Are car loans driving us towards the next financial crash?

davomcdave

It's a bigger problem in the US where the outstanding auto loan sum is $1tn (seriously) with the average loan size being almost $30k! Google 'auto loan delinquencies'. Is it the next subprime? Probably not as banks are better capitalised. Is it a problem? It is if this crap is in your pension which it probably is.

the_flying_pig

venison wrote: »

I can never understand why anyone would want to pay £15k+ for a car (and they do).When a decent 2nd hand one can be had for 5k, the depreciation on new cars is eye watering

well, I mean, I mean, some people: (a) like cars; and (b) are rich, in such circumstances spending a lot makes sense.


but I completely agree about buying brand new.


for even upper middling budgets, secondhand always makes more sense, e.g. for say £7k-£8k you'd potentially face a choice between a small handful of seriously ropy brand new models or alternatively something secondhand that's really very decent.

kabayiri

You need brand new buyers to keep the throughput of cars going into the second hand car channels.

When recessions occur you can see the effect several years later when vehicle shortages push residuals up by a grand a motor or more.

I wonder if the new Car VED changes are going to have a greater impact.

If you're planning to change your car, maybe do so very soon.

Rinoa

I'm fortunate to have a new 17 plate sitting on my drive right now. I used the manufacturers finance because they gave me £2150 towards my deposit. The minimum to finance is £3000 over 2 years. Total interest charges are less than £250. So paying cash would have cost me £1950. Crazy, but maybe that's why so many people are using finance facilities these days. All the manufacturers seem to do it to some extent.

michaels

I'm with Rinoa - I used to swear by banger economics but then I got a lemon and paid out all the savings from low depreciation motoring over 15 years on massive repair bills in the following 5 years. I now have new on a pcp and the cost per mile is way lower than the 'banger' and I don't have the stress of an unreliable car and roadside breakdowns.

However the PCP renewal is due and there are no equivalent deals (probably because I could buy the car for 13k at the end of the term but it is worth less than 9k and they have wised up on the pricing) so it is probably back to bangers.

Pennywise

venison wrote: »

I can never understand why anyone would want to pay £15k+ for a car (and they do).When a decent 2nd hand one can be had for 5k, the depreciation on new cars is eye watering

I can never understand why people pay anywhere near list price for a new car. Haggle and walk away is the answer.

I bought my last new car a couple of years ago. The list price of the car I wanted was £20k. They had an "ex-demo" on the forecourt for £15k. I went in and told them I'd buy a new one for £15k (cash not finance). Of course they refused so I walked away. A few days later, the sales manager phoned me and agreed to sell me a new one for the same price as the ex-demo. So the "drive out of the showroom" depreciation was borne by them, not me.

I did the same many years earlier when I first bought a brand new car. List price was £12k and I offered/paid £8k.

The thing is that you have to be happy to walk away. The dealership may or may not be able to offer a deal depending on the periodic bonus deadlines and how many cars they have already sold towards their bonus targets. Certain times of year, they'll play hardball, other times, they'll be desperate.

When I used to be the accountant for a couple of car dealerships, there were times when they'd have sold a car half price or less if they were short of their month end targets. They usually register them as demos, but if their demo finance plan was maxed out they couldn't and then they're just desperate to register more any way they can. The bonus schemes are usually something like £500 per car registered that month up to 20 cars and then £1000 per car for 30 cars or more, so they don't just get the extra bonus on the extra 10, they get it on the first 20 too - the figures and the difference between meeting the target or not can be huge!

Another time you can get a cracking deal is when the dealership know that a model is coming to the end of it's life, before it's publicly announced. The manufacturers will be incentivising the dealerships to sell the stocks of the old model. The dealership won't know for certain that it's at the end of it's life, but the experienced sales managers can spot the signs due to the bonus structure - i.e. huge bonuses for selling stock in the compounds, but small bonus for selling anything ex-factory (i.e. not stocked in compounds or requiring factory fitted accessories) - it's a dead giveaway to them.

elverson

Pennywise wrote: »

When I used to be the accountant for a couple of car dealerships, there were times when they'd have sold a car half price or less if they were short of their month end targets. They usually register them as demos, but if their demo finance plan was maxed out they couldn't and then they're just desperate to register more any way they can. The bonus schemes are usually something like £500 per car registered that month up to 20 cars and then £1000 per car for 30 cars or more, so they don't just get the extra bonus on the extra 10, they get it on the first 20 too - the figures and the difference between meeting the target or not can be huge!

But presumably there's a point where it's better to miss the target slightly rather than discount so deeply that the dealership loses money?

WestonDave

elverson wrote: »

But presumably there's a point where it's better to miss the target slightly rather than discount so deeply that the dealership loses money?

To a point but if you've sold 29 cars earning you £500 bonus per car your total bonus is £14,500. If you sell one more you get £30,000 bonus if you get £1000 bonus per car having sold 30. That's a lot of room to discount that last car!.

Herzlos

That's potentially enough to justify buying a car yourself and sticking it up on autotrader.

I'm not saying it's unlikely though. Being able to walk away is still going to be the best way to seal a good deal.

Pennywise

Herzlos wrote: »

That's potentially enough to justify buying a car yourself and sticking it up on autotrader.

Trouble is that dealerships are often already up to their limits on their overdraft, used car stocking loans and demo finance plans - they have to pay for each car they register by direct debit, taken a day or two after the date of registration which has to come out of cash flow if they can't borrow for it. That's why a retail customer paying in cash or debit card is so attractive to them as opposed to registering another themselves (which they may have no money for), or a sale on hire purchase or lease (for which they may have to wait several days or even a week or two from the finance company).