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

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What this does do is force down the part ex valuation if you buy new, with or without credit, and then try to trade up after three years. So it limits demand from this category of buyer while encouraging credit led new car sales.
Maybe this is the intention.

If it forces down valuation of expensive cars after 3 years there are going to be a lot of bargains around for those with cash. More likely a large trade in second hand cars being shipped to third world countries will get under way. The Japanese have been doing it for years because rules make it difficult to keep vehicles more than 5 years old. As I recently found out it costs more to keep my 12 year old Alfa on the road than it is worth and even if I kept it I risked not being able to use it in months of high polution levels. It would be banned for the centre of Milan all year round and during winter was banned in several regional areas.

Don't damn a complete genre until you have exploited its wrinkles.

I bought the Audi on carwow which offered me 9% discount on the car or 15.5% if I took the Audi PCP with it. The APR was 6.4% on it, not good or bad. As someone on another forum pointed out the terms of the Audi PCP are quite flexible and you can pay it off in one hit if you want.

So the incentive VWFinServ offer a dealer to sell their PCP products was being used to discount the car to me. It gives you an idea of the profit/incentive the dealers make in the attachment of this finance package. A dealer is able to sell any financial product they like but in most cases they default to the vendors. I know a couple of people who bought using this 15.5% discount and then two months later paid off in full without penalty and only incurring 2 months interest. Thats a good deal by any criteria.

The Audi/VW package is very flexible and a "better" example of the PCP finance product as it is intended to let you sell/upgrade/replace within the Audi products so you can step out at almost anytime with little or no penalty from the contract.

I totally agree that the issue is when poorly informed selling has occurred and the final value is not where it should be. There are a lot of variables that result in the FGV (final guaranteed value) element but the main issue is YOU own the FGV problem not them with a PCP. If you set it too high then you step out with a deficit.

The car industry in the UK certainly seems to be getting more like the stereotype US dealer farms. Selling is about stock, discount, extras and hard telephone push tactics (recent MB experience) driven by incentives to push new/old stock.

Salesreps get a bad name. They are people who are programmed with incentives to make their wage. How would you like to start the month on 50% of your salary and little or no promise. The incentives behind them drive their actions (above the good/average/poor/evil quality of them as people and their capabilities in the role). Even great salespeople just may not click with you and so not try their best. Its a two way thing sadly.

The UK still seems to have a larger employer car allowance program than most of Europe. If you are looking to have a great car for a set payment then contract hire is also good. Its like a PCP where they own the entire thing (car included) and you just make monthly payments. At the end you walk away.

I did the MB E63 on this. MB have been aiming to move more product in the UK for some time and so have offers floating around. When I was looking the E63 estate was up for grabs with large MB funded discounts. I found an advert from a broker for the car at £540/month inc VAT. for 3 payments up front and 23 remaining payments for a 2 year contract. £14040 to run an AMG E63 Estate for 2 years. This would be an out of the showroom loss if you bought it. They owned the whole thing including the FGV issue.

When the termination came I offered to buy the car and they wanted a payment of £60k. This was £20k above the market price the car was going for so they really did lose their shirt. They sold a lot on this program.

As for the RS6. I got the carwow discount on a brand new released model (Performance edition) put down the minimum deposit and used the Audi PCP. I hated the car and so sold it after 12 months. Audi released the PCP, if you terminate early the additional interest is not claimed. As the car was in demand it sold at a premium and so it nearly covered the outstanding FGV. I ended up out of pocket to the tune of £6800 for 12 months in a £90k car. If I had gone the 3 years it would have been different as the FGV would have undoubtedly sagged and the cost would have been worse. My car allowance more than covered this so I had a far better car for my cash than if i had tried to purchase it.

I don't say this to be clever and totally respect the better values of not taking debt you cannot complete in a rush. I just want to indicate that you can play them at their own game and leverage these things if you want to enjoy good cars for less cash - if you are willing to carry the risk.

In all cases the simple rule remains.
Buy low (find out the vendor discounts but not on stock that is going to crash value)
Sell high (watch residual % and sell when there is demand)
Ensure you have the flexibility in the contract

I look at it as total payments over number of years. With PCP you pay a set amount and if done well have a £80k car instead of a £40k car. However I am treating it as a part of the job not an asset. Thats because it is my toy as I don't play golf, take big holidays or have kids to finance through University.

It works well if you scout out your prey.

Very well reasoned Alistair.

I'm impressed with what good value motoring you've had in this way.

Well explained..as you say, the trick is to play them at their own game. The last car we paid for in full, as was the Plus 8.

But we bought the AMG 43 on a PCP in order to delay paying most of the cost for 3 years, and to get a good discount.

The car should have cost £53,583, we paid £50,683, so a discount of £3000 of 5.6%.

We part exchanged the diesel, and put a cash deposit in, so the amount borrowed was £28,280 at 5.5% over 36 months. The monthly payment is less than £200, so over 3 years we pay £7000.

The PCP can be paid off at any time with no penalty. The plan is to wait about 18 months, when we will have a tax free lump sum from one of our pension plans and use some of that.

Why not pay in full now? We would have to have paid a much higher monthly amount out of taxed, rather than untaxed income and the pension pots are growing at more than the interest rate on the borrowed money.
So it made sense to have the car now, on the lower rate vehicle excise duty and put off paying.

I tend to buy cheaper cars in cash - and expensive ones on finance. The main reason is risk.

I'd rather have a year of cash and a leased car - than an expensive car and a month of cash. Needing to sell an asset is different to selling an asset and will impact the price.

The key thing is matching the right financial product to the individual - for some paying cash and managing their own risk works well, for other monthly finance costs and having someone else carry the risk is better.

I was talking with a dealer not too long ago about how the finance houses really don't like being beaten at their own game. In a lease there are 3 sides - the buyer, the garage and the finance house. The lease value is the monthly payments + the final payment. Simple.

The fun begins when the value of the car (either market or part exchange) is below the lease value. There are 3 options towards the end of the lease:
1) The customer makes the payments and final payment - and basically ends up with a highly deflated asset.
2) The customer makes the payments and then hands the car back to the dealer - who makes the final payment to the finance house - and ends up with a deflated asset.
3) The customer hands the car back to the finance house in accordance with their depreciation curve - and they end up with a deflated asset.

The dealer then went on about how many people were stung with the currency shifts in Switzerland a few years back and were tied into leases where the outstanding lease value was much greater than the asset due to rapidly falling used prices. People handed the cars back in droves and went to the dealers for new ones. Eventually the finance houses cottoned on and stopped relending to them - despite the termination of the lease not being flagged in a general credit check.

It gets better - certain manufacturers have internal finance houses and tend to advertise great deals of new cars (a Swedish firm was pushing run out models of their estate based activity vehicle) - with a big discount and then low leasing costs. It took 5 minutes chatting to a salesman for them to admit that they refuse to do leases based on the conditions in the advert - as they would be liable to carry the future value of the car - and that was hopelessly unrealistic.

One final game they play is the "cheap" finance offer (0-1.9%) when the final payment is very low - meaning the customer is carrying the risk of depreciation as opposed to the finance house or the dealer.

Once you know how it all works - you can make leasing work for you over here.

Finally, in Switzerland the vast majority of properties still carry a mortgage - with most never being paid off. Instead of pumping 800k into paying off an 800k mortgage (on a 1m property) people pay off the 133k prior to retirement - and put 667k into a pension pot.

Whatever happened to the idea that the borrower should make sure that he didnt borrow what he couldnt pay back? Maybe we should go back to debtors prisons? Well perhaps not that far but certainly back to the idea that people accept personal responsibility.

How about people saving up to buy something?

Just look at the size of the UK credit card debt.

That went out the window ages ago which is getting more worrying as you get to the younger end of the working population.

There is nothing fundamentally wrong with a high amount of debt - assuming that debt is used to finance appreciating assets or is cheaper than outright purchase.

Where there is a problem is when you have "millenials" (or Corbyn voters as they could also be called) who have 10s thousands of educational debt and then 10k or more on credit cards accumulated with TopShop, TK Maxx purchases and rounds of cocktails in AllBarOne.