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Sub Prime Loans - The Real Reason Behind The Car Industry Sales Explosion

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This subject rears it's had on HPC every so often, and has done for the last 5 yrs or so.

After the crash of 2007/08, quite a few of the carmakers faced going to the wall. IIRC , the majority received massive bailouts from their respective govts. In the US and France, they were also responsible for setting up a bank/credit company within the carmaking enterprise. Literally, to lend debt into the masses to enable them to continue to sell cars. In France , there is Peugot Bank. A credit company - you can buy (sory, rent !!) a car and they lend you the money to do so. I imagine the credit checks are poor.

The revolving leasing deals mean that the average Joe will rent a car for the rest of their driving days.

I bought a new car in 2013. Very few dealerrships wanted my cash. Most said they'd get me a leasing deal on good terms...i imagine they are on big comms ? I finally bought for cash with a good discount as it was year end. Compared to the leasing final price paid, I saved about 25% on the price.

Most people I know have bought cars on the never-never these last 5 years.

Edited by Agentimmo

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I bought a new car in 2013. Very few dealerrships wanted my cash. Most said they'd get me a leasing deal on good terms...i imagine they are on big comms ? I finally bought for cash with a good discount as it was year end. Compared to the leasing final price paid, I saved about 25% on the price.

This doesn't shock me. Parents went to buy a "new" car from a main dealer last year. Haggled on price and save a measly amount on the screen price. Went to sit down to do the paperwork and the guy start going on about the lease etc so my dad stopped him and pointed out he was paying cash. With that the dealer told him no deals, for cash you pay the screen price.

In the same way that Comet used to make all it's money from the selling of insurance/warranties it seems dealers make most of their money from credit.

As for the leasing cars/never owning. I bought a 10 year old car outright last month and the people in work asked why I had not bought a new car, they can all afford it so I can too. Turns out that all these 20k BMWs and Audis are not owned but leased. One guy actually only "bought" his so he has a liability so that when his divorce goes through he has less income but doesn't actually own an asset!

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Don't think there's much read across from the US to the UK (I doubt the average finance deal on a car in the UK is over 5 years, for example). Most people who use finance for a new car purchase in the UK take a PCP deal iirc, and these terms are probably more like a 3 year average.

I am perplexed as to where all the returns from these deals will end up, the BCA monthly report linked below talks of firm prices but also increasing volumes in the past few weeks. The increasing fleet/lease return volumes I guess include unwanted PCP returns, given the popularity of PCP deals from 2012 and the typical terms of 2-4 years it seems like there will be higher numbers in future too. I do not know if model mix is accounted for in the average prices so beware.

http://www.british-car-auctions.co.uk/en/About-Us/Latest-News/10th-November---BCA-Pulse-Average-values-reach-record-levels-in-October/

Edited by Cry and Regret

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i typed my car reg in to parkers the other day. for my 10year old car is gone down in price by £200 from two years ago

it just not worth replacing it till somethig major breaks.

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Old cars don't depreciate and don't break much for some lucky people. All the ones I had did plenty of both. I would estimate my losses across 3 cars and period of 10 years of about £2k per year on average. Plus there was additional stress of selling them at the end.

So now I happily lease a car which I wouldn't be able to afford otherwise. If I wanted to save money, I would lease a cheaper one - there are some lease deals which are under £150 pm. You also get warranty, better safety, better fuel consumption and better performance!

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If I did more miles I'd definitely consider leasing.

There are some cracking deals around - a Golf R for circa £200 a month for instance. I can't see why you would buy a car like that when you can lease it for less than the depreciation.

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Try to do as few as possible of anything that costs 'so much' a month........it is all these extra monthly so called small payments out that add up, compounded. ;)

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Try to do as few as possible of anything that costs 'so much' a month........it is all these extra monthly so called small payments out that add up, compounded. ;)

Yes, if you go out and spend five hundred quid or ten thousand quid that is what you have done, end of story, whats done is done, it's over. but if you sign up for twenty quid a month and a hundred quid a month there etc., it becomes never ending.

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If I did more miles I'd definitely consider leasing.

There are some cracking deals around - a Golf R for circa £200 a month for instance. I can't see why you would buy a car like that when you can lease it for less than the depreciation.

Plus an upfront payment, no?

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my dad stopped him and pointed out he was paying cash. With that the dealer told him no deals, for cash you pay the screen price.

At which point your dad hopefully walked out?

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It's so much cheaper though isn't it to pay a small amount a week instead of all that money to buy a car?

No.

Look at the small print and APR for a lease.

It's the same logic for people that take washing machines , tvs etc on HP.

Only poor people now have to lease these white goods.

Same for cars for the majority of people these days, imo. If you have to lease a car, then you are poor. You just don't realise it yet ;)

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Nobody in their right mind buys a new car for money these days. Everything is leased - a mate at work is paying £500 a month for the privilege of swanning about in a BMW 530D. Despite shelling out £18K over 3 years + the initial deposit, he's happy. He gets a nice shiny car that would otherwise be unaffordable - he doesn't have £43K in readies + the price of options.

If I want a nice reliable car for the missus, I effectively buy his cast offs for cash. 3 years depreciation done, well maintained car, that we then keep for 10 years. My cars - well, I either get the her cast offs (I'm currently driving her 51 plate V6 and very nice it is too), or buy something knackered for a few hundred quid and fix it up. I do all my own spannering, which makes bangernomics a no brainer.

However, modern cars are starting to get some frighteningly complex electronics on them, and really complex gearboxes,etc - can you imagine how much a 7 speed semi-auto costs to fix/replace?

Modern cars are much, much easier to fix as long as you have a laptop and preferably an oscilloscope. All of the mechanical parts are "fitter grade" - you unscrew the broken bit and you screw on a new bit. In the old days you had shims and stuff. The electronics is generally reliable and tells you what is wrong. The secret to the "7 speed gearbox" question is to do your research, and not to buy cars with unproven components. Simple example - the auto box used in the Alfa 156 (not Selespeed) - Alfa + auto box, got to be a disaster? Not at all - the box is Japanese, and good for 400HP (double the Alfa output) and never, ever breaks.

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My 6 year old Focus is up for cam belt, brakes and a service.

I'm looking at about £550 out the door. Plus its starting to feel like a 6 year old Ford if you know what i mean.

I could get about £4-5k for it i guess.

Am considering using my bit of George and Dave's hush up WTC to cover the cost of this.

Quite a few tasty deals there it has to be said. Ignore the huge up front payments, and choose 3 months from the drop down.

http://www.nationalvehiclesolutions.co.uk/Audi-A4-SALOON-%282015%29-1.4-TFSI-Sport-Personal-Lease/41920

My only concern on these deals, having had one before, is that i would fret over every little scratch and bump, due to bad headed wear and tear assessors, when it's time to hand it back.

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Nobody in their right mind buys a new car for money these days.

Nobody with little, and works hard for what little they have, so the little they do have they value, in their right mind does not, or will ever buy a new car, they leave others more flushed to do that for them....period. ;)

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No.

Look at the small print and APR for a lease.

It's the same logic for people that take washing machines , tvs etc on HP.

Only poor people now have to lease these white goods.

Same for cars for the majority of people these days, imo. If you have to lease a car, then you are poor. You just don't realise it yet ;)

Nah, not really.

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No.

Look at the small print and APR for a lease.

It's the same logic for people that take washing machines , tvs etc on HP.

Only poor people now have to lease these white goods.

Same for cars for the majority of people these days, imo. If you have to lease a car, then you are poor. You just don't realise it yet ;)

No. If you shop around, you can find plenty of lease deals with monthly payments (even taking higher initial payment into account) lower than depreciation over the same period of time. APR doesn't matter as much as assumed residual at the end of the term. If for whatever reason the residual value assumed by finance company is high, the payments are low.

I am not saying that lease is always cheaper than buying but there are times when it is. Golf R mentioned above was one of these times.

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I can't understand how so many people have been seduced by Personal Contract Purchase deals. It's a well known fact (or it should be) that depreciation on new cars is catastrophic. They will typically lose around 50% of their value over the first 3 years, so on a £20k new car £10k goes up in smoke. After that the depreciation curve flattens considerably. Yet somehow, the car industry has managed to persuade more people than ever people to buy brand new cars and to borrow the money to pay for that depreciation over three years (which is what PCP is). At the end of the three year period you don't own the car and have no equity in it. You have just spunked all your money on the depreciation.

The clever bit (from the car manufacturers' and retailers' perspective) is that presumably few people have the means or inclination to buy the car after three years (by paying the Guaranteed Future Value of the car) so most just sign up to another 3 year PCP deal on another brand new car, again financing the first three years depreciation. And so the cycle continues.

I know that many people are scared of the unexpected repair bills that can come with running older cars, but you could finance several engine rebuilds with the amount people are spunking on PCP payments. If you are so flush that you would probably be buying a new car every three years anyway, I'm sure PCP makes sense, but otherwise it seems like madness to me.

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I can't understand how so many people have been seduced by Personal Contract Purchase deals. It's a well known fact (or it should be) that depreciation on new cars is catastrophic. They will typically lose around 50% of their value over the first 3 years, so on a £20k new car £10k goes up in smoke. After that the depreciation curve flattens considerably. Yet somehow, the car industry has managed to persuade more people than ever people to buy brand new cars and to borrow the money to pay for that depreciation over three years (which is what PCP is). At the end of the three year period you don't own the car and have no equity in it. You have just spunked all your money on the depreciation.

The clever bit (from the car manufacturers' and retailers' perspective) is that presumably few people have the means or inclination to buy the car after three years (by paying the Guaranteed Future Value of the car) so most just sign up to another 3 year PCP deal on another brand new car, again financing the first three years depreciation. And so the cycle continues.

I know that many people are scared of the unexpected repair bills that can come with running older cars, but you could finance several engine rebuilds with the amount people are spunking on PCP payments. If you are so flush that you would probably be buying a new car every three years anyway, I'm sure PCP makes sense, but otherwise it seems like madness to me.

One of the other clever bits is that there are PCP deals on 'approved' used stock too, I guess a lot of these cars are themselves PCP returns. Sell the same car on finance, twice.

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Plus an upfront payment, no?

..... Those who lease nearly always leave out the upfront payment - anything from 3 to 9 months, with 9 being more typical as it lowers the cost of the remaining 23. The 'monthlies' don't look quite so tempting when you factor it in and divide by 24. It's often referred to as a 'deposit' by said people, even though it's nothing of the sort.

Unless some team of acountants have done their sums wrong (possible but unlikely) or there is some sort of 'black swan' event that hits secondhand value (VW scandal maybe) it invariably works out more expensive than buying and taking a depreciation hit upon selling.

On the other hand, if you were genuinely interested in changing your car for a new one every two years then the premium might be worth paying for the fixed price of ownership and convenience of not having to haggle when selling/trading in for the next.

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Nobody in their right mind buys a new car for money these days. Everything is leased - a mate at work is paying £500 a month for the privilege of swanning about in a BMW 530D. Despite shelling out £18K over 3 years + the initial deposit, he's happy. He gets a nice shiny car that would otherwise be unaffordable - he doesn't have £43K in readies + the price of options.

If I want a nice reliable car for the missus, I effectively buy his cast offs for cash. 3 years depreciation done, well maintained car, that we then keep for 10 years. My cars - well, I either get the her cast offs (I'm currently driving her 51 plate V6 and very nice it is too), or buy something knackered for a few hundred quid and fix it up. I do all my own spannering, which makes bangernomics a no brainer.

Modern cars are much, much easier to fix as long as you have a laptop and preferably an oscilloscope. All of the mechanical parts are "fitter grade" - you unscrew the broken bit and you screw on a new bit. In the old days you had shims and stuff. The electronics is generally reliable and tells you what is wrong. The secret to the "7 speed gearbox" question is to do your research, and not to buy cars with unproven components. Simple example - the auto box used in the Alfa 156 (not Selespeed) - Alfa + auto box, got to be a disaster? Not at all - the box is Japanese, and good for 400HP (double the Alfa output) and never, ever breaks.

I think this is true. My 2005 nissan almera was last run before they stopped making them. You would have though they would have ironed all the bugs out in the 10 years previous Been really reliable and i got it at good price as dealership wanted rid of them.

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