Beware the Credit Crash!

WengerIn

https://www.theguardian.com/commentisfree/2017/may/08/credit-car-crash-sub-prime-crisis-cause-next-financial-collapse

UK households borrowed a record £31.6bn last year to buy cars, up 12% on the year before, and 90% of private buyers used personal contract plans – PCPs – to make their purchases. This year the total borrowed is expected to exceed £40bn. Cash purchases for the legion of souped-up shiny 4x4s, SUVs and estate cars that populate Britain’s streets are almost unknown.

The boom in debt-financed car sales stems from the convergence of ultra-low interest rates and falling oil prices, which almost halved in 2014. Leasing companies, seeing how these developments made cars more affordable, embarked on a frenzy of marketing. Almost overnight this pushed the UK to the top of Europe’s car ownership rankings; it was the making of Land Rover, which found its rebirth as a glamorous brand helped as much by domestic sales as by its success in China and the rest of Asia.....

If you think that's bad there's over $1tn of car debt in the US.

Herzlos

Just because it's being bought on credit doesn't mean it's unaffordable or unsustainable. The reason almost no-one buys high end cars with cash is because it makes very little sense - if you've got £50k burning a hole in your pocket you'll almost certainly be able to get a better deal than the puny APR on the car loan, and then there's things like fixed cost (particularly useful for business expenses) and manufacturers incentives to factor in as well.

Not that there aren't lots of people taking out credit for cars they can't afford, and a lot of people will get stung in a couple of years when the deals expire, but it's not all bad.

enjoyyourshoes

Glass half empty ?

wotsthat

Herzlos wrote: »

Just because it's being bought on credit doesn't mean it's unaffordable or unsustainable. The reason almost no-one buys high end cars with cash is because it makes very little sense - if you've got £50k burning a hole in your pocket you'll almost certainly be able to get a better deal than the puny APR on the car loan, and then there's things like fixed cost (particularly useful for business expenses) and manufacturers incentives to factor in as well.

Not that there aren't lots of people taking out credit for cars they can't afford, and a lot of people will get stung in a couple of years when the deals expire, but it's not all bad.

If PCP was being used after careful assessment that it was a cheaper way to own a new car compared to using abundant cash savings then that would be very MSE.

In the real world people use PCP because they have no savings and don't calculate the cost so it appears to offer a wondrous way to drive around in a set of wheels they could never otherwise afford.

PCP increases the cost of motoring because without it the average punter would be driving around in a perfectly serviceable £5k used car at a much lower cost per mile.

westernpromise

I reckon another credit shock from cars could be when the great diesel fraud unwinds. AIUI a lot of car makers - notably VW - rely for a lot of sales on fleet buys by rental firms and the like. The car maker lends the rental firm the money to buy the cars, essentially.

If the second-hand cars belonging to Avis et al are abruptly worth a lot less because diesel's returning to well-deserved obscurity, they will be sitting on a massive depreciation hit they never budgeted for. They could end up owing shedloads of money they've not got to the very car makers whose dodgy products put them into that pickle to begin with.

Whether it's the rental companies or the car makers who then go bust I don't know. No idea of the scale of this but it feels like it could be very nasty for the volume makers.

GreatApe

The sooner we get to shared self drive fleets of taxis the better for everyone.

Self drive taxis (probably electric) designed to operate for 500,000 miles over 3-5 years lifespans will probably mean the uk public spends 1/3rd as much on vehicle miles and associated costs than they currently do. This will lead to a lot more money in peoples pockets (perhaps as much as £75 billion more) which should result in a good boost to economic activity jobs and taxes.

The net losers will of course be the big car exporters like Japan and Germany

WengerIn

westernpromise wrote: »

I reckon another credit shock from cars could be when the great diesel fraud unwinds. AIUI a lot of car makers - notably VW - rely for a lot of sales on fleet buys by rental firms and the like. The car maker lends the rental firm the money to buy the cars, essentially.

If the second-hand cars belonging to Avis et al are abruptly worth a lot less because diesel's returning to well-deserved obscurity, they will be sitting on a massive depreciation hit they never budgeted for. They could end up owing shedloads of money they've not got to the very car makers whose dodgy products put them into that pickle to begin with.

Whether it's the rental companies or the car makers who then go bust I don't know. No idea of the scale of this but it feels like it could be very nasty for the volume makers.

It would be perfectly reasonable for Avis to go after VW in the courts for fraud (gaining pecuniary advantage by deception). There's a very obvious case to be made and an obvious loss to be redressed. The only argument is who can stay solvent long enough to survive the claim.

kabayiri

WengerIn wrote: »

It would be perfectly reasonable for Avis to go after VW in the courts for fraud (gaining pecuniary advantage by deception). There's a very obvious case to be made and an obvious loss to be redressed. The only argument is who can stay solvent long enough to survive the claim.

Avis Fleet has been owned by GE Fleet for years now.

Are you really suggesting that an US owner might have a litigious nature?

[hmm, going by a case with the Aero division some time back, I would say you have a point!]

Regards size, VW has absolutely no chance against GE!

Carl31

PCP makes sense, thats probably more likely why its increased, people realise its the more sensible option, theres no value in owning cars

WengerIn

GreatApe wrote: »

The sooner we get to shared self drive fleets of taxis the better for everyone.

Self drive taxis (probably electric) designed to operate for 500,000 miles over 3-5 years lifespans will probably mean the uk public spends 1/3rd as much on vehicle miles and associated costs than they currently do. This will lead to a lot more money in peoples pockets (perhaps as much as £75 billion more) which should result in a good boost to economic activity jobs and taxes.

The net losers will of course be the big car exporters like Japan and Germany

I do wonder about self driving cars.

Firstly there's the problem about how we get there. I'm not sure I want a road full of AVs and people trying to game claims against their insurance. Secondly I'm not sure I want to sit in an AV that is going to return control to me when disaster strikes. Thirdly I don't want to be doing 80 mph and get a phone call asking me to pay £20k to return braking control to me.

I love the idea, I think most people do. The reality might be a harder sell.

Plus vehicle number savings might be lower than you think. You claim 2/3rds. Well I don't know about you but my kids have to be at school at 9am and I need to be in at 8.30am as does my wife at a different place of work. If my kids are going to be taken to school by an AV then I need more cars not fewer!

With AVs the problem remains that most people work something approximating 9-5, that's why we have a rush hour. Like with power stations we need enough capacity for peak hours not average consumption.

kabayiri

WengerIn wrote: »

I do wonder about self driving cars.

Firstly there's the problem about how we get there. I'm not sure I want a road full of AVs and people trying to game claims against their insurance. Secondly I'm not sure I want to sit in an AV that is going to return control to me when disaster strikes. Thirdly I don't want to be doing 80 mph and get a phone call asking me to pay £20k to return braking control to me.

I love the idea, I think most people do. The reality might be a harder sell.

Plus vehicle number savings might be lower than you think. You claim 2/3rds. Well I don't know about you but my kids have to be at school at 9am and I need to be in at 8.30am as does my wife at a different place of work. If my kids are going to be taken to school by an AV then I need more cars not fewer!

With AVs the problem remains that most people work something approximating 9-5, that's why we have a rush hour. Like with power stations we need enough capacity for peak hours not average consumption.

We'll just end up with tapping on an app on our phones, something provided by UberAirPimpMyRide or some such

People will be convinced to sell seating/journey space in their AV.

We end up paying for the vehicles, whilst some megacorp from 'Murica ends up with all the profit from the use.

Bargain !