General Discussion: The Motoring Thread Incorporating All Motor Vehicles (Including Motor Cycles.)


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figurine
figurine avatar

5764 posts since 14/5/07

1 Jun 2017 14:20
swede wrote:
illwill wrote: Seen people getting Passat Alltracks and Kia Sorentos for £130 a month. Probably not cars that you had ever considered but you'd be mad not to accept those offers. Who gives a fuck if you don't like the car in the end? You've only got it for 2 years.

always thought leasing cars was for chavs/idiots but that is amazing. surely someone is losing a lot of money somewhere along that line
But still, why lease when daddy can buy you one?
andymakesglasses
andymakesglasses avatar

20226 posts since 26/1/06

1 Jun 2017 14:42
This is an interesting read. If you're interested by these kinds of things.

https://www.ft.com/content/0e651206-0ee1-11e7-a88c-50ba212dce4d
swede
swede avatar

8107 posts since 21/3/09

posted 1 Jun 2017 15:20, edited 1 Jun 2017 15:20
figurine wrote:
swede wrote:
illwill wrote: Seen people getting Passat Alltracks and Kia Sorentos for £130 a month. Probably not cars that you had ever considered but you'd be mad not to accept those offers. Who gives a fuck if you don't like the car in the end? You've only got it for 2 years.

always thought leasing cars was for chavs/idiots but that is amazing. surely someone is losing a lot of money somewhere along that line
But still, why lease when daddy can buy you one?

never owned or been bought a car so wouldn't know. was just going off a mate of mine in belfast - spends like 40% of his wage on leasing and fuelling a big merc. apparently that's pretty normal over there and everyone does it. seems crazy to me

still he's flexing in a merc so i guess he's winning Cool
TROYBOY
TROYBOY avatar

560 posts since 28/2/12

1 Jun 2017 16:02
andymakesglasses wrote: This is an interesting read. If you're interested by these kinds of things.

https://www.ft.com/content/0e651206-0ee1-11e7-a88c-50ba212dce4d

Behind a pay wall……..
swede
swede avatar

8107 posts since 21/3/09

posted 1 Jun 2017 16:07, edited 1 Jun 2017 16:07
When the Ford Focus launched in the UK almost two decades ago, the pricing was simple: from £12,850 on the road. Now, prospective car buyers are more likely to see adverts proclaiming that the Focus costs “from £249 a month”. This apparently minor presentational difference masks a revolution in how cars are marketed and sold in the UK.

That difference is the personal contract plan, or PCP, a form of leasing where the driver rarely takes actual ownership of the vehicle but finances its depreciation in the initial years before trading it in for another car. “PCP started at the premium end about 10 years ago, partly because of changes to the way that company cars were taxed. Since then it has spread to the mass market,” says Trevor Finn, chief executive of car dealership chain Pendragon.

According to the Society of Motor Manufacturers and Traders, about 80 per cent of new cars in the UK are sold on PCP.

So far, everyone has benefited. PCP helped carmakers to find buyers for their vehicles at a time when Europe in particular was suffering from manufacturing overcapacity and the aftermath of the credit crunch.

“It basically increases the churn,” says Mr Finn. “Over a six-year period, a carmaker might now sell three new cars to an owner. Previously, that might only have been two.” This increase has been a key reason why new car sales in recent years have hit record levels. The higher volumes boosted dealers; shares in Pendragon tripled between 2012 and the end of 2016.

Leasing has been particularly good for premium marques. Because drivers only finance the depreciation, models that hold their value well work out only slightly more expensive than mass-market brands. The result has been big increases in sales for the likes of Audi, Mercedes, BMW and Jaguar Land Rover — Mercedes has doubled its UK sales since 2010, according to data from IHS Markit. Buyers have also traded up to bigger and flashier motors; PCP has facilitated the boom in “sport utility vehicle” sales, which IHS says have risen by more than 20 per cent a year since 2010. Larger cars generally mean fatter margins for manufacturers.

PCP also increases brand loyalty. The carmaker, via its finance arm, has a direct connection with the buyer and will often contact him or her ahead of the lease expiry to offer a new deal.

What’s not to like?

For consumers, an obvious part of PCP’s appeal is that it reduces an intimidating-looking upfront cost of tens of thousands of pounds to just another monthly direct debit of perhaps a couple of hundred pounds. A new iPhone on a monthly contract could cost £35 or so a month, yet for £90 a month it is possible to lease a car, albeit with a downpayment.

But it is what happens next that is the key attraction. As the graphic shows, if the trade-in value of the car at the end of a lease is above the minimum guaranteed by the dealer, the buyer can use that “equity” to reduce their next deposit, reduce their monthly payments or trade up to a bigger car.

“For consumers, this is a no-brainer,” says Stuart Pearson, an auto industry analyst at Exane BNP Paribas. “The dealer calls, saying it can get you into a brand new model for no additional cash outlay, or with a reduced monthly payment — why say no?”

However, this apparent alchemy depends on rising used car prices, a situation that has prevailed for much of the past seven years. If prices were to fall, the virtuous cycle could soon turn vicious.

“The catalyst for the unwinding of the great lease bubble is not rising credit costs, but a decline in used vehicle prices that pulls the rug from under the leasing model,” wrote Mr Pearson in a detailed note on the subject last year.

There are already signs of this happening in the US, where PCP-type deals helped pull automakers out of the rubble of the financial crisis. An index of used car prices compiled by the National Automotive Dealers Association fell in February for the eighth consecutive month. Inventories of new cars are high and the use of sales incentives is rising.

Flashing lights

Policymakers in the UK are well aware of the risks. The growth of car leasing has contributed to a big rise in personal debt in the UK and prompted the Bank of England to keep tabs on the risks of a financial shock if conditions change. So far, UK used car values remain fairly stable. But some warning lights are starting to flash as thousands of vehicles sold from 2012 onwards come off lease and on to the used car market. Rupert Pontin, head of valuations at automotive data group Glass’s, notes that supply of two or three-year-old city cars such as the Toyota Aygo or Volkswagen Up! rose by 80 per cent in 2016. “Crossovers” and small SUVs such as the Nissan Qashqai were up by 76 per cent.

“This is not causing a problem yet, because retail demand is strong enough to absorb the extra supply,” says Mr Pontin. “But the data do suggest that at some point, in certain sectors, values will tail off. As we get to the point of saturation, more people may find that the trade-in value is now below the guaranteed future minimum value.”

Less or no equity means either bigger cash deposits or higher repayments when buyers move to their next vehicle. Carmakers, wary of big writedowns at their financing divisions, will become more conservative in their accounting assumptions about future values. That will further increase the amount the customer ultimately pays.

Other factors supporting PCP and used car prices may also be on the wane. The impact of the government’s scrappage scheme, which took almost 400,000 older cars off the roads in 2009-10, has faded. The boost to the industry from payment protection insurance redress — whose compensation put car-deposit amounts of cash into the bank accounts of millions — is now also drawing to a close. Low interest rates, which helped keep monthly repayments down, will not last for ever either.

Irrespective of the outcome of the Brexit process, cars made overseas will become more expensive because of the weaker pound. Carmakers’ operating margins are already quite thin, so they are unlikely to be willing to absorb all of the currency impact themselves.

For this reason, many observers expect new car sales to flatten or even decline in the coming years. The SMMT is forecasting a 5 per cent decline this year and 3 per cent in 2018. But PCP is starting to invade the used car market, too. “In the past four years the number of used cars we sell on PCP has gone from zero to about 30 per cent,” says Mr Finn. As in the new market, it has changed the economics of second-hand car ownership. “A six-year-old car on PCP can work out cheaper than a 10-year-old vehicle bought using traditional hire purchase.”

In terms of vehicles sold each year, the used car market is almost three times the size of the new. And the monthly payments can be lower, since the rate at which vehicles depreciate slows after the first few years. That said, older vehicles are generally less suitable for PCP deals. Mr Finn says used car values are predictable up to around eight years old. Thereafter, wear and tear increasingly determines the value of a car, making estimates of residual value more unreliable.

PCP is clearly here to stay, and has much to commend it. But anyone touring car showrooms this spring should be aware that its rise, and the consumer’s ability to repeatedly trade up at no extra cost, has been driven by ultra-low interest rates and buoyant used car prices. That is a fortuitous combination which may not persist for much longer.

Who loses?

Last November, US car rental firm Hertz warned in its quarterly results of a $63m “depreciation adjustment charge” against profits because of changing assumptions about the value of the cars in its rental fleet. Its shares promptly halved, and have declined further since. Although there were also company-specific issues with Hertz, the episode provides a foretaste of what might happen if the auto industry got its sums wrong.

When a finance company enters a leasing agreement, it provides the driver with a guaranteed minimum future value for the vehicle. This is usually set conservatively (hence the equity uplift that often occurs at the end of a lease). Generally, it records an even lower value in its own accounts to provide a further cushion against any unexpected price declines. Only if used car values were to fall below the levels provided for in the accounts would lenders have to impair leases and write off the shortfalls.

So it would take a big drop in used car prices to cause serious problems. If that occurred, it would hit the leasing divisions of carmakers first. The Bank of England reckons they finance 70 per cent of new car leases in the UK, and they are vast businesses. Globally, Volkswagen’s financing arm alone has €157bn of loans to customers on its books. They are also an important source of profit in an industry where manufacturing margins are thin.

Car dealers such as Pendragon, Lookers and Inchcape would suffer in a different way. Theirs is a volume business, so a drop in the number of new or used car sales would reduce their revenue. Lower selling prices would exacerbate that, but provided they can also buy their stock at lower prices, their profit margins should hold up. The main risk to margins is when dealers are left holding rapidly depreciating inventories of vehicles for too long.

Investors have already turned somewhat cautious about the industry’s prospects. Most of the carmakers are trading at single-digit multiples of their expected earnings, while shares in the auto dealers have drifted lower over the past year, reflecting expectations of more moderate future growth.
andymakesglasses
andymakesglasses avatar

20226 posts since 26/1/06

posted 1 Jun 2017 17:38, edited 1 Jun 2017 17:38
TROYBOY wrote:
andymakesglasses wrote: This is an interesting read. If you're interested by these kinds of things.

https://www.ft.com/content/0e651206-0ee1-11e7-a88c-50ba212dce4d

Behind a pay wall……..

That's weird, it wasn't when I read it earlier. It seems if you click the link direct then it is, but if you go via a Google search it displays.

https://www.google.co.uk/search?safe=off&q;=FT+Are+the+wheels+about+to+fall+off+car+finance%3F&oq;=FT+Are+the+wheels+about+to+fall+off+car+finance

Thanks swede for posting the text.
billybrown
billybrown avatar

3115 posts since 30/9/07

2 Jun 2017 00:14
Cheers swede Cool
Kadafi39
Kadafi39 avatar

1569 posts since 30/10/09

2 Jun 2017 11:38
JustinCredible wrote:
Kadafi39 wrote:
JustinCredible wrote: No beef but can't believe you can get a new Passat or Sorento for £130 a month, not without a monster deposit anyway

You probably could if you are quick and check very often.

right now you can get a A4 1.4 S line, a Volvo V40 or a tiguan all for around £130 + VAT and only 2k + vat down.

https://www.centralukvehicleleasing.co.uk/vehicle/choose_your_lease/80184/audi/a4/14t_fsi_s_line_4dr_leatheralc.html

https://www.centralukvehicleleasing.co.uk/vehicle/detail/74834/VOLKSWAGEN-TIGUAN-ESTATE.html

https://www.centralukvehicleleasing.co.uk/vehicle/detail/74738/VOLVO-V40-HATCHBACK.html

Those lease deals you mentioned are for 5k miles per annum though, if you change it to 10k the monthly payment more than doubles. Also £2000 + VAT deposit so you are talking about £265 a month for 5k miles per year.

The A4 can be changed to 8k miles per annum for only £5.99 extra a month, and also its cheap to pay excess mileage at the end of the term, usually less than 10p per mile.
MRN
MRN avatar

87 posts since 6/4/14

posted 9 Jun 2017 11:11, edited 9 Jun 2017 11:11
If you like classic cars be sure to check this one out. When I went to the Essen show to pick up my M2 GTS I didn't know what to expect from the show. As well as the modern and modified cars there was a hall just dedicated to classic cars and we were in for a treat.

It was the stuff of child hood dreams. So many poster cars in one place including Ferrari 288GTO, F40, FXX and almost every type of DTM car from the 1980's and 1990's.


RickRude
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3269 posts since 13/1/12

9 Jun 2017 13:48
Wonder what motor Fudge Dread has - perhaps he is chauffeured
Crackajack
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7177 posts since 21/4/05

9 Jun 2017 13:52
Good vid MRN mate. Those DTM cars Cool
padawan
padawan avatar

4077 posts since 27/6/03

9 Jun 2017 14:07
RickRude wrote: Wonder what motor Fudge Dread has - perhaps he is chauffeured

everything comes to him…
figurine
figurine avatar

5764 posts since 14/5/07

9 Jun 2017 14:08
RickRude wrote: Wonder what motor Fudge Dread has - perhaps he is chauffeured
My money is on a Jag.
MRN
MRN avatar

87 posts since 6/4/14

9 Jun 2017 18:50
Crackajack wrote: Good vid MRN mate. Those DTM cars Cool

Thanks mate. So many cool cars in one place. Definitely a show to make the effort to visit.
Crackajack
Crackajack avatar

7177 posts since 21/4/05

9 Jun 2017 23:34
Looked like a 205 T16 with the back open at one point, Group B Ubercool
shame
shame avatar

1709 posts since 17/7/12

10 Jun 2017 08:07
figurine wrote:
RickRude wrote: Wonder what motor Fudge Dread has - perhaps he is chauffeured
My money is on a Jag.
land rover for sure.
fudge.dredd
fudge.dredd avatar

750 posts since 15/12/12

10 Jun 2017 20:06
In the process of selling it but it's a Jaguar XJL


Mr.X.
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2863 posts since 23/6/13

11 Jun 2017 21:36
Does it come with a TV?
fudge.dredd
fudge.dredd avatar

750 posts since 15/12/12

11 Jun 2017 21:58
Built-in yes..
sodomgomorra
sodomgomorra avatar

1364 posts since 24/3/14

posted 12 Jun 2017 07:54, edited 12 Jun 2017 07:54
Open handed spanners are fucking satanic. Why hasn't the automotive industry moved on from these archaic bolt & knuckle strippers.