Monday, Jan 05, 2009
Time to kiss that 4x4 goodbye
Daily Mail: Now negative equity stalks CAR owners
Thousands of motorists who bought cars on hire purchase are handing them back to finance companies because they face being left in 'negative equity'.
Experts say the shortfall between what is owed on loans for cars and their value could add up to a staggering £272million across the UK.
The problem is particularly affecting those buyers who have opted to buy their vehicles on personal contract purchase deals, which totalled £2.13bn in 2007. Buyers make regular payments for two years and then a final 'balloon' payment based on the estimated value of the car.
But plunging second hand prices mean a two year old Volvo XC90 or BMW750i is worth almost 50% less than the predicted value, leading many buyers to simply hand in the keys.
Posted by little professor @ 08:07 PM (988 views) Add Comment
25 Comments
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1. drewster said...
I always thought the final "balloon" payment was optional?
I find it hard to feel sympathy for these people. If your income is so uncertain, why would you buy such a huge car in the first place? I'd quite like an XC90 if I could afford to run it!
"A two-year-old Volvo XC90 with a predicted value of £18,775 now has an actual value of £12,600, a shortfall of £6,175."
Hmmm, the cheapest two-year old model on AutoTrader is £16,995. They're pretty thirsty cars with a maximum of 34mpg (diesel), 24mpg (petrol).
"A 2006 BMW 750i with a predicted value of £22,400 is now worth just £15,600, a drop of £6,800 or 44 per cent."
Ok that one is true! Again they are rather thirsty beasts, 39mpg (diesel) or 28mpg (petrol). The servicing costs on cars like that are generally shocking too, not to mention insurance.
2. Rentedroof said...
As some of the comments on the article say, the journalism is just plain wrong. PCP deals insulate the car user from the need to pay the final balloon payment, it's "optional"!!!!
The Daily Mail is a worthless and dangerous rag written by and for morons. FACT
3. str 2007 said...
I know an estate agent who was in negative equity on an X-Type Jag. The only way out of his negative equity situation (apparently) was to change it for an S Type Jag. £500 per month !! But it's ok 'cause 2009 can't be any worse than 2008.
His words not mine.
Oouch - should have gone to HPC.
4. paul said...
I've only once ever owned a car - it was given to me. I didn't rate the experience, and don't miss it since moving to grubby London.
I have lots of bicycles though. Cycling is the most efficient transport - the joules needed to locomote are lower than for any transport known to man.
This could be deflation if the drops are sustained - are second hand car prices usually this sensitive to downturns?
5. crunchy said...
I wonered why the sea level was getting higher lately.
Is it a race to sink your car or boat for the insurance payout?
6. paul said...
Indeed crunchy. Insurance payouts on nequity cars - if only houses moved around at such speeds for their owners.
7. crunchy said...
3. paul said...are second hand car prices usually this sensitive to downturns?
In a word, yes. Prestige cars depreciate the most.
Ten year old runabouts that have been well looked after are the best at holding value.
8. crunchy said...
5. paul
Houses are different they only go up in value.Honest Guv!
9. crunchy said...
Some would consider buying the likes of an e-type jag in a downturn to sell on in the future. As an asset, pending on condition it could be worth between 5k to 30k.
It's nice sometimes to have an asset that does not have a fixed price. : b
10. waiting patiently said...
The final payment on this type of deal is generally (if not always) optional. The people handing in the keys are making a rational decision and are actually doing quite well out of the deal. It is the dealerships that are getting hammered as they are in effect buying these cars at guaranteed inflated prices. The dealerships are caught in a pincer movement of 'buying' second hand cars at inflated prices and not being able to sell new ones due to the lack of demand. This is unsustainable and will result in dealerships going bust.
11. waiting patiently said...
The final payment on this type of deal is generally (if not always) optional. The people handing in the keys are making a rational decision and are actually doing quite well out of the deal. It is the dealerships that are getting hammered as they are in effect buying these cars at guaranteed inflated prices. The dealerships are caught in a pincer movement of 'buying' second hand cars at inflated prices and not being able to sell new ones due to the lack of demand. This is unsustainable and will result in dealerships going bust.
12. drewster said...
waiting patiently,
Thanks for the clarification. I understand this has been happening in America for a while now, the dealerships are stuck with vast lots of expensive inefficient SUVs but the public only want to buy cheap reliable runabouts.
13. nopensionnohouse said...
I am astonished that new cars are dropping in value instead of increasing. This has never happened before… /sarcasm.
If this is news to you then sorry, you are a financial retard and probably have other things more pressing to worry about… that is if you have half a brain to figure it out!
Oh well, looks like some of us savers will be picking up bargain cars with our bargain houses in the next couple of years.
Who said savers and STR’s are in a bad position… alright it could be better but it sure beats the alternative which is expensive per month lease deals (silly idea), credit and store card debt and houses in negative equity.
What is the world coming to?
14. crunchy said...
12. nopensionnohouse said...What is the world coming to?
The world is coming to you! nicepensionnicehouse.
15. This comment has been removed as it was found to be in breach of our Blog Policies.
16. nopensionnohouse said...
You can be such a troll sometimes Crunchy. If that's your real name!
17. crunchy said...
Who would ever call there kid Crunchy or there boy Sue!
I was being nice, take it for that.
18. it_is_going_with_a_bang said...
The article makes a point with 2 "petrol guzzlers" the BMW 750i and a Volvo XC90, very expensive cars to buy in the first place.
Anyone who could afford to buy one of these on whatever terms doesn't get any sympathy from me anyway.
They are nearly all optional final payments as far as I know so the only people in trouble are the finance company.
"forced" to hand back the keys??? Being able to wash your hands of debt seems quite reasonable to me - hardly a reason not to take out a PCP as stated in the article, if anything its a good reason to take one - infact it has always been one of the selling points of such a product!!!
19. will said...
Even if you are allowed to hand the keys back under the contract, I bet the finance companies will blacklist those who do.
20. Kenhay said...
I have an XKR due for a 42k ballon in December 2009. I can decide then if I want to just give it back-or leverage a deal with the dealer on a new car.
It would be nice if it were worth more than my ballon-but if not then I have a choice. When all said and done, I loose on my house, my investments and my car! We are in recession and these things happen!
People should concentrate on those people who are not as fortunate as myself or anyone else able to purchase expensive cars-they don't have choices!
21. p. doff said...
19. will said...''Even if you are allowed to hand the keys back under the contract, I bet the finance companies will blacklist those who do''
Don't think so. A friend of mine has just handed back his X5 as the required balloon payment was substantially more than it was worth. He has just bought another new car on a similar finance arrangement.
I suppose it's a bit like just renting a car really.
22. str 2007 said...
Although I own my cars which is nice (not have hundreds a month going out) I have looked at these packages and though not into finance myself they do seem to make a certain amount of sense.
You always need a car, you just pay for the depreciation in arrears not advance. IE you buy a car after owning it not before (if that makes sense).
Add up the monthly figures and it still is a large sum over 3-4 years but the headline 'New Saab for £199 per month' etc is enticing.
Further I take it this 'potentially more sensible' way of buying our vehicles would show up in our countries indebted figures.
We've made big play of us being in debt to the tune of £1.4 trillion excl mortgages (I think that's right). But if that figure and it's growth includes the change over from company cars (which wouldn't show in the figures) to Car Allowance and new vehicle purchase on PCP which I assume would show on the figures. Then perhaps the £1.4 trillion paints a grimmer picture that it is.
23. nopensionnohouse said...
Crunchy - You were being nice? My bad. You should have called me nopensionnicehouse!
24. crunchy said...
I was told ones nice house is ones pension. D'oh.
25. Kruador said...
You expected the car not to depreciate? More fool you.
If you had the money you shouldn't have taken out a PCP anyway. I got conned into one - after six months 'repaying' the loan, the cost to pay it off was more or less the same as if I'd just paid cash outright.
Anyway, since it didn't look like I was going to need the house deposit any time soon, I paid off the loan because I planned to keep the car after the PCP period.