Talk Morgan Forums Community The Malvern Arms PCP Car Finance Future Problems

+1 They are becoming obsolete these days most are a pain, you can do all the research more accurately online and purchase if new.

The only thing they are interested in is selling you the credit or the default extended warranty .

It probably accounts for why I have never had a friend who is a sales person - the genuine factor is missing..

I'm with you Ray, some of them think they're being slick but they just turn me right off and I'll walk out. The crazy thing is that most of them couldn't answer a technical question because all they're focused on is giving you the best deal...for them!

If I've understood this correctly the difference is that those who have been sold PCP haven't been disadvantaged ... if anything they've come out well. It is those providing the packages that are heading over a cliff.

I have to say I found the Telegraph article itself a bit suspect when talking about their "mystery shopper" exercise.

"A salesman at one firm encouraged a customer, who said he had £400 total monthly disposable income, to apply for a deal on a Volvo V40 with heated seats and metallic paint. At a cost of £397-a-month it would have left the customer with just £3 a month to live on."

A consumer affairs reporter really ought to know what constitutes disposable income.

~iw

I agree Ian: that's the way I understand it. Its believed the book value of the cars post hand back will be significantly less than those held in the financial accounts. So it's large corporate right downs being hinted.

Selective reading guys, the article advises two problems for those who read it.

Yes, but where will those write-downs occur?

In the US auto market, which is structurally different to that in Europe, it is commonplace for all the major carmakers/importers (Ford, GM, Honda etc) to self-finance auto-loans using their own balance sheets. Growing awareness of this aspect of balance sheet vulnerability probably accounts for their relative share price underperformance.

In Europe/UK the underwriting of car finance is outsourced to banks or (bank-owned) credit houses, so rising loan default rates will whack banks' balance sheets and share prices, and also asset values of pension funds and other financial institutions who have bought bonds or other collateralised debt issued by by car-loan lenders. In other words, there will be systemic impacts that are broader than write-downs from individual banks and other lenders.

I think this type of 'credit correction' is inevitable. People take out a PCP thinking that their income will rise and make it more affordable - but in the UK we are in an era where structural factors mean real incomes are stuck/declining. And whilst rising base rates won't directly impact typically fixed rate PCPs, they will hike mortgage rates and make more people financially distressed. Repo men are going to be very busy.

This could grow into a big problem. The risk taking for the financiers and customers seems a bit high.
In these uncertain times things can go bad quickly and debts get out of hand. The banks/finance houses? Repossession is a part answer but at what end value?
I think these deals are allowing people to get access to cars they would not normally consider, premium cars as opposed to basic workhorses.

Don't do debt councilling, but once had a call from a woman asking for advice after her husband had taken out a loan on a car and the payment had come out of their bank the day before he got paid.

They had no savings at all apparently, so for several months they had locked themselves into a cycle of permanent debt, unable to recover.

Not good financial planning.

I have read it thoroughly Eddie, thanks for posting. However I'm not convinced that misselling to the public is as much of an issue as the Telegraph is trying to claim, it provides no evidence that PCP deals are being defaulted on which would support the argument. The article's muddle-headed "mystery shopper" exercise - based, apparently, on visits to two dealers - actually demonstrates the opposite.

In any case customer affordability is largely irrelevant; the issue is that £397 gets you a top spec Volvo V40 for Vauxhall Astra money by wilfully misstating the depreciation. If the customer defaults on even those low payments then the car just goes back earlier than it otherwise would have done.

Like some of the previous posters, I do not owe a penny to anyone. However that doesn't make me smug. I'm quite aware that as a tax payer and pension holder I am yet again going to be one of those who picks up the bill when this latest house of cards collapses.

~iw

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