Car leasing/PCP. Am I missing something?

sebtomato

I understand that, if I could get a 0% credit AND an incentive/discount from the manufacturer to take on a finance deal on a new car, it would make financial sense to get a PCP or PCH.
However, I can't see those deals.
Most deals I can see have an APR of 4% or more, so surely a cash purchase is better?
Surely, "leasing" is the same as buying upfront, when it comes to depreciation: it would be included in the finance, but paid progressively as opposed to when the car is sold (cash purchase).

32Battalion

And even if you got a 0% deal you would be paying for it somewhere.  Don't worry about 0% deals just do the arithmetic.

verybigchris

Penelopa.Pitstop said:

...Assuming cost of leasing is much lower than actual depreciation. Deal must be good, not just first offer you find. So far, I went through 3 leased cars (PCH) and every time it was subsidised by manufacturer making it cheap. Have 4th car leased and in this case cost of leasing was similar to cost of depreciation, but I decided I don't want to take a risk if market dives and I will have heavily depreciating car on my hands....

This is the bit I can't get my head around. Why on earth would leasing ever be cheaper than depreciation? Depreciation isn't an optional extra that can be magicked away, it's a function of the market: a new car has a market price, a used car has a lower market price, and wrapping the car up in a lease deal doesn't change those facts. If the lease is cheaper than open-market depreciation, then the manufacturer/lease company would make more profit selling the car on the open-market.

neilmcl

verybigchris said:

Penelopa.Pitstop said:

...Assuming cost of leasing is much lower than actual depreciation. Deal must be good, not just first offer you find. So far, I went through 3 leased cars (PCH) and every time it was subsidised by manufacturer making it cheap. Have 4th car leased and in this case cost of leasing was similar to cost of depreciation, but I decided I don't want to take a risk if market dives and I will have heavily depreciating car on my hands....

This is the bit I can't get my head around. Why on earth would leasing ever be cheaper than depreciation? Depreciation isn't an optional extra that can be magicked away, it's a function of the market: a new car has a market price, a used car has a lower market price, and wrapping the car up in a lease deal doesn't change those facts. If the lease is cheaper than open-market depreciation, then the manufacturer/lease company would make more profit selling the car on the open-market.

But lease/fleet hire companies don't buy cars at market price, they can negotiate huge discounts on new cars, quite often more than enough to cover any depreciation before they then sell the vehicles on at auction at the end of the lease periods.

Penelopa.Pitstop

verybigchris said:

This is the bit I can't get my head around. Why on earth would leasing ever be cheaper than depreciation? Depreciation isn't an optional extra that can be magicked away, it's a function of the market: a new car has a market price, a used car has a lower market price, and wrapping the car up in a lease deal doesn't change those facts. If the lease is cheaper than open-market depreciation, then the manufacturer/lease company would make more profit selling the car on the open-market.

A few explanations:
1. Bulk buying by finance company with big discount.
2. Manufacturer wants to push certain model on a market for different reasons: new model, outgoing model, not selling model, competiting with other brand with similar model, etc.
It's difficult to make a profit if certain model is not selling and sitting in stock or there are unsold factory slots. But to get good deal, you have to chase the deal, not the model. For example, right now there's not a lot of deals around, so I'm just sitting it out and not leasing anything new. Last good deal in my opinion was for Volvo V60 T5 model in May/June. Stock sold out and lease offer ended.

I've seen invoices for 3 cheap leased cars I had. First had 17% discount, second 25%, third 29%,  that's from RRP price. Most of these discounts would be available to individuals by going through a broker like Orangewheels, Broadspeed, etc.

32Battalion

As Penelopa says and that is why you need to be able to spot a great deal and you can only do that if you understand the market and that takes patience.  You go for the deal and not the car.

NaughtiusMaximus

sebtomato said:

I understand that, if I could get a 0% credit AND an incentive/discount from the manufacturer to take on a finance deal on a new car, it would make financial sense to get a PCP or PCH.
However, I can't see those deals.
Most deals I can see have an APR of 4% or more, so surely a cash purchase is better?
Surely, "leasing" is the same as buying upfront, when it comes to depreciation: it would be included in the finance, but paid progressively as opposed to when the car is sold (cash purchase).

If you have the the funds to make a cash purchase, the cheapest way of doing so is to (counter intuitively) take out a PCP/PCH deal to take advantage of the deposit contribution then settle the finance within 14 days to avoid paying any interest.

Deposit contributions are effectively discounts on the list price which dealers can afford to offer due to the hefty commission they receive for selling the finance package, for this reason you will not be able to negotiate the same discount for a straight cash purchase.

EssexExile

I wanted to buy my last two cars with cash but both times the dealer offered a deposit contribution if I took out the 3 year 0% HP. It seemed rude to refuse.

verybigchris

neilmcl said:

verybigchris said:

Penelopa.Pitstop said:

...Assuming cost of leasing is much lower than actual depreciation. Deal must be good, not just first offer you find. So far, I went through 3 leased cars (PCH) and every time it was subsidised by manufacturer making it cheap. Have 4th car leased and in this case cost of leasing was similar to cost of depreciation, but I decided I don't want to take a risk if market dives and I will have heavily depreciating car on my hands....

This is the bit I can't get my head around. Why on earth would leasing ever be cheaper than depreciation? Depreciation isn't an optional extra that can be magicked away, it's a function of the market: a new car has a market price, a used car has a lower market price, and wrapping the car up in a lease deal doesn't change those facts. If the lease is cheaper than open-market depreciation, then the manufacturer/lease company would make more profit selling the car on the open-market.

But lease/fleet hire companies don't buy cars at market price, they can negotiate huge discounts on new cars, quite often more than enough to cover any depreciation before they then sell the vehicles on at auction at the end of the lease periods.

But having got the cars at a discount to market price, why send them out on cheap leases instead of selling them to the public at market price and making a greater and faster profit? If the answer is because the buyers aren't there, then surely by definition it isn't "market price" after all?

ontheroad1970

verybigchris said:

neilmcl said:

verybigchris said:

Penelopa.Pitstop said:

...Assuming cost of leasing is much lower than actual depreciation. Deal must be good, not just first offer you find. So far, I went through 3 leased cars (PCH) and every time it was subsidised by manufacturer making it cheap. Have 4th car leased and in this case cost of leasing was similar to cost of depreciation, but I decided I don't want to take a risk if market dives and I will have heavily depreciating car on my hands....

This is the bit I can't get my head around. Why on earth would leasing ever be cheaper than depreciation? Depreciation isn't an optional extra that can be magicked away, it's a function of the market: a new car has a market price, a used car has a lower market price, and wrapping the car up in a lease deal doesn't change those facts. If the lease is cheaper than open-market depreciation, then the manufacturer/lease company would make more profit selling the car on the open-market.

But lease/fleet hire companies don't buy cars at market price, they can negotiate huge discounts on new cars, quite often more than enough to cover any depreciation before they then sell the vehicles on at auction at the end of the lease periods.

But having got the cars at a discount to market price, why send them out on cheap leases instead of selling them to the public at market price and making a greater and faster profit? If the answer is because the buyers aren't there, then surely by definition it isn't "market price" after all?

They are different markets.  One is retail market, the other non retail.  So they are both market prices for their respective markets