Big Car Crash Coming ? - MikeM100

In this Daily Mail 'This is Money' forum post (yesterday) on car financing:

www.thisismoney.co.uk/money/news/article-4664356/H...L

A 'Sally' from London makes this interesting comment:

"With car finance, how does the second hand market work, say if you "rent" a new car for 2 years at say £222 pcm with an up front payment of say £1,000 which is about £6328 then after the 2 years are up if you then take that off the price of the car new what price does the car need to be sold at second hand to still make money for the dealer that bought it from the manufacturer"?

I think this highlights the problem that ALL car prices are too high whether new or secondhand ?

Big Car Crash Coming ? - davecooper

Simplistically, the way I look at it is this, but please someone correct me if I am way off course. Take a car with a showroom price of £20,000 and you are buying it on a PCP at 0% interest. Suppose the dealer buys the car for £15,000. If the guaranteed future value is £8000, you would need to finance £12,000 over say 3 years. This would cost you £333 per month. At the end of the deal, the dealer has his £12,000 plus your car worth at least £8000. Therefore he has effectively made £5000 once you take off the £15,000 cost price. Invariably, he will sell the car for more so that would be more profit. I know this is an over simplification, but I can see how a dealer can make money on these deals.

Big Car Crash Coming ? - daveyjp

The showroom price includes VAT, so a £20k car is £16,500 ish list.

Dealer price with a 25% discount (and I suspect it is much more for some marques) so £12k.

Assume 50% depreciation over 3 years. GTV is £10k. If the car is handed back dealer adds £2k 'negotiation' money and you are back to being very close to what a dealer 'paid' for it. Of course main dealers never buy cars, they are actually finance houses.

Regardless of this PCPs have been around for decades and dealers must make plenty of money out of them - if they didn't the model would have changed.

Dealers also make nice money on servicing the cars on PCPs as a FDSH is required under the contract.

Any car 'crash' will be as a result of a large economic shock such as the interest rise which will happen at some point.

Edited by daveyjp on 05/07/2017 at 14:40

Big Car Crash Coming ? - Terry W

It is evident from the price of 6-18 month old cars that large disocounts are available for bulk pruchasers. Discounts of 45-55% against the new list price are common.

Most cars of this age will be ex hire/rental, demonstrators, or slow moving stock which the manufacturer wants to shift - possibly due to model upgrade.

There are some lease and PCP deals out there which embed a good discount on list price. But mostly you are simply paying to borrow the money - a 0% deal probably means the headline price on which the 0% deal is based is too high.

Lease companies also need to cover themselves for risks, admin costs and make a profit. In particular excess mileage charges and costs of any minor rectification required if the vehicle is returned need to be factored in.

If you absolutey need to have a new car and can't afford cash or borrow from bank then lease/PCP is the only option. But financially a one/two year old low mileage (<20k) is a far better deal with 2-6 teays remaining on manufacturers warranty

Big Car Crash Coming ? - Terry W

At December 2016 there were 37.3 cars registered in he UK

During 2016 3.3m new cars were registered

The average life of a car in the UK is 13.9 years

In order (on average) to replace the 37.3m registered cars assuming a life of 13.9 years would required average sales of 2.7m.

Very simplistic but I think we have been buying far more cars than needed - with increased personal borrowing and reducing second hand car prices. So the current level of sales is unsustainable and and a crash/reduction in demand of around 15-20% quite likely.

Big Car Crash Coming ? - RobJP

The thing is, PCPs can end up being a relatively cheap way of running a very nice car for a couple of years.

On another motoring forum the other day, there was a thread with a lease deal that was available : A new Golf GTi. 230hp, 8k miles per annum, 2 year deal for under £6,500 all in - deposit was £2400, admin fee of £180, and payments of £168 per month (23 payments).

For the Golf R DSG estate at 10k miles per annum, 2 year deal, (a 310 bhp nutter-car) it was a £2000 deposit, £234 admin fee, and £222 per month (23 payments). Total of £7300-ish.

When you consider that the Golf R estate has a list price running over £35,000, to run one, brand-new and under full warranty for £7300 for 2 years is an absolute bargain. You would have to be insane to consider buying one. You'd suffer more depreciation than that as soon as you drove it off the forecourt.

The leasing companies must be getting them at huge discounts.

EDIT : all figures include VAT, by the way.

Edited by RobJP on 05/07/2017 at 17:42

Big Car Crash Coming ? - John F

The thing is, PCPs can end up being a relatively cheap way of running a very nice car for a couple of years.

Possibly, but it is an absurdly expensive way of buying a car if all you want is a reasonably reliable family runabout that only does around 7-8000m a year. Our Xreg Ford Focus estate cost £7000 when it was nearly 4yrs old and has lasted us 13yrs and nearly 100,000m. That's £45pcm, decreasing each month. Admittedly, you need the cash upfront.

Anyone could repeat this - 4yr old Foci are available for £7000 which should last at least as long if carefully maintained; i.e.oil changes every 10-12,000m every 18 months or so and keeping the potentially rusty parts protected.

Big Car Crash Coming ? - RT

The thing is, PCPs can end up being a relatively cheap way of running a very nice car for a couple of years.

Possibly, but it is an absurdly expensive way of buying a car if all you want is a reasonably reliable family runabout that only does around 7-8000m a year. Our Xreg Ford Focus estate cost £7000 when it was nearly 4yrs old and has lasted us 13yrs and nearly 100,000m. That's £45pcm, decreasing each month. Admittedly, you need the cash upfront.

Anyone could repeat this - 4yr old Foci are available for £7000 which should last at least as long if carefully maintained; i.e.oil changes every 10-12,000m every 18 months or so and keeping the potentially rusty parts protected.

Bangernomics, or it's modern interpretation, holds no appeal to the vast majority of car buyers - just like value for money holds no appeal to the vast majority of new and nearly new car buyers.

We now have several generations of consumers who buy everything on "perceived" cost - they've no idea of real costs as they can no longer do basic arithmetic without a calculator, PC or spreadsheet.

But it's been that way for a century with house prices so why expect cars to be any different ?

Big Car Crash Coming ? - JEREMYH

I agree with you most people dont want older cars I have older cars maintain them myself and love the fact that I can run a people carrier and a covertible for about £130 a month and that is covering tax ins and repairs everything !

Banger stuff is only for a few us that enjoy doing the cars ourselves and have our own tools

Big Car Crash Coming ? - RobJP

The thing is, PCPs can end up being a relatively cheap way of running a very nice car for a couple of years.

Possibly, but it is an absurdly expensive way of buying a car if all you want is a reasonably reliable family runabout that only does around 7-8000m a year. Our Xreg Ford Focus estate cost £7000 when it was nearly 4yrs old and has lasted us 13yrs and nearly 100,000m. That's £45pcm, decreasing each month. Admittedly, you need the cash upfront.

Anyone could repeat this - 4yr old Foci are available for £7000 which should last at least as long if carefully maintained; i.e.oil changes every 10-12,000m every 18 months or so and keeping the potentially rusty parts protected.

Oh, I agree. But people are inherently lazy. This way, if something breaks, it's down to the dealer to fix under warranty. No nasty bills if something breaks, no getting ripped off by garages piling on unnecessary work.

I'll put it this way : the Golf R that I mentioned previously has got the out-and-out performance equivalent close to that of an Audi RS2, faster than a Volvo 850-R, and even faster than a Lotus Carlton.

If you were 30, and could have that level of performance for 2 years for under £7.5k, with no warranty worries ... can you really say you wouldn't go for one of those ? Because I certainly would have done so if I was 20 years younger.

Going 'Oh, that's a crap idea', to anything like that just makes you sound like an old curmudgeon. They've got the money, why not live a little and enjoy having some uber-nutter estate before they get legislated out of existence by the tree huggers.

Big Car Crash Coming ? - Avant

Agreed, Rob, on several counts.

I like new cars. If I can have one at a low rate of interest (and the three Skodas I had were all at 0%), and can afford the repayments, I will. And the warranty means that I won't have major unforeseen expenses.

Also if interest rates are low on the car finance, they're even lower if you buy a cheap car instead and keep the money saved in a bank account. The tiny amounts of interest you get on a savings account aren't going to outweigh the cost of repairs to your out-of-warranty cheap car. Other investment accounts with higher interest rates probably won't allow you instant access, which you'll need for said repairs.

Finally, there are some cars, like SWMBO's Audi A1, which seem expensive if you look at list price but can be had with a very good PCP deal, largely because Audis hold their value better than most over the years.

OK - I've been lucky, and if that sounds unsympathetic to people who can't afford a new car, my apologies: I was just commenting on the points made above.

Edited by Avant on 06/07/2017 at 01:35

Big Car Crash Coming ? - eustace

Hi John F.,

Interesting comment here. I too have a Ford Focus, albeit a 2008 year one, and would like to keep it for as long as I can. What exactly are you referring to as the potentially rusty parts, and how do you keep it protected?

I was recently debtaing as whether to go for a waxoyl / nitroyl underbody treatment for the car. The cost for waxoyl was working out to around £400.

However what I read was that most cars cane from the manufacturer with pre-applied underbody treatment, and repeating that was not really necessary. What are your thoughts?

Big Car Crash Coming ? - JEREMYH

John dont worry keep your focus serviced jet wash the underneath only every six months and it will look after you

Big Car Crash Coming ? - madf

Hi John F.,

Interesting comment here. I too have a Ford Focus, albeit a 2008 year one, and would like to keep it for as long as I can. What exactly are you referring to as the potentially rusty parts, and how do you keep it protected?

I was recently debtaing as whether to go for a waxoyl / nitroyl underbody treatment for the car. The cost for waxoyl was working out to around £400.

However what I read was that most cars cane from the manufacturer with pre-applied underbody treatment, and repeating that was not really necessary. What are your thoughts?

I have just Dinitroled a VW SHaran for a frined. 2004 - he is teh only owner and garaged from new. WIsescale corrosion under the rear - near suspension arm mounting points and all suspension components. His independent mechanic warned him it would be terminal unless untreated.

Wirebrushed it and 4 x 0.5litre spray cans sorted it. Took 2 hours - pit job.

Waxoil vastly inferior - washes off in water spray..

Big Car Crash Coming ? - John F

Hi John F.,

Interesting comment here. I too have a Ford Focus, albeit a 2008 year one, and would like to keep it for as long as I can. What exactly are you referring to as the potentially rusty parts, and how do you keep it protected?

I was recently debtaing as whether to go for a waxoyl / nitroyl underbody treatment for the car. The cost for waxoyl was working out to around £400.

However what I read was that most cars cane from the manufacturer with pre-applied underbody treatment, and repeating that was not really necessary. What are your thoughts?

I wouldn't waste money on waxoyl. I usually do the potentially rusty parts on a nice fine day in the autumn. Jack up each side of the car, take the wheels off, clean and grease brake pipes, brush off subframe and springs, paint old engine oil on them. Every so often take off the discs, knock off the rust with hammer and old screwdriver, and grind down any lipping with a carborundum wheel (wear glasses!). Mine were unnecessarily replaced at 29,000m by the dealer just before I bought it and are still OK at 123,000m. Recently I have also wire-brushed the joins on the original exhaust and sprayed them with high temperature aluminium paint. Don't know how useful this might be but didn't cost much and can't do any harm. Treat any tiny patches of rust anywhere else, especially bottom of the doors, as soon as they appear. I use a screw driver, then Kurust, then touch-up paint.

I am amazed at how long it has lasted - your 2008 model should last at least as long. The only time it broke down was when the failing petrol pump blew a fuse 2yrs ago and I didn't have a spare.

Big Car Crash Coming ? - concrete

Recently I decided to lease a new car for 3 years. I spent a long time examining the various methods of ownership. From outright cash purchase, hire purchase, PCP and Lease. When taken into account my own personal case and the reason I needed the vehicle I chose, the Lease route was the least expensive. This is because I happended upon a very good deal at that particular time, which meant all the payments were actually less than the depreciation over 3 years. Therefore the depreciation factor outweighed the cost of ownership. I really could not have obtained that vehicle on any terms as good if I had to fund the depreciation myself. Now, there is a rub! many factors come into play for this equation. Vehicle make and model, specification, mileage and length of ownership. All these affect the ultimate future value and the monthly payments, no matter which way the purchase is made. It is a bit of minefield, but can be worked out. The easiest way is to set a budget and work around that. This way factors can be included or discarded to fit the budget. The ultimate way of purchasing and having cheap reliable motoring is to do what I did with my last car. Buy it outright ( dealers are no longer interested in cash buyers though) with a good warranty, extend the warranty as far as possible. Service and look after car properly. Then keep it for 12 years. It will owe you nothing and worked out over 12 years the costs will be very affordable, but you will be driving a 12 year old car. Modern cars are now so complicated that they are electronically managed for nearly every function. This makes repairs difficult and replacement parts more likely, these are expensive. So if you lease a new car for 2 or 3 years you are protected by warranty. It's all a matter of choice.

Cheers Concrete

Big Car Crash Coming ? - SLO76

Simplistically, the way I look at it is this, but please someone correct me if I am way off course. Take a car with a showroom price of £20,000 and you are buying it on a PCP at 0% interest. Suppose the dealer buys the car for £15,000. If the guaranteed future value is £8000, you would need to finance £12,000 over say 3 years. This would cost you £333 per month. At the end of the deal, the dealer has his £12,000 plus your car worth at least £8000. Therefore he has effectively made £5000 once you take off the £15,000 cost price. Invariably, he will sell the car for more so that would be more profit. I know this is an over simplification, but I can see how a dealer can make money on these deals.

Dealers don't make margins like this. It's generally between 5-8% on new cars, often as low as £300 on some lead in models. The profit comes from add-ons and the finance.
Big Car Crash Coming ? - RT

Simplistically, the way I look at it is this, but please someone correct me if I am way off course. Take a car with a showroom price of £20,000 and you are buying it on a PCP at 0% interest. Suppose the dealer buys the car for £15,000. If the guaranteed future value is £8000, you would need to finance £12,000 over say 3 years. This would cost you £333 per month. At the end of the deal, the dealer has his £12,000 plus your car worth at least £8000. Therefore he has effectively made £5000 once you take off the £15,000 cost price. Invariably, he will sell the car for more so that would be more profit. I know this is an over simplification, but I can see how a dealer can make money on these deals.

Dealers don't make margins like this. It's generally between 5-8% on new cars, often as low as £300 on some lead in models. The profit comes from add-ons and the finance.

That 8% limit for retail margin is very obvious when using car brokers for new car purchase - these access fleet discounts, not retail discounts - trying to match or even get close to a fleet deal just draws blanks at local retail dealers.

It's not the way is should work but many buyers are hard-nosed enough to take advantage of the loop-hole, myself included.

Big Car Crash Coming ? - RobJP

£300 on some lead in models. The profit comes from add-ons and the finance.

That 8% limit for retail margin is very obvious when using car brokers for new car purchase - these access fleet discounts, not retail discounts - trying to match or even get close to a fleet deal just draws blanks at local retail dealers.

It's not the way is should work but many buyers are hard-nosed enough to take advantage of the loop-hole, myself included.

I don't think that's the case regarding 'fleet' discounts being illegitimately used. Coast2coast, for example, simply earn their fee from the dealer, and you pay the dealer and collect the car from the dealership.

When we were buying a new Z4 2 years ago, C2C were quoting about 24% off list. The deal was through a dealership just outside London. Our local dealership managed to get within £200 of that price, so, rather than have to traipse down to London and then drive back, we did the deal with the local dealer. It was a cash purchase, so they weren't making a penny on finance. GAP insurance done independently too, so they didn't make a penny on that. And I got the new car detailed and Gtechniq protected independently as well, so no commission fro the dealer off that either.

The V5 was supplied from new, with us as first keeper. So not being done through 'fleet'.

Big Car Crash Coming ? - RT

£300 on some lead in models. The profit comes from add-ons and the finance.

That 8% limit for retail margin is very obvious when using car brokers for new car purchase - these access fleet discounts, not retail discounts - trying to match or even get close to a fleet deal just draws blanks at local retail dealers.

It's not the way is should work but many buyers are hard-nosed enough to take advantage of the loop-hole, myself included.

I don't think that's the case regarding 'fleet' discounts being illegitimately used. Coast2coast, for example, simply earn their fee from the dealer, and you pay the dealer and collect the car from the dealership.

When we were buying a new Z4 2 years ago, C2C were quoting about 24% off list. The deal was through a dealership just outside London. Our local dealership managed to get within £200 of that price, so, rather than have to traipse down to London and then drive back, we did the deal with the local dealer. It was a cash purchase, so they weren't making a penny on finance. GAP insurance done independently too, so they didn't make a penny on that. And I got the new car detailed and Gtechniq protected independently as well, so no commission fro the dealer off that either.

The V5 was supplied from new, with us as first keeper. So not being done through 'fleet'.

I think that's exactly how the "pseudo-fleet" sales work - the dealer uses their fleet department, not their retail department - after all, "fleet" isn't just about big fleets, it includes businesses which may be single vehicle sales.

When I bought my Touareg through CarWow, the car never went near the dealership - it was PDI'd at their multi-franchise depot and delivered directly to me on a flat-bed truck.

Big Car Crash Coming ? - veloceman
There's always a way of doing things cheaper.
You can buy a pair of trousers from a charity shop for £5 or you can go to M&S and pay £40.

I am a car guy through and through - basically my hobby.
Pcps have enabled me to drive stuff I could never dream of being able to buy in the traditional way.

Different things float our boats, but if14yr old focus was the future then not sure what I would do.

Running old cars, if you are not mechanically able can cost far more than a £129 dep/£129 pcm pcp deal. I own also own a 18yr old Alfa 3.0 GTV, I use a good specialist who isn't Vat registered which is about as good as I gets but still costs me a fortune.
Big Car Crash Coming ? - John F
Different things float our boats, but if14yr old focus was the future then not sure what I would do. Running old cars, if you are not mechanically able can cost far more than a £129 dep/£129 pcm pcp deal. I own also own a 18yr old Alfa 3.0 GTV, I use a good specialist who isn't Vat registered which is about as good as I gets but still costs me a fortune.

Our Focus is nearly 17yrs old. But I own also a nearly 12yr old 6.0 Audi which cost £12000 38 months ago. That's £316pcm, reducing as time goes by. So far it hasn't cost a bean apart from petrol and an enormous amount of oil. But I admit, it's a gamble doing it this way. The Alfa GTV was a lovely car, but highly risky mechanicals.

Big Car Crash Coming ? - veloceman
Too right John F.
Engine, Gearbox and even electrics good so far.
Overly complex suspension is a nightmare!

My local Fiat/Alfa Dealer reckons he gets only 3% on a Fiat 500.
Big Car Crash Coming ? - RobJP
Different things float our boats, but if14yr old focus was the future then not sure what I would do. Running old cars, if you are not mechanically able can cost far more than a £129 dep/£129 pcm pcp deal. I own also own a 18yr old Alfa 3.0 GTV, I use a good specialist who isn't Vat registered which is about as good as I gets but still costs me a fortune.

Our Focus is nearly 17yrs old. But I own also a nearly 12yr old 6.0 Audi which cost £12000 38 months ago. That's £316pcm, reducing as time goes by. So far it hasn't cost a bean apart from petrol and an enormous amount of oil. But I admit, it's a gamble doing it this way. The Alfa GTV was a lovely car, but highly risky mechanicals.

Yes. But you could have quite easily have had that £12,000, (then) 9 year old Audi for a month, and found it needed thousands spending on a new engine / gearbox / quattro system - and basically have been scrap because of it. In which case it could have been costing you £12000 for a month - OK, lets be generous, and assume you got £2k for it, so it could have cost £10,000 per month.

In which case, leasing a new high-performance car, no threat of big bills, for £200-odd per month would look like an absolute bargain.

If your Audi dies tomorrow, the Golf R estate that I mentioned is still far better value.

Big Car Crash Coming ? - John F
....a nearly 12yr old 6.0 Audi which cost £12000 38 months ago. That's £316pcm, reducing as time goes by. So far it hasn't cost a bean apart from petrol and an enormous amount of oil. But I admit, it's a gamble......

Yes. But you could have quite easily have had that £12,000, (then) 9 year old Audi for a month, and found it needed thousands spending on a new engine / gearbox / quattro system - and basically have been scrap because of it. In which case it could have been costing you £12000 for a month - OK, lets be generous, and assume you got £2k for it, so it could have cost £10,000 per month.

In which case, leasing a new high-performance car, no threat of big bills, for £200-odd per month would look like an absolute bargain.

If your Audi dies tomorrow, the Golf R estate that I mentioned is still far better value.

Not 'quite easily'. Extremely unlikely and unlucky. Genuine service history, only 49,000m, recent major service. I did my homework - it is a very robust reliable powertrain. The odds are probably that I, not it, am more likely to die in the near future. (and I like it much more than a Golf R!)

Big Car Crash Coming ? - Stanb Sevento

That 8% limit for retail margin is very obvious when using car brokers for new car purchase - these access fleet discounts, not retail discounts - trying to match or even get close to a fleet deal just draws blanks at local retail dealers.

It's not the way is should work but many buyers are hard-nosed enough to take advantage of the loop-hole, myself included.

I like buying new cars, its sometjing that gives me pleasure and Ive done it a good few times and being a Scott I dont part with my cash too readily. I have learned that dealer margins are very flexable in the right circumstances, to meet targets at the end of a period or where manufacturers are giving incentives.You havent got the best deal unless they let you walk out of the showroom and Ive done that more often than Ive done a deal. I got 23 1/2 % off the list price of my current VW at a main dealer, This was only £150 more than I could find on line and it was a factory order to my spec. The sales manager said the branch had exceeded its target for that month and only had a few cars more to sell to qualify for a major discount off not just the extra cars but everything they had sold that month. True or not I walked away happy. On the other hand there have been times when I have sruggled to get anything off so I go to another dealer or go back in a couple of months.

 

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