Rant about PCP’s and how Dangerous they can be

[Ron240]

I've never bought a new car, so what sort of discount could a private buyer expect ?

It varies by make and model, sometimes wildly!
Having said that when a model is in high demand there can be no discount at all no matter where you buy...this was the case when I bought my Civic Type R FK8 in Spetember 2017.
With most new cars it is entirely possible to haggle a decent discount, although a salesman will still happily let you pay full retail.
When I bought my CLA exactly a year ago I got 10.6% off the list price from my closest MB main dealer, which was worth £4k to me. I only got this because I done my homework on what deals were available from other UK dealers.

 

[mioba]

My W124 at the time had a window price of 27500, My father paid 24000 cash.

I got 6500 off my W220 in 2004.
Paid with a swipe of debit card.

These were both brand new.

Never got a car on tick

 

[d215yq]

To be honest what's dangerous is someone thinking it's a great idea to buy a fancy new car for such a short commute without being able to properly afford it. It doesn't really matter if it's by PCP bank loan or remortgaging the house, etc, a new car costing 26k and depreciating at 6k a year has to be paid for by some mechanism. Sounds like you made the right decision, there must be 1000s of old cars (maybe some even interesting) on sale now for a few k that could easily do that commute for years with minimal problems.

I really don't get the obsession with new stuff .... and I've just gone from driving a 33yr old battered falling apart merc diesel to a brand new top of teh range mondeo on a very favourable company car shceme... i pay 250/ month for (rent not lease) and it gets changed every 6 months. Sure it's nice not to worry about the MOT (not that the old merc ever failed it), not do a yearly oil change, not worry about investigating some knock from suspension, etc and having ac that works and not having to have much mechanical sympathy for the car.... but it has in no way changed my life as many friends colleagues seem to think it should have. Essentially i do the same 20k miles a year and have the same great trips I had before. I only got it at the subsidised rate as I've purchased my dream rural house and have cash left over so why not and even then if they change the scheme and I ever have to pay the "real" rental rate (600€/month renting all in) I'll go back to old car ownership pretty quickly.

 

[mioba]

Its all horses for courses and whats right the customer at the end of the day.

Some people like the "affordability model" on credit (regardless of the guise).

Others wont.

Personally if I cant buy it outright I wont have it. Having something on credit is taking a luxury that is otherwise out of reach.

Likewise I just stopped buying new. I came to the conclusion you are only paying for a very clean car that loses 20% within a few months.

So hold on to say 6k for 3 months and then put a match to it. Would you do it ?

 

[Craiglxviii]

I’m in the same camp as @mioba on this.

 

[SL63 Mark]

I've never had a new car, although I appreciate someone has to buy them new, otherwise there wouldn't be used ones for us to buy.

The reason for buying new was covered famously by Clarkson and co, when they had their used cars analysed and found copious amounts of hair, snot, dandruff and other bodily fluids.

 

[Altamar]

couple things that really concerned me:
1: credit search application, this was far too easy my partner had it in her name and all they asked was for address and account number and sort code no income was asked and just saying her wage is significantly less than mine.

2: a lot of features are not standard, sat nav wasn’t even standard on a car that was costing £24,000 this is just unacceptable and for it to be only available in a £1,000 pack is just ridiculous.

3: Restrictions, I feel very restricted on pcp and the fact that this car will loose £6k as soon as it drives away makes me feel very ill (I know all new cars do this) but having an asset that will basically be permanently depreciating heavily for the first 3 years is just another horrible feeling.

The OP posed three separate but equally interesting questions and I am sorry to be so late in joining the debate. Oh, and apologies in advance for the length of the post....

I will try to comment on each question in turn.

1. Credit - What the banks and other lenders have learnt over the last 250+ years is credit assessment (for private individuals) is less about income and expenditure per se but more about what they call "propensity to repay". They build very complex algorithms which consider many factors like whether you have ever defaulted on any credit, how many credit agreements you have successfully repaid, how many credit cards you have and whether you ever go over your limit or fail to pay on time, whether you have successfully covered rent or mortgage, whether you pay your mobile phone account on time etc (but even within the finance company the factors they consider and their weightings are a closely guarded secret).

The basic principle is whether or not you act responsibly with your finances and, and this bit is important, that the vast majority of people will not take on credit they don't think they can afford. So the propensity to repay bit basically means that if something goes wrong, they will "find a way" of covering the repayments. That does not mean they will go out and rob a bank but might mean cutting down on other discretionary spending like not going to restaurants, not taking holidays etc or they increase income by working overtime, selling something, drawing on savings but ultimately they will "find a way" - even if that means handing back the car and the finance company having to sell the car to recover the amount outstanding.

Your case is actually a good example of this principle as you say she possibly could not afford the repayments on her own but she knows there is an additional source of income - i.e. your monthly contribution - which will enable her, every month, to cover the repayments. That is quite hard to build into a credit assessment as if they are going to take your income into account they would have to consider your expenditure as well. It's easier not to bother and just check whether you both exist (electoral roll for example), your credit history (credit reference check like Experian) and enough headroom built in to recover losses if it goes wrong, which is why there is usually a large deposit upfront.

2. Specs - your post is a brilliant reminder to every potential purchaser to assume nothing and check everything. Twice. I looked last week at an Audi costing £50k and if I read the website correctly it does not come as standard with a reversing camera. This was part of an upgrade pack. On a £50k car!! So I agree a £26k car should have sat nav but frankly we cannot assume anything and you were correct to pick up on this.


3. PCPs - as others have said much will depend on individual's attitude to credit and also the debate about new versus used so I won't say any more about that.

The important point is to realise how PCPs are calculated. In very, oversimplified, terms you are being asked to cover the depreciation and a bit of profit for the manufacturer/dealer. That is why a car with a higher list price but better residuals can have a lower monthly PCP figure than a cheaper car which loses more in depreciation over the agreed period.

So, ignoring interest and other factors (like the loss of interest on your savings if you pay up front, discounts etc) which you would absolutely do if you were doing this for real, here's a made-up example. PLEASE DON'T PICK THE FIGURES APART AS NOT REPRESENTATIVE OF WHAT IS AVAILABLE, I AM JUST TRYING TO EXPLAIN HOW THE MATHS WORK.

Car costs £30k
In three years time the trade in value will be £12k
Depreciation is therefore £18000
PCP could be £5k upfront and £400 per month for three years
So you will pay £19400, and either another £12000, making £31400 in total
OR, they will get the £19400 and have the car back, and sell it for £14000 - either way they have their costs covered.

Same example, but this time you buy the car on finance.
Deposit still £5k (from savings or trade in)
£25000 repayable over 3 years would be £700 per month
The difference of £300 pm is basically you paying for the £12k equity

So, obvious benefit is that PCP has lower monthly cost but you don't have much/anything to show for it. You are effectively renting the car and covering the depreciation plus a bit of profit.

Other benefits of PCP are that people might be able to have a new car and therefore not have to worry about changing tyres or brake pads, or MOT failures. If they wanted a loan with similar monthly repayments they might have to buy an older car.

I have owned new cars but never done PCP as I like to own and hold onto the car for longer than three years to mitigate the depreciation which tends to be higher in the first few years. I also like to choose when I change my cars, not have a clock ticking somewhere forcing me into a decision, but that is my choice.

My son had a new car on PCP as he wanted fixed costs and a reliable car, but he was surprised how much the dealer expected the car to be almost immaculate at the end of the PCP and we ended up replacing damaged wheel trims and a couple of other tiny scratches, but that is another debate for another day - and for anyone who is interested in that particular subject there are independent guidelines published as to what is reasonable.

So, I am not making a case for or against PCPs - the key is to understand how they work and weigh up the pros and cons for your situation.


Apologies again for the length of the post but as you might have guessed, I worked in financial services for most of my career.

 

[sausage]

My tuppence. PCP is not designed to help you as a customer. It is designed to help balance the accounts of car manufactures that have borrowed too much themselves to finance expansion and new production facilities. New facilities that can only balance the books if every single person in the developed world buys a new VAG/MB/LR car every 2 years. This is a ridiculous business case to borrow billions on and as a result the manufacturers have over stretched their own finances, as a result they have pushed this debt down to the customers, this is nothing new.

You only have to look at the surplus car storage up and down the UK and then know that these facilities are not limited to the UK. As a society we have over produced cars by millions every year and they cannot keep on building up. I remember ten years ago my friend who worked at Bruntingthorpe Aerodrome showing me the endless 10s of thousands of Bentleys, Audis, BMWs that were lined up in Bruntingthorpe. He said that the aerodrome was preparing an even bigger area of storage for another 1/4 million cars.

You may recall something called "sub prime", if not, then read up and learn about why the economy is in such a poor state. I believe the amount of time it will take the tax payer to pay back just RBS's debts is 350 years. That is debt saddled on to ours and subsequent generations, and it is a major cause of inflation, which in turn is a major cause of why things are so expensive for youngsters today, such as getting a house, getting a car and so on.

Well, for quite a long time now, pundits have been talking about the massive problem of another huge debt caused by the current reckless approach of manufacturers doing everything they can to sell everyone a mini or a golf or a 1 series or better, in the same light as the sub prime disaster. Many of those pundits have said the current consumer debt for cars is as dangerous as sub prime was, and that it will come back and cause further long term damage to the economy. Let's be honest, our GDP is massively propped up by turning a £10,000 field in Surrey into £10,000,000s worth of housing, or other false means to prop up the GDR. We are screwed, and PCP is just another way to off load the reckless idiocy and fallout from "men without chests" onto Joe Public.

So, the car business borrowed billions based on ridiculous unachievable sales numbers, and now that revenue stream has not materialised, so they constructed PCP to help balance their debts by giving it to you, and have you pay for the depreciation. This is not how they had intended the business model to operate and it is not as profitable as a sales approach to getting revenue from their new stock.

Sat navs, and other extras have always been expensive options and this has always been a remarkable revenue stream for them. Have you never wondered why you have a free sat nav on your phone, or can pick up a unit for very little, but a MB/BMW/Porsche/LR et al. sat nav will cost many times more? Just the same as parts, servicing are all part of the unified revenue model that these car makers are now more reliant on alternative revenue streams than before to balance their books. Just like the sub prime scandal, it is the public that pay the price every time. Who else could? Santa and his elves? There is no one else to pay.

 

[kotecki]

When I buy a car I study the model, what comes as standard and what options I would like, once that is done it is time to negotiate the best deal for me.

Some folk look at a car as simply a means of transport for getting from A to B. Reading this post has left me slightly confused but thankfully the story had a happy ending. Out of curiosity, what is the cool-down period before folks are tied into a deal?

 

[SL63 Mark]

Sat navs, and other extras have always been expensive options and this has always been a remarkable revenue stream for them. Have you never wondered why you have a free sat nav on your phone, or can pick up a unit for very little, but a MB/BMW/Porsche/LR et al. sat nav will cost many times more?

I am shocked that sat navs are still expensive extras in new cars. Is that really still the case ? If so, that is appalling.

 

[sausage]

I am shocked that sat navs are still expensive extras in new cars. Is that really still the case ? If so, that is appalling.

Last I heard was something like £400, and it was within the last year or so.

Best sat navs: Which? Best Buys and expert buying advice - Which?

We round up the best sat navs, from free sat nav apps to the most advanced big-screen standalone models

www.which.co.uk

"Prices vary enormously, from a few hundred pounds to well over £1,000 for the most advanced models, partly because they can only be selected as part of a high-end multimedia system. Built-in sat navs can help a car retain value, particularly on more premium models, where buyers expect one to be included." 12th July 2021.

 

[EmilysDad]

I am shocked that sat navs are still expensive extras in new cars. Is that really still the case ? If so, that is appalling.

Sat-navs are more likely to be included in specific model trims in main stream car manufactures .... Mercedes etc have an option list as long as your arm. I used to have an Omega Elite .... its option list when new consisted of NOT auto & NOT leather. Everything else was standard.

 

[Ron240]

Sat-navs are more likely to be included in specific model trims in main stream car manufactures .... Mercedes etc have an option list as long as your arm.

I agree with the first part of your sentence, but is it really the case in the second part about Mercedes?
When I was researching my car I found that it comes in 3 trim specs with additional things being added to what is standard on the basic model.
The only option available across all trim specs is the Driving Assistance Package at a rather expensive £1500.
I just assumed this was the way Mercedes done things with everything contained within a certain trim spec and you bought the one which suited you best.
Ford on the other hand have always had a long list of optional extras available to all trim specs.

 

[EmilysDad]

I agree with the first part of your sentence, but is it really the case in the second part about Mercedes?
When I was researching my car I found that it comes in 3 trim specs with additional things being added to what is standard on the basic model.
The only option available across all trim specs is the Driving Assistance Package at a rather expensive £1500.
I just assumed this was the way Mercedes done things with everything contained within a certain trim spec and you bought the one which suited you best.
Ford on the other hand have always had a long list of optional extras available to all trim specs.

When looking for the R Class I had before & maybe to a lesser degree on my current ML, every car you see for sale is different in some way, whether it be leather or Artico or heated seats or piano roofs or sat-nav

 

[Ron240]

When looking for the R Class I had before & maybe to a lesser degree on my current ML, every car you see for sale is different in some way, whether it be leather or Artico or heated seats or piano roofs or sat-nav

Maybe Mercedes have simplified things now on current models, with everything contained within a trim spec?
Taking sat nav as one example, it is standard on all models in the range with my car.

 

[eman]

The new hyper screen that’s on the EQS and i dare say the future of Mercedes dash is an £8k option if your cheaper variant doesn’t have it.

 

[mioba]

When looking for the R Class I had before & maybe to a lesser degree on my current ML, every car you see for sale is different in some way, whether it be leather or Artico or heated seats or piano roofs or sat-nav

V true - A logical reason for it, given the R was not hugely popular probably and surely all models were made to order.
Compare to eg the E or C which sell in huge volumes by comparison Merc can simply do a run of "Standard" models/trim knowing they will sell.

Aside - All models have a package of standard features depending on engine size. These are called optional extras when going down the model engine size.

Thus usually at the top of the model tree the cars are loaded.

Then there are the bundled options with a catchy name works out a bit cheper than one by one (eg. amg line - a few badges, alloys, seats, a spory look) - clever marketing.

 

[EmilysDad]

V true - A logical reason for it, given the R was not hugely popular probably and surely all models were made to order.
Compare to eg the E or C which sell in huge volumes by comparison Merc can simply do a run of "Standard" models/trim knowing they will sell.

Aside - All models have a package of standard features depending on engine size. These are called optional extras when going down the model engine size.

Thus usually at the top of the model tree the cars are loaded.

Then there are the bundled options with a catchy name works out a bit cheper than one by one (eg. amg line - a few badges, alloys, seats, a spory look) - clever marketing.

My car still has a few "options" that might be expected as standard ie folding electric mirrors & the intelligent lights
I was surprised & disappointed to find ordinary H7 tungsten head lights in my R Class after having HIDs as standard in my Omega .... I just didn't think I'd need to look out for them in the R Class as options.

 

[sl500amgsport]

My car still has a few "options" that might be expected as standard ie folding electric mirrors & the intelligent lights
I was surprised & disappointed to find ordinary H7 tungsten head lights in my R Class after having HIDs as standard in my Omega .... I just didn't think I'd need to look out for them in the R Class as options.

The problem with "extras" is once you have them it is difficult to accept a car without them, for example I would no longer buy a car without electric cooled seats, auto headlights and wipers which pushes you up the model range... I am now in an SL and struggle to find a car I can buy new that would not feel like a downgrade for under 6 figures. My wife has Android Auto in her car and that would be on my priority list next time round.

Sent from my SM-G988B using Tapatalk

 

[Blobcat]

The problem with "extras" is once you have them it is difficult to accept a car without them, for example I would no longer buy a car without electric cooled seats, auto headlights and wipers which pushes you up the model range... I am now in an SL and struggle to find a car I can buy new that would not feel like a downgrade for under 6 figures. My wife has Android Auto in her car and that would be on my priority list next time round.

Sent from my SM-G988B using Tapatalk

I've kind of gone the other way with my SLK - heated leather (non-black) seats are about my only requirement. I've gone away from a lot of the electrickery as it's becoming too often the reasons why owners are getting big bills or changing their cars. I'm going to hit 100K today in it and I can't see me changing it at all.