I've followed this thread with interest since long before I joined AAM, and until now I've avoided becoming embroiled in the discussion. In the past my work involved me deeply in leasing & HP and it's been interesting to follow this thread. Apologies if it's a bit of a rant, but just my 2 cent!
As for PCP being a simple product - well I don't fully understand it in all cases, and I think a thread that extends to over 350 posts shows how unclear the product is. Do I think it's the devil's work? No, but I have a lot of issues with it, and how it's marketed.
Firstly the product is specifically designed to sell more cars. It was designed by the car industry (ford), and not by banks, to help people to purchase cars they couldn't otherwise afford. One of my biggest issues with PCP (and even HP) is the regulation around them. Even the regulatory bodies in this country seem to be confused about who exactly is responsible for regulating PCP/HP to the extent that there is actually a loophole in the new CCR legislation that means Car finance deals won't be initially reported as it requires a legislative change (car finance houses don't all fall under the definition of 'Money Lender'). On top of that they are not within the scope of the Consumer Protection Code. This means when it comes to advertising, the dealer can advertise such things as 'own from €x per month'. All the advertising you see around cars are focused on the monthly repayment amount, not the total cost, to let people know how 'affordable' the car is. I won't even get started on the fact that the people selling these products don't have to have any financial advisory training, or that it's being marketed in some cases specifically to people with bad credit history.
My first experience of PCP in a retail context was a few years ago when my neighbour exchanged a 10 year old car for a brand new Hyundai Tucson. When I said I was surprised he had bought new, his response was that it was cheaper than buying a 2 year old model! The reality is that most customers don't think about the balloon payment, or what they're going to do in 3 years when the deal is up. There was talk earlier in the thread around customers being left with a sour taste if they have to borrow money at the end of 3 years to own the car, but I think the biggest problem will be that they have to dig deep into their pockets to 'go again' and get new car as they won't have much equity above the GMFV; in an effort to keep the monthly repayments as low as possible, I think some brands are pushing the limits of the GMFV which will leave customers with very little equity at the end of the term.
The other option that seems to be forgotten, but is still there, is good old fashioned HP. I've seen the calculations earlier in this thread, but they need to be updated to reflect the real deals available in the market. Comparing a 0% PCP to 11% HP is wrong - 11% HP typically is the preserve of the 2nd hand market (or someone who doesn't want to do HP!). Taking a look at either Peugeot or Hyundai for example, it might actually work out cheaper using HP vs PCP; particularly is you knew you wanted to own the car outright, and in some cases the monthly repayments are actually lower (assuming 5 year HP vs 3 year PCP and then financing the MFV). Hyundai offer the same APR on both options, and Peugeot even offer 0% HP on one specific model. (I don't have time at the moment to do out a full table of the options).
Which gets me on to another point. There is no such thing as 0% finance! I work in banking, and the concept doesn't exist. The cost of administration of the loan itself it high, without factoring in cost of finance and bad debts. If a dealer is offering 0% finance, you're probably forgoing something else. I know one brand of car I was looking at (not that I'd buy new), and I was being offered over 10% off the list price as a cash buyer (or financing elsewhere), or a much smaller discount if I was going for 0% PCP.
In terms of a 'credit bubble' have these things collapsed before? Well yes. PCP has been around for a while in the UK, and finance houses ended up nursing very heavy losses when the 2nd hand market collapsed in 2009. Similarly here with HP, but not because of the GMFV. Under legislation, once a customer has made 50% of the repayments due under HP deals (and I understand PCP), they can hand the keys back and walk way. A lot of customer here & in the UK triggered that clause in 2009 / 2010, and the banks were left with cars they couldn't sell (I know of someone who made a lot of money storing high end cars that the auctions couldn't even shift in 2010).
Because of the losses they made, banks shied away from offering HP on 2nd hand cars since the crash (which was very common up to 2008 so long as the car would be less than 8 years old at the end of the term), so it's very interesting to see PCP for 2nd hand cars arriving from specialist lenders just when the first PCP deals are maturing. Again, it's purpose is to help garages shift stock just when they're starting to get a lot of it back in - without it it would be cheaper to buy new so there'd be no market for their trade ins.
Rant over!
