time when dealers used to make it clear that cars depreciated by at least the VAT once it left the showroom, but it seems more like a tactic to buy cars at a lower price than any actual formula involved.

It is entirely down to supply and demand. How much people want to buy a particular car. The waiting list for a new Yaris GR is very long so some people will pay above the list price to get one immediately, even if it’s been used a bit. High demand and low supply here.

[Hugo Stiglitz]

HocusPocus said:

Hmmm £5376 each year. Perhaps an acceptable price for the nice self satisfied sensation of a new car in year 1, but how will paying the same money feel when driving a 3 year old car throughout year 4?

With careful purchasing (Mrs HP calls it obsessive deal vulturing) I cannot recall any car ever costing me £5376pa over any extended period, and I include premium cars like ML, several E classes and AMGs or even umpteen Golfs and Minis (new or nearly new). Yes, my old roller did hit a previous owner hard, but I purchased it at the end of its depreciation curve.

No criticism of OP, but an example of the financial exploitation by the new car PCP business model creaming consumers eager to be seen in a new car. These cars are just overpriced transport white goods after all. You only have to look at open market used prices to see why.

I mean, just bought a 2 1/2yo base Skoda Octavia 115bhp under 10k miles for my son. £21k new but just paid 9.5k for a main dealer approved car. That Skoda was never really worth 21k new, not in my eyes anyway.

Which model Octavia? I'm looking for one of similar age and circa price. Where from?

[Deep Thought]

Hugo Stiglitz said:

HocusPocus said:

Hmmm £5376 each year. Perhaps an acceptable price for the nice self satisfied sensation of a new car in year 1, but how will paying the same money feel when driving a 3 year old car throughout year 4?

With careful purchasing (Mrs HP calls it obsessive deal vulturing) I cannot recall any car ever costing me £5376pa over any extended period, and I include premium cars like ML, several E classes and AMGs or even umpteen Golfs and Minis (new or nearly new). Yes, my old roller did hit a previous owner hard, but I purchased it at the end of its depreciation curve.

No criticism of OP, but an example of the financial exploitation by the new car PCP business model creaming consumers eager to be seen in a new car. These cars are just overpriced transport white goods after all. You only have to look at open market used prices to see why.

I mean, just bought a 2 1/2yo base Skoda Octavia 115bhp under 10k miles for my son. £21k new but just paid 9.5k for a main dealer approved car. That Skoda was never really worth 21k new, not in my eyes anyway.

Which model Octavia? I'm looking for one of similar age and circa price. Where from?

I assume something like this

https://www.autotrader.co.uk/car-details/202101278...

or this from a main dealer.

https://www.autotrader.co.uk/car-details/202010134...

[Deep Thought]

maz8062 said:

CarlosFandango11 said:

GR_WILL said:

Bearing in mind the OP bought brand new, thereby meaning there is a VAT element to his purchase, does that mean Welshbeef was actually correct then?

If Welshbeef was correct, then you’d be able to buy a nearly new Yaris GR for under £30k...

I get it, finally. There used to be a time when dealers used to make it clear that cars depreciated by at least the VAT once it left the showroom, but it seems more like a tactic to buy cars at a lower price than any actual formula involved.

Was there? Because they were wrong then to say that, as they would be now.

Maybe some dealers do talk about the "VAT" but its really to hide their considerable gross margin requirement.

[Hugo Stiglitz]

Deep Thought said:

I assume something like this

https://www.autotrader.co.uk/car-details/202101278...

or this from a main dealer.

https://www.autotrader.co.uk/car-details/202010134...

I've just Googled. You can get a 3yr old 2.0tdi octavia estate for 11k on 40k miles. That's bloody good

[Deep Thought]

Hugo Stiglitz said:

Deep Thought said:

I assume something like this

https://www.autotrader.co.uk/car-details/202101278...

or this from a main dealer.

https://www.autotrader.co.uk/car-details/202010134...

I've just Googled. You can get a 3yr old 2.0tdi octavia estate for 11k on 40k miles. That's bloody good

Indeed yes. Great value at that price.

[HocusPocus]

Deep Thought said:

Hugo Stiglitz said:

HocusPocus said:

No criticism of OP, but an example of the financial exploitation by the new car PCP business model creaming consumers eager to be seen in a new car. These cars are just overpriced transport white goods after all. You only have to look at open market used prices to see why.

I mean, just bought a 2 1/2yo base Skoda Octavia 115bhp under 10k miles for my son. £21k new but just paid 9.5k for a main dealer approved car. That Skoda was never really worth 21k new, not in my eyes anyway.

Which model Octavia? I'm looking for one of similar age and circa price. Where from?

I assume something like this

https://www.autotrader.co.uk/car-details/202101278...

or this from a main dealer.

https://www.autotrader.co.uk/car-details/202010134...

Exactly that Octavia 1.0 tsi S model/age in fridge freezer white but bought from the Skoda franchise in Isle of Man. The car had expired their 90 day stock financing, so needed to rid. They originally offered it for an optimistic £16k, dropping to £13k and then £10k, but agreed £9.5k for buy it now. As a solid modern cheap to own/run car it ticks the boxes, and I expect it to be worth 5-6k after another 2 years, say 2k pa cost. Compared with that new 21k car losing 11.5k over 2 1/2 years ie 4.6k pa over total 10k miles....who got the better deal?

I weep for the 21.5k the OP committed to PCP a bog standard was new a few months ago Q3 over 4 years. Such poor vfm imo.

Bought new e250d estate in 2014, 41k list paid 33k. PX value now 8.5k. Cost 24.5k over 7 years....not totally dissimilar to the OP purchase but by comparison I have driven nearly the last 3 years for free...plus I never have to fret about negative equity.

[Goates]

I've never understood the whole PCP pistonheads debate. If your passionate about cars, PCP deals are affordable and can get you into a car that you will enjoy, then why not? PCP (and leasing) has got me into some nice cars over the years, and yeah I spend more than most on cars in terms of a proportion of my income and could have used it to pay off mortgage/retired 1 year earlier etc etc, but it's what I enjoy so this is the choice I and I know others make! I get some people don't want to, which is fine, but it's the all high and mighty and "waste of money" comments that I don't get, surely it's all completely subjective and we should celebrate the fact the option is there for those who use it to enjoy their passion?!

[anotherswifty]

The Cardinal said:

Maybe I've missed some history, but some of these posts seem rather harsh.

If you genuinely don't expect to sell the car anytime soon, then it's nothing to worry about. If you want to sell soon then you are going to have to cover the difference between the actual sale value of the car and what's still owed on the finance agreement

Leasee (lessee?) doesn't own the car so can't sell.
I realise there are more conversations than to fill a dozen threads on this topic, but it's got to be fairly obvs folk are paying to rent a depreciating asset.
A lot is up to personal choice, I've only just gone into a rental after several (used) cars I've bought outright. I worked out the monthly depreciation on my motor was pretty much what I'd pay to rent somebody else's and have the benefit of a new one with manuf warranty and hopefully comparatively low maint due to age.

A lot of it is about personal choice, there's no law compelling people to enter into expensive or poor value contracts. But I'm sure the salesfolk never highlight the downsides - and sometimes don't even understand them properly. Like the poster on here in a thread who had the time and inclination to go and investigate PCPs on offer at a few dealers - one was telling him the deal had a gmfv at the end of term but the paperwork said the complete opposite and was just quoting the amount of debt at the end !

I agree with some that the PCP bubble may burst at some point or cause serious hardship to a lot of people because the market is just so inflated. New car prices are just unrealistic to own now, I might be a bit of a dinosaur but even average family cars are relatively unaffordable. Not many people have 20k+ min lying around to spend on a new car. The world moves on and I realise PCH/PCP is now the norm.

It's a bit like these poor souls who are stuck in these leasehold deals on large housing developments. If they weren't told by their solicitor (and if they were but didn't understand was the solicitor's duty to explain) then that's shocking. But to go into a leasehold deal on a house, not a flat, is unfathomable. You might want a new build but don't touch a lease with a bargepole, and walk away to another developer or buy a house on the open market. I hope the government stick to their promise to investigate, and offer them a palatable way out of these deals but I can't see that one being fulfilled any time soon.

[HocusPocus]

Goates said:

I've never understood the whole PCP pistonheads debate. If your passionate about cars, PCP deals are affordable and can get you into a car that you will enjoy, then why not? PCP (and leasing) has got me into some nice cars over the years, and yeah I spend more than most on cars in terms of a proportion of my income and could have used it to pay off mortgage/retired 1 year earlier etc etc, but it's what I enjoy so this is the choice I and I know others make! I get some people don't want to, which is fine, but it's the all high and mighty and "waste of money" comments that I don't get, surely it's all completely subjective and we should celebrate the fact the option is there for those who use it to enjoy their passion?!

I am actually pissed off in sympathy for the PCP brigade because I find the OEMs hiking retail prices to increase PCP depreciation driven cash flows morally objectionable. By all means pay for a car as your wallet allows and cut a keen deal: but don't allow OEMs to make you pay over the odds to sit in the same bit of metal as Mr Jones next door.

[Deep Thought]

HocusPocus said:

Goates said:

I've never understood the whole PCP pistonheads debate. If your passionate about cars, PCP deals are affordable and can get you into a car that you will enjoy, then why not? PCP (and leasing) has got me into some nice cars over the years, and yeah I spend more than most on cars in terms of a proportion of my income and could have used it to pay off mortgage/retired 1 year earlier etc etc, but it's what I enjoy so this is the choice I and I know others make! I get some people don't want to, which is fine, but it's the all high and mighty and "waste of money" comments that I don't get, surely it's all completely subjective and we should celebrate the fact the option is there for those who use it to enjoy their passion?!

I am actually pissed off in sympathy for the PCP brigade because I find the OEMs hiking retail prices to increase PCP depreciation driven cash flows morally objectionable. By all means pay for a car as your wallet allows and cut a keen deal: but don't allow OEMs to make you pay over the odds to sit in the same bit of metal as Mr Jones next door.

Have they though? If you take inflation in to account a Golf or Focus is broadly similar in price to what they were 20 years ago - only are faster, safer, better equiped, more economical, etc.

And its not like there arent big discounts off list. 25% off BMWs these days is almost the norm.

Conversely, you could avail of the best PCP deal incentives then pay with cash. Or avail of a 0% PCP deal.

OR, simply buy a car a few months / few years old. They're a fraction of their new car price.

Loads of ways round it - IF its actually a problem.

[Deep Thought]

anotherswifty said:

The Cardinal said:

Maybe I've missed some history, but some of these posts seem rather harsh.

If you genuinely don't expect to sell the car anytime soon, then it's nothing to worry about. If you want to sell soon then you are going to have to cover the difference between the actual sale value of the car and what's still owed on the finance agreement

Leasee (lessee?) doesn't own the car so can't sell.

The O/P has a PCP deal not a lease, so many options to exit, including selling the car.

[Hugo Stiglitz]

Goates said:

I've never understood the whole PCP pistonheads debate. If your passionate about cars, PCP deals are affordable and can get you into a car that you will enjoy, then why not? PCP (and leasing) has got me into some nice cars over the years, and yeah I spend more than most on cars in terms of a proportion of my income and could have used it to pay off mortgage/retired 1 year earlier etc etc, but it's what I enjoy so this is the choice I and I know others make! I get some people don't want to, which is fine, but it's the all high and mighty and "waste of money" comments that I don't get, surely it's all completely subjective and we should celebrate the fact the option is there for those who use it to enjoy their passion?!

If your passionate about cars.

Alot of people are buying bog standard, Audi's, Kuga's, etc for not bargain leasing costs etc.

I can't talk as I just expressed an interest in an Octavia but buying right allows you to buy other things like motorbikes and very nice bicycles and to enjoy all. Especially with a remap.

[maz8062]

The whole PCP, Lease, cash debate is down to the over inflated price of New cars financed on PCP. This is how it appears to work in my eyes:

- Inflated and over priced car sold by slick salesmen to punters happy to focus on the monthlies while dreaming that they might be blue to afford the car for the GFV
- The inflated car is now in circulation and will work its back to the dealer as an approved used vehicle. Depreciation may be 50% of its original value after 3 years but its still 50% of an over inflated price in the first place.
- 2nd hand values of said cars are still ridiculously expensive, but tend not to benefit from the same discounted finance rates enjoyed by the first PCP customer. Hence a 3/4 year old car will be a huge chunk of change and investment for a car outside of OEM warranty, and repair bills will be inevitable.
- What to do? Remortgage the house and pay £400 per month for 5 years for a 3 year old car, or lease/PCP again. Rinse and repeat.

The only way out of this merry go round is to buy a less fancied marque or buy a much older car. But then there are risks in that too.

The problem is that new cars are too expensive in the first place. BMW M8 for £130k - bog standard 911 for a £100k with options are just examples of how things have got out of hand. The world’s gone crazy.

[anotherswifty]

Deep Thought said:

The O/P has a PCP deal not a lease, so many options to exit, including selling the car.

my bad, should have gone Specsavers.