How come there are so many expensive new cars on the roads?

[Firefly]

I think even the journalists are confused about this to be honest:

http://www.independent.ie/business/...oot-down-and-pick-up-a-pcp-plan-34347799.html


"l in advance, the contract gives you a Guaranteed Minimum Future Value (GMFV). This is the amount the garage expects the car to be worth after the three years. If you choose to buy it outright, this is what you pay then. If you 'roll over' the loan, this is your next down payment;"


If you owe the amount equal to the GMFV how can this be a down payment???

If I am missing something can someone please put me out of my misery and I'll head down to MSL tomorrow? I just cannot see how this will work for the 2nd and subsequent cars?

 

[postman pat]

I don't think begrudgery comes into it with respect. Actually the dealers around the country are giving out these deals to anyone with a heartbeat it seems!

This is Sub-Prime on wheels!

Firefly I was commenting on some of the early posts on this thread,as the thread went on the input got very informative and interesting about PCPs etc.

 

[trasneoir]

If you owe the amount equal to the GMFV how can this be a down payment???

GMFV is a red herring.

Part exchange your car and drive away in a brand new Toyota. If the trade in value is more than the GMFV††, you can put the equity towards your next car.

Suppose that when you come to the end of your lease - your balloon payment is 10,000. Say the car is worth 14,000. You can put your 4k of equity into a deposit.

The only scenario where GMFV comes into play is if the used car market goes into freefall. If the car is only worth 9k, and your balloon/GMFV is 10k. You can walk away and leave the financier has to eat the 1k negative equity.

This is Sub-Prime on wheels!

Not quite. The loan is structured to make negative equity very unlikely - "jingle mail" will always be good news for a PCP creditor. It's also physically and legally easier to repossess a car than a property.

 

[Gordon Gekko]

"jingle mail" will always be good news for a PCP creditor

I can't imagine that this is the case.

A tsunami of "returned" 3/4 year old cars couldn't be good news for the retailers.

 

[trasneoir]

A tsunami of "returned" 3/4 year old cars couldn't be good news for the retailers.

Good point. If a load of punters were to return their cars all at once, the creditor would have to flood the used market (prompting more returns), or sit on some of the stock NAMA-style, or export some of it.

 

[Firefly]

I assume there will be a number of cars being sold privately before the company repossess, with no mention of "outstanding finance" on the vehicle - even if you ask the private sellet at the time - "buyer beware" kicks in!

http://www.independent.ie/life/moto...th-repayments-still-outstanding-34781461.html

Buyer beware indeed and it's going to become more prevalent I think with all these "on the never-never cars". We buy our cars from main dealers. You do pay a bit more but I think it's worth it.

 

[Firefly]

I think even the journalists are confused about this to be honest:

http://www.independent.ie/business/...oot-down-and-pick-up-a-pcp-plan-34347799.html


"l in advance, the contract gives you a Guaranteed Minimum Future Value (GMFV). This is the amount the garage expects the car to be worth after the three years. If you choose to buy it outright, this is what you pay then. If you 'roll over' the loan, this is your next down payment;"


If you owe the amount equal to the GMFV how can this be a down payment???

If I am missing something can someone please put me out of my misery and I'll head down to MSL tomorrow? I just cannot see how this will work for the 2nd and subsequent cars?

Looks like they've passed round the old, trusty Follan's Times Tables at the Indo:

I've had lots of mail and response following my appearance on the Marian Finucane Show last Saturday, with many people admitting they didn't realise one major factor about PCPs: what constitutes 'equity' in a car at the end of the two/three-year agreement?

Many people thought it was the agreed minimum value that they agreed when they took out the deal. That is NOT the case. The equity is the difference between the guaranteed minimum value and the prevailing market price of the car. So if the vehicle is worth €12,000 on the market and the guaranteed minimum value is €9,000, the equity is €3,000.

http://www.independent.ie/life/moto...ry-two-years-as-pcp-sales-surge-34801234.html

 

[Firefly]

From the same article:

Volkswagen point out that as they underwrite the Guaranteed Minimum Future Value (GMFV) of the car they (VW) take the risk on the secondhand value - not the customers.

I'd certainly get that one in writing!

 

[MrEarl]

From the same article:

Volkswagen point out that as they underwrite the Guaranteed Minimum Future Value (GMFV) of the car they (VW) take the risk on the secondhand value - not the customers.

I'd certainly get that one in writing!

It may be the case, but from what I here there are a few key considerations that need to be factored into your thinking alongside the above:

- The guaranteed minimum future value is subject to strict criteria in terms of how the car is used, serviced and how much travel it has done during the term of the arrangement.
- The guaranteed minimum future value is only against another VW, so they can set the price of their new cars at any level they want and ensure a certain margin on the transaction.
- You put equity into these deals on Day 1 (by way of cash or trade in) but at the end of the term you have zero equity in the car you acquired, so your full equity is obsorbed during the term of the agreement.

Those in the know can confirm if the above are correct or not ... I have taken them in good faith from others I know, but not experienced this first hand.

 

[Firefly]

I was thinking about this again last night. VW seems to be the biggest player and I'm thinking they introduced these deals in the wake of the emissions scandal as a way to keep car sales going. Then, seeing the success / increase in market share by VW, other brands have jumped on the bandwagon, quite similar to the housing boom where banks were giving 100% mortgages. I heard an advert for the Dacia Sandero in Cork yesterday - no deposit and 50e a week.

Of course when the intial period expires, a lot of people will simply roll-up to another car. Even if the equity carries on for them by getting a decent deal, who is to say that the finance for the 2nd and subsequent cars will be at such favourable rates as they are now?

 

[tallpaul]

I was thinking about this again last night. VW seems to be the biggest player and I'm thinking they introduced these deals in the wake of the emissions scandal as a way to keep car sales going. Then, seeing the success / increase in market share by VW, other brands have jumped on the bandwagon, quite similar to the housing boom where banks were giving 100% mortgages. I heard an advert for the Dacia Sandero in Cork yesterday - no deposit and 50e a week.

Of course when the intial period expires, a lot of people will simply roll-up to another car. Even if the equity carries on for them by getting a decent deal, who is to say that the finance for the 2nd and subsequent cars will be at such favourable rates as they are now?

VW may have been one of the first to introduce PCP but it had nothing to do with the emissions scandals. PCP's have been around for a good while in the UK and it was only a matter of time before they were introduced here. Allied to the fact that the car industry needed something to kickstart their sector after the recession and it has worked spectacularly for them in the short term.

The proof will be in the pudding in a couple of years when the real affordability of the car will be tested by buyers when it comes to debt settling and reconciliation. Personally I don't like PCP's as they are too restrictive in terms of mileage and bumps/scrapes etc. I don't think I would ever consider a car purchased on PCP as 'mine', only leased from the manufacturer which this is in essence.

 

[Ceist Beag]

I can certainly see the benefits of PCP for dealers.
1. Pretty high chance of repeat business every 3 years so increased customer loyalty
2. Ongoing service business as customers are tied in to having car serviced by dealer by the PCP contract
3. Should the car not be in pretty perfect state at the end of the 3 years it is not the dealer who is at a loss.

I don't really see the attraction for customers tbh. You're effectively leasing the car for 3 years with a commitment to getting the car serviced by the dealer and should anything happen the car then all bets are off as far as the benefits of the package go, so you're carrying the risk on that.
As tallpaul said, time will tell who is getting the better deal here but right now it looks like the dealers are the ones with by far the better of it.

 

[Leo]

2. Ongoing service business as customers are tied in to having car serviced by dealer by the PCP contract

Not the case with all makes.

I don't really see the attraction for customers tbh.

Main attraction I see is the flexibility when the 3 years is up. If you have significant life events on the way like marriage, kids, house moves, etc., you might like the flexibility of financing some of the price up front, then having the option of walking away, paying it all off in a lump sum, or rolling the deal over. If you don't need that flexibility, then you'll be a little better off just going for a straight finance deal, presuming the interest rates match.

PCPs are definitely geared towards encouraging a regular turn-over of new cars, and a steady supply of 3 year old second hands in good condition, but you don't have to play the game entirely on their terms.

 

[Ceist Beag]

As a second hand car buyer it certainly sounds good to me anyway to have a regular supply of stock coming onto the market!

 

[Firefly]

As a second hand car buyer it certainly sounds good to me anyway to have a regular supply of stock coming onto the market!

And all at same time!