Uk Car Sales Hit Record

[Guest]

But 80% bought with finance, 3/4 of those on PCPs. These people aren't buying cars they are taking on debt! That's not good news!

http://www.bbc.co.uk/news/business-35249044

[billybong]

Tough luck if their jobs become redundant.

[rxe]

Actually these deals are pretty good if you want a new car. It isn't conventional HP, it is a lease - there is no expectation that you are taking on the full liability of the car, you are just paying a monthly sum to stick a car on your drive. You make 3 years of payments and hand the car back. Its car as a service rather than car as a capital item.

If I wanted a new car, I would do it on contract rather than buying it, even though I could afford to buy it.

Of course this presupposes you actually want a new car - which IMO is madness, but I am glad that people do, because it generates the pipeline of second hand bargains.

[TheCountOfNowhere]

Tough luck if their jobs become redundant.

Must be some bargain 2nd hand cars going about now.

[TheCountOfNowhere]

Actually these deals are pretty good if you want a new car. It isn't conventional HP, it is a lease - there is no expectation that you are taking on the full liability of the car, you are just paying a monthly sum to stick a car on your drive. You make 3 years of payments and hand the car back. Its car as a service rather than car as a capital item.

If I wanted a new car, I would do it on contract rather than buying it, even though I could afford to buy it.

Of course this presupposes you actually want a new car - which IMO is madness, but I am glad that people do, because it generates the pipeline of second hand bargains.

Surely it depends on mileage, how well you look after the car etc. And if you can't pay, they'll take it away ( that's twice i've said that today ).

All the leaser is doing is paying the cost of the depreciation for 2/3 years on cars they just can;t afford to buy.

It's win win for the car people. They are being generous.

This is being funded with 0,.5% IR loans, I guess.

The poor are rich....till they aren't.

[Sour Mash]

Actually these deals are pretty good if you want a new car. It isn't conventional HP, it is a lease - there is no expectation that you are taking on the full liability of the car, you are just paying a monthly sum to stick a car on your drive. You make 3 years of payments and hand the car back. Its car as a service rather than car as a capital item.

If I wanted a new car, I would do it on contract rather than buying it, even though I could afford to buy it.

Of course this presupposes you actually want a new car - which IMO is madness, but I am glad that people do, because it generates the pipeline of second hand bargains.

Some deals are lease where you are basically hiring the car for a couple of years (typically 2) and others are PCP where you are nominally buying it and paying it off monthly for 3-4 years followed by a lump sump after that - with the option to give the car back if you don't want to pay the lump sum.

Depending on the deal, they can make sense if your intention was to buy a new car and keep it for a relatively short amount of time before selling it. However, buying new and selling after a few years is the most expensive way possible to run a car and most people taking advantage of these finance deals don't seem to realise how much of a debt commitment they are taking on - all they care about is having a flash car with little cash up front needed and what looks like relatively low monthly payments.

[The Knimbies who say No]

Must be some bargain 2nd hand cars going about now.

On the contrary, second hand prices have been strong recently- the finance model is applied at all price points these days. Ten year old run of the mill cars I have looked at have gained not far off 50% nominal in the last few years imo.

Seems pretty nuts to me but I am clearly in a minority.

eg, we bought the equivalent age/mileage of this car seven years ago for 1600 quid, now 2,500 is the cheapest in the UK:

http://www.autotrader.co.uk/classified/advert/201512039192166?maximum-age=up_to_10_years_old&radius=1500&onesearchad=used%2Cnearlynew%2Cnew&page=1&maximum-mileage=up_to_70000_miles&model=corolla&sort=default&postcode=CH63%207TA&search-target=usedcars&make=toyota&logcode=p

Even insurance writeoffs are going for more than we paid back then, (in nominal terms)

[Sour Mash]

On the contrary, second hand prices have been strong recently- the finance model is applied at all price points these days. Ten year old run of the mill cars I have looked at have gained not far off 50% nominal in the last few years imo.

Seems pretty nuts to me but I am clearly in a minority.

eg, we bought the equivalent age/mileage of this car seven years ago for 1600 quid, now 2,500 is the cheapest in the UK:

http://www.autotrader.co.uk/classified/advert/201512039192166?maximum-age=up_to_10_years_old&radius=1500&onesearchad=used%2Cnearlynew%2Cnew&page=1&maximum-mileage=up_to_70000_miles&model=corolla&sort=default&postcode=CH63%207TA&search-target=usedcars&make=toyota&logcode=p

Even insurance writeoffs are going for more than we paid back then, (in nominal terms)

It's basically the automotive industry taking advantage of ultra cheap money courtesy of Central Bank financial repression to entice customers to spend way much more than they otherwise would have on new (or nearly new) cars.

Works great - until whatever time rates are forced up and the economy takes a steep dive and people start losing jobs and ability to service the loans.

One wonders just how far they can hollow things out by bringing forward spending through cheap credit.

Still, since none of this brought forward credit will ever be made good (there's simply too much debt for it to be repaid out of future production without grinding the economy to a complete halt) it could be that the 'live well today on borrowed money' crowd will have the last laugh.

[TheCountOfNowhere]

It's basically the automotive industry taking advantage of ultra cheap money courtesy of Central Bank financial repression to entice customers to spend way much more than they otherwise would have on new (or nearly new) cars.

Works great - until whatever time rates are forced up and the economy takes a steep dive and people start losing jobs and ability to service the loans.

One wonders just how far they can hollow things out by bringing forward spending through cheap credit.

Still, since none of this brought forward credit will ever be made good (there's simply too much debt for it to be repaid out of future production without grinding the economy to a complete halt) it could be that the 'live well today on borrowed money' crowd will have the last laugh.

Debt = spending brought forward....

low IR debt = idiot spending brought forward, followed by repossesion.

[Guest eight]

On the contrary, second hand prices have been strong recently- the finance model is applied at all price points these days. Ten year old run of the mill cars I have looked at have gained not far off 50% nominal in the last few years imo.

Seems pretty nuts to me but I am clearly in a minority.

Yeah, chanced on a very nice Alfa Mito yesterday, was almost tempted but they want six and a half grand - "or £39 per week" - for an 11 plate. Waaaay too much for what would be a second car with its best years already behind it.

[winkie]

They are in effect renting the car........to be given back in excellent order no bumps or scratches or pay, and drive too far and pay extra for each extra mile.....nervous reck driving somebody else's car.....

[rxe]

OK, lets run an example.

BMW 330e Hybrid thing - 1.5 litre engine + hybrid pack giving 3.0 performance.

List price, 33.9K in standard trim, no options. You might get a bit off that in the dealership, but unlikely, given the fact that it is new.

Business lease: £164 a month VAT, call it £200. Initial payment of £1500 + £150 fees. 8K miles a year. So over three years :£1500 + £150 + 36 x £200 = less than ten grand.

If you have £34K and are really confident that you can buy a car for £34K and then sell it for £24K three years later, then buy a new one - and that assumes you have access to zero cost finance. With a deal like that, I'd lease every time.

One wonders just how far they can hollow things out by bringing forward spending through cheap credit.

They aren't. In the "good old days" everyone had crappy old cars because finding the capital sums was hard. This is still the case. So people now have newer cars, but leased. I don't see that as "bringing forward", I see it as expanding the market.

[spunko2010]

PCP deals, at least that I've had in the past, have a fixed interest rate for the term. They are only really "worth" it if you get a 0% offer and want a new car. Ultimately there's little point in tying up cash in a depreciating asset.

The one thing that needs investigating IMO is the 'equity' ********. They try to tell you you'll have an indeterminable amount of equity in the car to use on your next purchase. In my experience that's a load of hot air and needs regulating.

[TheCountOfNowhere]

PCP deals, at least that I've had in the past, have a fixed interest rate for the term. They are only really "worth" it if you get a 0% offer and want a new car. Ultimately there's little point in tying up cash in a depreciating asset.

The one thing that needs investigating IMO is the 'equity' ********. They try to tell you you'll have an indeterminable amount of equity in the car to use on your next purchase. In my experience that's a load of hot air and needs regulating.

Yes, I agree, i've looked at the numbers and there's little in it between buying for cash and leasing.

IT'S SOMETIMES BETTER TO RENT

[winkie]

When the starting price is an already high price.......of course anyone can make renting it seem cheaper......buying outright a well cared for pre rented or scrappage three to five year old low milage car one careful owner vat free has got to be the better deal for many.

Renting is for people who want new stuff.

[Sour Mash]

OK, lets run an example.

BMW 330e Hybrid thing - 1.5 litre engine + hybrid pack giving 3.0 performance.

List price, 33.9K in standard trim, no options. You might get a bit off that in the dealership, but unlikely, given the fact that it is new.

Business lease: £164 a month VAT, call it £200. Initial payment of £1500 + £150 fees. 8K miles a year. So over three years :£1500 + £150 + 36 x £200 = less than ten grand.

If you have £34K and are really confident that you can buy a car for £34K and then sell it for £24K three years later, then buy a new one - and that assumes you have access to zero cost finance. With a deal like that, I'd lease every time.

You can nearly always negotiate a good discount if you are buying new with your own funds. I would hope for something in the region of 10% off of list unless the car was really in demand. The hassle comes when selling it so the certainty of a finance deal could make sense. That's if you really wanted to spend on a new car and keep it for only a couple of years, which makes no financial sense whatsoever unless you have so much money you simply don't care.

[TheCountOfNowhere]

OK, lets run an example.

BMW 330e Hybrid thing - 1.5 litre engine + hybrid pack giving 3.0 performance.

List price, 33.9K in standard trim, no options. You might get a bit off that in the dealership, but unlikely, given the fact that it is new.

Business lease: £164 a month VAT, call it £200. Initial payment of £1500 + £150 fees. 8K miles a year. So over three years :£1500 + £150 + 36 x £200 = less than ten grand.

If you have £34K and are really confident that you can buy a car for £34K and then sell it for £24K three years later, then buy a new one - and that assumes you have access to zero cost finance. With a deal like that, I'd lease every time.

They aren't. In the "good old days" everyone had crappy old cars because finding the capital sums was hard. This is still the case. So people now have newer cars, but leased. I don't see that as "bringing forward", I see it as expanding the market.

Or....If you only do 8K miles a year then buy a 2nd hand car for 5K and run it into the ground for 10 years...cost £1500 over three years.

As I said....the car companies are not doing anyone a favour....nor are the financiers.

It's called sales and marketing. people that could/should be spending £500 quid a year on a car are now spending £3K+

The other thing is, who only does £8K a year ? You'd be better off getting a taxi.

[Ohmyword]

PCP finance is similar in some respects to IO mortgages. With PCP, although you are making monthly payments, you are not accruing any equity in a new car. You are just paying the depreciation. At the end of the PCP deal you have nothing and walk away or start again. Like an IO mortgage, therefore, it allows you to "own" a nicer car than you could otherwise afford. Of course, the difference between new cars and houses is that new cars plummet in value by around 50% over the first 3 years, whereas we all know that houses only go up in value!

Where PCP deals are clever in my view is that they get people who might previously have run an older car to switch to a new car and to become accustomed to being in a new car. Those people don't then take much persuasion to start a new PCP deal three years later when their deal expires. After all, they get another brand new car for the same monthly payment that they have been used to paying. Of course, if you keep taking out new PCP deals you have to make those monthly payments and funding the depreciation on new cars indefinitely, but people seem to have accepted this (or haven't fully understood it). Hence new car sales are booming.

[Sour Mash]

PCP deals, at least that I've had in the past, have a fixed interest rate for the term. They are only really "worth" it if you get a 0% offer and want a new car. Ultimately there's little point in tying up cash in a depreciating asset.

The one thing that needs investigating IMO is the 'equity' ********. They try to tell you you'll have an indeterminable amount of equity in the car to use on your next purchase. In my experience that's a load of hot air and needs regulating.

The idea is to hitch the 'buyer' to a never ending chain of new finance deals. Very few people will either want to pay about 50% of the cost at the end of a PCP deal to settle the loan or will even have the means to do so if they did want to take full ownership. Of course, they'll then have to give the car back so they need a new Vehicle..... The dealership will then offer 'equity' on the old motor at the end of the finance deal if you take up another deal on a new car.

That way, the customer is perpetually servicing the costs of depreciation on a string new vehicles every 2,3 or 4 years generating sales for the manufacturer/dealer and the finance side of the operation makes a bit on top too. As long as interest rates stay low, low, low what could possibly go wrong

[rxe]

buying outright a well cared for pre rented or scrappage three to five year old low milage car one careful owner vat free has got to be the better deal for many

Of course - I wouldn't spend more than the deposit on a finance deal when looking for new wheels - the current motor cost £700 and is perfectly good. But I'm more than capable of fixing it, I can generally avoid breakdowns by looking after it and I like fiddling with stuff. But there are a lot of people out there who want a "new" car because they don't want to worry about it, and they are happy to pay for the privilege.

[spyguy]

But 80% bought with finance, 3/4 of those on PCPs. These people aren't buying cars they are taking on debt! That's not good news!

http://www.bbc.co.uk/news/business-35249044

Not quite.

Taking on debt - at quite a hefty clip - to pay for the depreciation on the car that they'll hand back when the PCP term ends.

PPI-tastic!

[19 year mortgage 8itch]

On the contrary, second hand prices have been strong recently- the finance model is applied at all price points these days. Ten year old run of the mill cars I have looked at have gained not far off 50% nominal in the last few years imo.

Seems pretty nuts to me but I am clearly in a minority.

eg, we bought the equivalent age/mileage of this car seven years ago for 1600 quid, now 2,500 is the cheapest in the UK:

http://www.autotrader.co.uk/classified/advert/201512039192166?maximum-age=up_to_10_years_old&radius=1500&onesearchad=used%2Cnearlynew%2Cnew&page=1&maximum-mileage=up_to_70000_miles&model=corolla&sort=default&postcode=CH63%207TA&search-target=usedcars&make=toyota&logcode=p

Even insurance writeoffs are going for more than we paid back then, (in nominal terms)

Please tell me more about this wonderful phenomenon of deflation.

Presumably I can drive a USB stick to work instead so the BoE aren't concerned, merely vigilant to the risk.

[nnails]

i tend to buy a 4year old or so car and run it till it does not sense to repair it . My current car is 10year old and i brought six years ago. So if i spy a good deal for 4 year old ex pcp contract hire car i might buy.

Im not against lease cars but i just feel more comfortable in knowing the fact its mine if i lose my job or dent it etc.

[winkie]

PCP finance is similar in some respects to IO mortgages. With PCP, although you are making monthly payments, you are not accruing any equity in a new car. You are just paying the depreciation. At the end of the PCP deal you have nothing and walk away or start again. Like an IO mortgage, therefore, it allows you to "own" a nicer car than you could otherwise afford. Of course, the difference between new cars and houses is that new cars plummet in value by around 50% over the first 3 years, whereas we all know that houses only go up in value!

Where PCP deals are clever in my view is that they get people who might previously have run an older car to switch to a new car and to become accustomed to being in a new car. Those people don't then take much persuasion to start a new PCP deal three years later when their deal expires. After all, they get another brand new car for the same monthly payment that they have been used to paying. Of course, if you keep taking out new PCP deals you have to make those monthly payments and funding the depreciation on new cars indefinitely, but people seem to have accepted this (or haven't fully understood it). Hence new car sales are booming.

+1....agree...some similarities to the upgrade to a new mobile phone style contract.

[19 year mortgage 8itch]

OK, lets run an example.

BMW 330e Hybrid thing - 1.5 litre engine + hybrid pack giving 3.0 performance.

List price, 33.9K in standard trim, no options. You might get a bit off that in the dealership, but unlikely, given the fact that it is new.

Business lease: £164 a month VAT, call it £200. Initial payment of £1500 + £150 fees. 8K miles a year. So over three years :£1500 + £150 + 36 x £200 = less than ten grand.

If you have £34K and are really confident that you can buy a car for £34K and then sell it for £24K three years later, then buy a new one - and that assumes you have access to zero cost finance. With a deal like that, I'd lease every time.

They aren't. In the "good old days" everyone had crappy old cars because finding the capital sums was hard. This is still the case. So people now have newer cars, but leased. I don't see that as "bringing forward", I see it as expanding the market.

Its incredible that car companies let you borrow the car for less money than it costs to buy. Even after all these years, I still can't work out who the mug is.