BoE investigates 'terrifying' rise in borrowing to fund new car purchases

[The Knimbies who say No]

On 15/04/2017 at 6:45 AM, Ah-so said:

The cyclical dip in prices is expected next year and should continue into 2019. The number of ex PCP coming onto the market then will grow from current levels. 

And while it sounds like a plausible theory that the manufacturers are deliberately scrapping old vehicles, they would take a huge loss. The PCP deals appear to be good value and the pricing is predicated on being able to sell the asset at the end of 5 years. 

I've been waiting for the PCP bubble to die for while now, the FCA reports for PPI refunds seem to be finally dropping off, although still a considerable slew at over a couple of hundred million quid a month:

 

https://www.fca.org.uk/consumers/payment-protection-insurance/monthly-ppi-refunds-and-compensation

The language from the BoE is about aggregate asset values and that makes me concerned as it's the same line of thinking which begats HPI protecting housing policies.

 

The GFV of a car in a PCP should protect people who take the deals out. Of course, the real issue is that come the end of the PCP people are often reliant on handing back a car whose actual residual value is far enough above the GFV to provide the deposit on the next one without having to stump up the cash.

The car company will have to eat the GFV related loss if the PCP returns car parc drops in value en masse, but more than that is the fact they don't get a corresponding new sale either in many instances.

[Noallegiance]

11 hours ago, nnails said:

My work mates are like that. I tried to explain that they pay 200 quid a month after 9 months they would own my car easily. No worry about meeting payments if you lost job etc. After 3 years I would have saved 5k and they would still not own it.

Problem with that. Vast amounts of people don't have £1800 up front.

[Ah-so]

1 hour ago, The Knimbies who say No said:

I've been waiting for the PCP bubble to die for while now, the FCA reports for PPI refunds seem to be finally dropping off, although still a considerable slew at over a couple of hundred million quid a month:

 

https://www.fca.org.uk/consumers/payment-protection-insurance/monthly-ppi-refunds-and-compensation

The language from the BoE is about aggregate asset values and that makes me concerned as it's the same line of thinking which begats HPI protecting housing policies.

 

The GFV of a car in a PCP should protect people who take the deals out. Of course, the real issue is that come the end of the PCP people are often reliant on handing back a car whose actual residual value is far enough above the GFV to provide the deposit on the next one without having to stump up the cash.

The car company will have to eat the GFV related loss if the PCP returns car parc drops in value en masse, but more than that is the fact they don't get a corresponding new sale either in many instances.

I agree largely with this assessment of the market. 

The leasing companies build in a 10 to 20% buffer at the end of contract and it is only if the price of 2nd hand motors falls sharply that they run a risk. Consumers seem to be happy to give up their cars and switch to a new one and overlook this margin. 

Because car companies are effectively making margins out of these financing arrangements, it actually subsidises the cost of new cars - these are apparently now artificially cheap as the manufacturers expect to make it up on the financing. 

[Noallegiance]

As an addendum to my previous comment I decided to look up a 'deal' for a 17 plate Ford Focus.

£4500 up front

£189 per month

£5800 after three years if you want it

So, perhaps folk do have £thousands up front? Or maybe they borrow that as well?

If I had £4500 'up front' I'd just..... ya know..... buy a car. A nice one, too for that sort of price.

 

Edited April 18, 2017 by Noallegiance

[Bear Hug]

1 hour ago, Noallegiance said:

As an addendum to my previous comment I decided to look up a 'deal' for a 17 plate Ford Focus.

£4500 up front

£189 per month

£5800 after three years if you want it

So, perhaps folk do have £thousands up front? Or maybe they borrow that as well?

If I had £4500 'up front' I'd just..... ya know..... buy a car. A nice one, too for that sort of price.

 

You have obviously not tried very hard in your search. You can get £250 upfront + £178 pcm (over 2 years) if you actually bother to look.

[The Knimbies who say No]

3 hours ago, Ah-so said:

I agree largely with this assessment of the market. 

The leasing companies build in a 10 to 20% buffer at the end of contract and it is only if the price of 2nd hand motors falls sharply that they run a risk. Consumers seem to be happy to give up their cars and switch to a new one and overlook this margin. 

Because car companies are effectively making margins out of these financing arrangements, it actually subsidises the cost of new cars - these are apparently now artificially cheap as the manufacturers expect to make it up on the financing. 

I'd love to know how much of the PPI refunds were/are used to pay balloon payments rather than deposits.

Maybe skint people having to hand back their PCP motors, with no ongoing transport, will constitute a fertile market for the growth of driverless car hire models in future.

Could be run on a similar annual mileage basis too.

[Venger]

14 hours ago, nnails said:

My work mates are like that. I tried to explain that they pay 200 quid a month after 9 months they would own my car easily. No worry about meeting payments if you lost job etc. After 3 years I would have saved 5k and they would still not own it.

Not everyone wants an old motor.  

Not everyone lives in fear of losing their job.

You only live once.

There is no need for anyone to get permission from the 'superiors'... and when they don't, they are not automatically 'brainwashed victims.'

People are free to choose, and some of these PCP sound okay to me.   

Plenty of HPIers/BTLers tell me of my renting losses, every year against new peak HPI+ glory, but I still rent against housing financialistion.

Quote

 

Pablosammy said:
PCP isn't inherently evil, although evil people often use it to pull the wool over the uninitiated's eyes.

As long as you do the sums, work out the total cost of ownership, and compare it against other available finance options, it's a perfectly valid way of owning a car. It's just a finance product, ultimately, and a relatively simple one at that.

Yes, of course a £3k used Fiesta is cheaper to own than a C Class Merc on PCP, but some people don't mind paying more for a bit of luxury and a warranty. They're not idiots, they're not uninformed, they just made a different choice. The self-righteousness on here can be suffocating at times.

 

 

[nnails]

45 minutes ago, Venger said:

Not everyone wants an old motor.  

Not everyone lives in fear of losing their job.

You only live once.

There is no need for anyone to get permission from the 'superiors'... and when they don't, they are not automatically 'brainwashed victims.'

People are free to choose, and some of these PCP sound okay to me.   

Plenty of HPIers/BTLers tell me of my renting losses, every year against new peak HPI+ glory, but I still rent against housing financialistion.

 

All true.  Do you know if car insurance is included in cost in pcp deals? Could that could have big effect if your 20 year old

I do remember seeing one car advert with car insurance included. Citeron maybe?

[darkmarket]

52 minutes ago, Venger said:

People are free to choose, and some of these PCP sound okay to me.   

Aside from the question of individual choice, it's when the total lending gets to a scale that represents a systemic threat to economic stability in the event of widespread defaults that it creates a problem. I haven't seen a figure for the UK, but for the US it just passed $1tn. There's no strong argument for a too-big-to-fail situation, but you never know what good ideas people might come up with.

[nnails]

I'm 40 and when I was 20 none of my friends or work colleagues at new cars. It was just something we could not do. And yes they where troublesome mechanical and did rust but both these are so less likely to happen now.

The financial world just seemed less complicated then. If you did not have cash you just had to make do as loans were harder Co come by?

[RushRoad]

When will we get to the stage where you can walk up to almost any parked car and unlock it with your smartphone and pay 30p a mile to drive it?

I suspect that's what will happen with self drive vehicles

[darkmarket]

46 minutes ago, nnails said:

I'm 40 and when I was 20 none of my friends or work colleagues at new cars. It was just something we could not do.

I think financial models in retail have become more sophisticated, especially the iPhone being sold on monthly installments through carriers was seen as an innovation without which it wouldn't have been possible to bring to market.

[jfk]

On 17/04/2017 at 9:56 PM, nnails said:

Just out of interest.  Do the pcp include insurance if you loss your job ?

This is very interesting - I imagine there's some sort of extra insurance premium, but I bet most people don't look at it as it would add, what another £20-50 per month? I have no idea, just made that figure up.

Anyway, interesting moot point as I know someone who's neighbour has a car on finance, they work basic non-skilled work (factory warehouse job, but nightshift so extra dosh), neighbour seemed to have been out of work for at LEAST 6 months. Car hardly moved off the parking space, they were looking well stressed out towards the end (has a new job but must be more of the same).

[wheresitgoing]

Hi just a few thoughts from my own experience working in leasing a few years ago

1. Leased vehicles are NOT subject to VAT as they are owned by the lease co - that gives them an instant 20% discount to play with - not to say the bulk deal discounts with manufacturers

2. All leasing companies are owned by banks - e.g. Lex is Lloyds and returns are huge - e.g. I could see the huge differrence on borrow rate vs lending rate on the system

3.Included maintenance is a huge source of profit for the leasing firm as they bulk negotiate huge discounts on things like tyres and maintenance - which are a ripoff in the uk but they  are passed onto the lease consumer.  Also cars are too complex for cheapo joe mecanic to fix - for decades now, you need a laptop to service a BMW.  I think the mugs are members of public who buy their own tyres for 150 a corner and pay 200/hr main dealer labour rates when a lease co pays a fraction of these costs.

4. I've always been of the "buy a used car and run into ground" but I have had odd 1-2k bill here and there  Also with cam belt changes and dpf and it is a serious risk.   - I'm not sure people do keep track of the real motoring costs.

5. A plug in hybrid is an fantastic company car tax dodge. the PTB will soon change this so enjoy while you can

6. All returned lease vehicles went straight to special auctions - often within hours of the vehicle being returned and inspected.  Vehicles can be sent to areas where they fetch higher prices - all worked out by computer.  Although I did hear ideas of converting some cars like Citroens to LHD and flogging in the continent - must be low volume if this really happens

7. Yes I agree that there was a concern of a rush of such vehicles hitting the market following the APPRECIATION of used cars that took place during the recession years which bolstered lease co profits yet further then.  Don't worry - new diesel and petrol regs will trigger a rush on new vehicles.

8. Soon, you will be considered a mug following my old tradition of running a car till it does not run.  Many of us on here think renting is great so why not with cars?  My next car will be leased with maintenance - fixed price - NOTHING to worry about  

 

[Noallegiance]

6 hours ago, Bear Hug said:

You have obviously not tried very hard in your search. You can get £250 upfront + £178 pcm (over 2 years) if you actually bother to look.

Ooooooooh!

You're right though. I'm not bothered at all. 

[WinstonSmith]

It's nothing to do with self-righteousness, it's merely the observation that people are paying through the nose for long term car hire. Most of them won't even have carried out a cost//benefit analysis. 

 

People are free to make all manner of bad decisions, but then not one person on here has argued they shouldn't be. The straw manning on this thread is comical.

 

As for not having to worry about problems with a long term hire, there's nothing to worry about with a three year old Kia that still has four years on its warranty and can be extended.

 

The "prepared to pay more for luxury" argument is hilarious by the way. The interior of the average new mercedes these days is far worse than a Kia, ford, Hyundai etc. The era of windup windows is gone, what was once luxury is now standard.

[The Knimbies who say No]

7 hours ago, RushRoad said:

When will we get to the stage where you can walk up to almost any parked car and unlock it with your smartphone and pay 30p a mile to drive it?

I suspect that's what will happen with self drive vehicles

tantalising prospect really. If people are happy to pay £200 / month plus fuel and maintenance, to cover up to 10,000 miles per annum (Approx cost of Focus PCP deal) then would they be happy to pay similar for 10,000 miles of driverless car miles?

[dougless]

7 hours ago, wheresitgoing said:

Hi just a few thoughts from my own experience working in leasing a few years ago

1. Leased vehicles are NOT subject to VAT as they are owned by the lease co - that gives them an instant 20% discount to play with - not to say the bulk deal discounts with manufacturers.

That's very interesting and I hadn't factored that in.  I can't imagine the government are going to be very happy if leasing becomes the norm.

[Errol]

8 hours ago, RushRoad said:

When will we get to the stage where you can walk up to almost any parked car and unlock it with your smartphone and pay 30p a mile to drive it?

I suspect that's what will happen with self drive vehicles

You want to drive a car after Mr. Smith has been in it, sneezing everywhere and picking his nose and probably reeking of body odour?

[Little Frank]

29 minutes ago, Errol said:

You want to drive a car after Mr. Smith has been in it, sneezing everywhere and picking his nose and probably reeking of body odour?

You could always get a tram, train or bus Errol.

[RushRoad]

32 minutes ago, Errol said:

You want to drive a car after Mr. Smith has been in it, sneezing everywhere and picking his nose and probably reeking of body odour?

 

Mr Reek will find that if his ratings go down he will pay more to access self drove vehicles or won't have access at all.

Also people accept using trains trams tubes with Mr Reek so I don't see a problem there.

I suspect when it happens we will see these types of problem easily managed. For instance a self drove car might drive to a cleaner who spends 10 minutes cleaning and washing the car for £2 and has a constant steam of cars arriving times by algorithm

If cars are tended to this way once a week that's probably better than most cars and public transport.

A self drive car could perhaps do 2,000 miles a week used for 2 years and then scrapped. At 30p a mile that's £60k for a car over it's 200,000 mile two year life. £20k goes to fuel say £15k to buy the car and the manufacturers have a massive £25k to pay other bills and earn a huge margin. Competition could push the 30p a mile rate towards 20-25p but whoever gets their first and has some time ore competition is going to male huge profits

It also allows electric cars to be viable. Instead of running them for 20 years to do 200,000 miles the Self Drive EV could do it in two years and get their savings over two years.

A good diesel or petrol would cost £20k in fuel while the electric car maybe £4k. Making that saving over 2 years rather than 20 has a big financial benefit and will male EVs more viable.

Also potentially it's easier to replace the EVs batteries at year 2 and use it for another 2 years and 200,000 miles. So instead of spending £30,000 on a new EV costing 15p a mole over 200,000 mile life maybe the battery will be replaced for £10,000 costing 5p a mile for the second half of its life.

So overall £30k EV + £10k battery replacement at year 2 to allow 400,000 miles life over 4 years. 10p a mile averaged out.

[wsn03]

2 hours ago, Errol said:

You want to drive a car after Mr. Smith has been in it, sneezing everywhere and picking his nose and probably reeking of body odour?

I'm with you on this. The amount of people I know who won't use public transport just because it means sitting on seats used by other people is crazy - they'd rather queue in traffic. Then there's the hassle of picking up / dropping off the car etc - it will need to be checked over etc. Not the same as just walking to your space and firing up the car.

I've just been to a main dealer this morning, part of a recall thing for my 7 year old car. The dealer has the nice swanky showroom. You walk into an area full of comfy chairs and some very young bloke in a trendy suit comes to ask you if he can help. No service desk or parts counter any more.

I was looked after by some young girl (trendy) who kept telling me everything was "fantastic", whilst cool hip / trendy music blurted out loudly from the showroom speakers.

If I was their age I would be a bit too bitter to be that upbeat. I had a free education and bought a house as a fairly modest part of my outgoings. True I didn't buy or lease new cars, but I wasn't being duped into all that credit, otherwise who knows what might have happened. There is nothing "fantastic" about this. I wonder when the whole tide is going to turn, when young people will start realising they've been had? Or will they be too wrapped up in all the available credit, justifying all the commentary from their parents about how financially reckless they are?

Still, it all comes home to roost - name me anyone now who can actually look forward to their kids leaving home?

Edited April 19, 2017 by wsn03

[Errol]

2 hours ago, Little Frank said:

You could always get a tram, train or bus Errol.

Slightly different in that they are public venues. People can see you quite clearly. This stops a lot of the very filthy stuff from taking place.

In a rented car people will do all sorts of stuff, knowing that nobody can see them. Although I suppose they could fit CCTV - but then would you want to hire a car with built in CCTV/recording?

[Venger]

6 hours ago, WinstonSmith said:

It's nothing to do with self-righteousness, it's merely the observation that people are paying through the nose for long term car hire. Most of them won't even have carried out a cost//benefit analysis. 

People are free to make all manner of bad decisions, but then not one person on here has argued they shouldn't be. The straw manning on this thread is comical.

As for not having to worry about problems with a long term hire, there's nothing to worry about with a three year old Kia that still has four years on its warranty and can be extended.

The "prepared to pay more for luxury" argument is hilarious by the way. The interior of the average new mercedes these days is far worse than a Kia, ford, Hyundai etc. The era of windup windows is gone, what was once luxury is now standard.

How do you know you?   That's casting 100,000s of adults with PCP deals as lessor than you, or stupid, and hints at them being victims of finance companies.

I suggest many of them could be far smarter than you are, and perhaps with higher disposable incomes.

All cars are expensive to run.   Fuel and insurance.  

Everyone can weigh up a monthly lump of £120-£300+ PCP/lease payment against their incomes before they proceed to sign for a nice modern car.  

They can weigh up possible cost-saving advantages of saving for a few months and buying an older car.  

It's pretty simple.

Doesn't need those who believe themselves to be ultra-superior and in the top 5% of thinkers to cast everyone else as so stupid incapable of making basic informed decisions.   Or sneery people who believe their older South Korean marque is car so much better than those buying new Mercs not getting same value for money.

Choice.  I defend it.   

On this thread we have people asking what happens if individuals if they are in a change of circumstances, and finance company not being able to recover debts against them because the person now doesn't have the flash new motor to get to work.  

[WinstonSmith]

27 minutes ago, Venger said:

How do you know you?   That's casting 100,000s of adults with PCP deals as lessor than you, or stupid, and hints at them being victims of finance companies.

I suggest many of them could be far smarter than you are, and perhaps with higher disposable incomes.

All cars are expensive to run.   Fuel and insurance.  

Everyone can weigh up a monthly lump of £120-£300+ PCP/lease payment against their incomes before they proceed to sign for a nice modern car.  

They can weigh up possible cost-saving advantages of saving for a few months and buying an older car.  

It's pretty simple.

Doesn't need those who believe themselves to be ultra-superior and in the top 5% of thinkers to cast everyone else as so stupid incapable of making basic informed decisions.   Or sneery people who believe their older South Korean marque is car so much better than those buying new Mercs not getting same value for money.

Choice.  I defend it.   

On this thread we have people asking what happens if individuals if they are in a change of circumstances, and finance company not being able to recover debts against them because the person now doesn't have the flash new motor to get to work.  

Interesting that you (predictably) responded, you are after all the chief exponent of the straw man on here.

 

My iq places me in the top five percent so no need for you to suggest anything. What about yours?

 

Whether their income is higher or lower than mine is irrelevant when addressing if long term car rental makes sense financially.

 

All cars are expensive to run? Not really, it's relative.

 

Everyone CAN do lots of things. But most don't. That's why they're stupid. Pretty simple really.

 

Damn you're taking it to heart about the Merc, you must have one. Nothing wrong with badge snobbery, we are all free to choose as you say. The fact remains that the gap between "luxury" marques and the rest has narrowed to nothing. Sadly the prices have not. I'm sorry that this distresses you.