Carwow offer prices lower for PCP
Comments
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Because they are ultimately having to borrow the money to cover the loans they're making, which isnt free. They also have to deal with a significant percentage of returned cars, voluntary terminated cars, problems etc, which all eat in to their slim margin.
Used car finance is more expensive but new car finance is usually at 2.9% APR or 4.9% APR.
They've went further than that - they have their own finance companies.
They're not making large amounts of profit on each car. They're making money, yes, but their overall costs are high.
Lookin at an offer on an S3, they're charging 6.7% APR on a new car which is actually quite high as you say. Theres approx £5,800 interest charges but they're offering £1,800 incentive so £4,000 in interest. This isnt "profit" as they have to finance it from somewhere / sell on the loans to investment companies, plus they've overheads and commissions to pay.
Not saying they're not making money at it and its definitely a profit centre, but theres risk with it too.
Ah of course. I am negating the risk aspect.
In my head, the overheads (dealerships, R&D, advertising, etc.) were presumably being factored into the cost of the car, since these were being done before the big rise in car finance. By adding finance as a major part, they have sourced another revenue stream, which I can only imagine is more profitable (probably in proportional sense, rather than absolute) than they were making on the cars themselves! Of course this is just my uninformed opinion, and very happy to accept I am wrong!
However there has to be a reason finance is pushed so heavily...! Bit like the margins on their after-market sales must be high, hence their insistence on pushing them!0 -
Ah of course. I am negating the risk aspect.
In my head, the overheads (dealerships, R&D, advertising, etc.) were presumably being factored into the cost of the car, since these were being done before the big rise in car finance. By adding finance as a major part, they have sourced another revenue stream, which I can only imagine is more profitable (probably in proportional sense, rather than absolute) than they were making on the cars themselves! Of course this is just my uninformed opinion, and very happy to accept I am wrong!
However there has to be a reason finance is pushed so heavily...! Bit like the margins on their after-market sales must be high, hence their insistence on pushing them!
PCP is pushed quite heavily because it produces returning customers every 3 years who come back because they can rinse and repeat. How efficient it is for the customers depends on the rates. There is little equity in the car at the end of the term, so the customer often has to come up with a deposit again.
On top of that, the dealer has a 3 year old car he can sell, perhaps to those who are foolish enough to buy a second hand car on PCP - usually at a higher APR again.0 -
Ah of course. I am negating the risk aspect.
In my head, the overheads (dealerships, R&D, advertising, etc.) were presumably being factored into the cost of the car, since these were being done before the big rise in car finance. By adding finance as a major part, they have sourced another revenue stream, which I can only imagine is more profitable (probably in proportional sense, rather than absolute) than they were making on the cars themselves! Of course this is just my uninformed opinion, and very happy to accept I am wrong!
However there has to be a reason finance is pushed so heavily...! Bit like the margins on their after-market sales must be high, hence their insistence on pushing them!
You're right! Other than the dealerships are franchises - they're not (usually) owned by the manufacturer.
Finance / PCP is pushed heavily because it sells cars. Simples. If they can get you to take finance there and then, then thats much better than you leaving the building and going elsewhere to org finance and maybe never coming back.
Sales of "add-ons" is where the profit is these days for dealers - net profit on a new car might be anything from just a few pounds to a few hundred on a typical new car.0 -
Mercdriver wrote: »PCP is pushed quite heavily because it produces returning customers every 3 years who come back because they can rinse and repeat. How efficient it is for the customers depends on the rates. There is little equity in the car at the end of the term, so the customer often has to come up with a deposit again.
On top of that, the dealer has a 3 year old car he can sell, perhaps to those who are foolish enough to buy a second hand car on PCP - usually at a higher APR again.
Exactly. It gets the dealership another bite at the cherry by reselling the trade in after three years and gets people nicely in to a three year cycle of buying a new car which suits the manufacturer.
Typically a dealer will resell a three year old car on their forecourt, however the trade ins against that car will be sold off to "back street" smaller dealers so you end up with a tiered structure of new car / approved used / used car selling.0 -
As you are in a fortunate position and you have the cash, have you considered going for a car that's just 1 years old?
I know that it takes the shine off of a new car but the savings from something that is just barely used are huge. It will still be under warranty, you will probably have some perishables that are slightly worn but you will save all that depreciation.0 -
It's simple. The key is to shift stock of new cars and what better way to get customers coming back again and again to buy a shiny new cars that most wouldn't normally be able to afford to buy outright than to offer incentives for finance.However there has to be a reason finance is pushed so heavily...! Bit like the margins on their after-market sales must be high, hence their insistence on pushing them!0 -
Or in my case, try PCP and get a new car because it sounds like a great fun, half way through realise I am haemorrhaging far too much of my hard earned disposable income on renting a car, cry in disbelief at the rate of depreciation and amount of interest I am paying, sell the thing off to a indie dealer for a much more sensible price and never touch a new car with high interest cost finance again....
I was driving around in a great car and should have been loving it....couldn't wait to get the sodding thing sold!0 -
Why did it take you so long? One of the "advantages" of a PCP is that you have a new car based on a fixed monthly outlay, something you should be budgeting for from the outset.Or in my case, try PCP and get a new car because it sounds like a great fun, half way through realise I am haemorrhaging far too much of my hard earned disposable income on renting a car, cry in disbelief at the rate of depreciation and amount of interest I am paying, sell the thing off to a indie dealer for a much more sensible price and never touch a new car with high interest cost finance again....
I was driving around in a great car and should have been loving it....couldn't wait to get the sodding thing sold!0 -
Sorry that was poorly written. I meant to say ‘realise I wasn’t happy haemorrhaging...’.
Of course I was well aware of how much it was going to cost me over 24months. However I didn’t understand it to the level I do now, and believed the spiel from the dealer that I will have X many thousands in equity towards the end. Instead realising that it was going to cost me more than I hoped.
Let’s be honest, when there is the prospect of a brand new car, you tend to exhibit every psychological bias going to convince yourself it’s a good idea...
I think the problem with the way it’s sold is that it is sold as everything, except what it is. It’s a loan, and a high cost interest one at that, to borrow and buy a brand new car with the agreement you will sell it back to the dealership at rock bottom market value...
Fixation on monthly cost (sometimes even ignoring any upfront payments) takes away from the costs that matter; is the level of predicated depreciation acceptable, and is the cost of interest on the amount you are borrowing acceptable. On new cars, and on PCP, my answer to those is now generally ‘no’....0 -
Totally irrelevant in the case of a PCP, the finance company takes all the risk in terms of depreciation.Fixation on monthly cost (sometimes even ignoring any upfront payments) takes away from the costs that matter; is the level of predicated depreciation acceptable, and is the cost of interest on the amount you are borrowing acceptable. On new cars, and on PCP, my answer to those is now generally ‘no’....0
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