Talk Morgan Forums Community The Malvern Arms Quarterly Warning On Car Credit Problem

I was speaking with one of the larger (german) premium vendors sales director a little while back. His comment was quite sensible and has parallels with some activity in my industry right now - IT.

He said that the use of the PCP or PCH was a fantastic tool. His logic was that the premium brand that his company had was actually worth money to them.
His secondhand values were consistently above market average.
Many people would be keen to buy a 2-3 year old car with some manufacturer warranty left on it as a protection plan.
He wanted to obscure the retail price and so retain the marques prestige.
He had a target to hit and it was growth not numbers so he had to push sales.

He could put a car on a PCP/PCH and keep it's retail price neutral through giving discount against the finance not the car.
This artificially inflated the average sales price of the cars.
The recovery value at the end of the lease could be lost in the finance numbers.
If these produced a loss it was on the balance sheet elsewhere and not his issue

The dealers liked the ability to push new cars even if the profits were a bit thin and so you now get the coin operated monkey problem of being told to take the finance in order to rake the discount.
The dealers also liked the readily available stock of devalued second hands cars flooding into the market as they could buy them cheap from BCA and then sell them on with more margin than new.

In effect he saw it as one of the best ways of monetising his brand equity to make the price of his cars more accessible, only finance the depreciation which was lower than lesser brands. It is a very practicval approach from his view and if you look at the volume of BMW 1-3 series and C Class compared to the very worthy Mondeo I would have to say very successful.

Dare I say it but the IT industry is building it's own slightly nuts approach to this game. Everything is moving to annual subscription so you never buy a product.
I used to buy Microsoft Office every three years or so and owned it. I paid once.
Now I "annual rent" Office 365 and pay every year. If I calculate the cost it is more expensive as soon as I hit the fourth year.
Is this better (always on new versions, email included, no hardware) or worse (paying every year, if I don't pay I had better have all my data copied off, its an addict plan)

This can also be seen in iPhones - five years ago a typical business handset (Blackberry or iPhone) was £500 and you paid for the airtime.
Now an iPhone is between £800-£1500 but you cannot really buy it as you get it wrapped up in a service contract/SIM deal.
It only works out as an extra £10/month (over the three years of the contract) so you stomach it to get the new shiny bauble.

Yet the vendor is now getting £1000 for the average handset, they are creeping the prices up and up by switching us from purchase to rent.
The sheep need shearing.......

The manufacturers are running out of buttons to push and levers to pull on finance. ,over the years many of them thought having their own finance or leasing company would be a good idea but new accounting and banking rules have started to stretch balance sheets and so they have reverted to some extent to strong arming finance companies to offer low interest rates and take on the risks. Fewer and fewer are prepared to do this except for the very highest rated borrowers leaving the manufacturers short of capacity. As I say the risks are not understood, in the last year I worked we had 95,000 vehicles due to be returned to us , make a profit of £100 on the residual value and you are a hero, make a £100 loss and you will loose your job . Remember that residual value had been set 3 or 4 years earlier on an average purchase price of £16,000 , in other words be less than 1% out on your valuation and you are stuffed!