25% drop in second hand car prices possible

[Satch]

http://www.telegraph.co.uk/news/209...ces-'will-fall-by-25-per-cent'-this-year.html

Ah the leaden hand of a tax raising Government at work


"Adrian Rushmore, managing editor of Glass's, said: "This is among the worst, if not the worst, additional change in prices we have recorded."

And woe for some of those on PCP's:


"The fall in used car prices is particularly concerning for motorists who bought new cars using finance schemes. The AA says it has been contacted by a growing number of drivers who now find themselves in negative equity.

Edmund King, the President of the AA said: "We are talking to people who are extremely concerned as they can't afford to run their vehicles but they are trapped as they can't sell their cars. It is a double hit for many motorists as they can't downgrade."

Under personal contract purchase plans, offered by most car dealers, motorists are offered a minimum guaranteed future value (MGFV) for their vehicles. This has traditionally been a conservative estimate of the car's value in two or three years' time.

People then pay an initial deposit and make monthly repayments for their new car - less the MGFV - for several years.

After the deal ends, buyers have the option of either paying the MGFV and keeping the car or handing it back. In the past, drivers have found their cars worth thousands of pounds more than the MGFV. They use this money to pay a deposit for another car and start a new deal.

However, experts now warn that motorists coming to the end of purchase plans face the prospect of having to pay more for their vehicle than it is worth. Alternatively, they can hand it back but will have no deposit for a new model.

Matt Sanger of What Car? Magazine, said: "Many people will not yet realise the extent to which their cars have depreciated."

 

[jadefox]

Surely anyone taking out a PCP and expecting (if not banking on getting) more than the MGFV is a little deluded

Slightly reminiscent of the Endowment mortgages - I'm sure there can't be that many that would expect to get more back would there!??

 

[Dragon]

Surely anyone taking out a PCP and expecting (if not banking on getting) more than the MGFV is a little deluded

Slightly reminiscent of the Endowment mortgages - I'm sure there can't be that many that would expect to get more back would there!??

Oop! there are no values in cars, then why are we keep buying cars?

 

[raymont]

If the GFV of the vehicle is more than the market value at the end of the contract I suspect not many people are going to pay, say, £15,000, for a car worth, say, £10,000. So the finance org gets to keep a vehicle it will sell for around £10k, probably at auction, or maybe through one of its own outlets (e.g. MB Direct).

What happens if the person handing it back says "I'll give you £12,500 for it"?

A sane business would accept that, it's better than £10,000. Do you think this will happen?

 

[Friz]

No kidding. I have never, and I mean ever, made money from selling a car that I had not paid off. I mean, look at the depreciation in the first year alone.

 

[Mudster]

Surely anyone taking out a PCP and expecting (if not banking on getting) more than the MGFV is a little deluded

Slightly reminiscent of the Endowment mortgages - I'm sure there can't be that many that would expect to get more back would there!??

Historically the finance companies have been very conservative in MGFV, by the very fact it's guaranteed, they built in a reasonable margin for error, after all, they don't want to be financing any part of your vehicle do they.

So in answer to your question, yes it's common if not quite normal for the vehicle to be worth more than the MGFV.

I've just been quoted Finance leases for two vehicles:

The first has a list of £54,727.00 - MGFV @ 36 months 30K miles = £20,653.62 (37.73% of new price)

The second has a list of £20,460 - MGFV @ 36 months 30K miles = £7,288.99 (35.62% of new price).

I'd expect both of these vehicles to be worth closer to 50% of their new value in reality. They will both be low mileage and have full main dealer Service histories, run as company vehicles.

Of course if there is a massive drop in used values as suggested then this would effect deals such as this, but generally the margin for error has been quite large unless the dealer in question has been artificially increasing the MGFV in an attempt to lower monthly payment and shift more vehicles....If this is the case, it's something that's more the concern of the FSA than anyone else.

 

[Friz]

And I really hope that UK cars drop by 25%.

*rubs hands in anticipation of importing something sporty*

 

[Rory]

I've just been quoted Finance leases for two vehicles:

The first has a list of £54,727.00 - MGFV @ 36 months 30K miles = £20,653.62 (37.73% of new price)

The second has a list of £20,460 - MGFV @ 36 months 30K miles = £7,288.99 (35.62% of new price).

I'd expect both of these vehicles to be worth closer to 50% of their new value in reality. They will both be low mileage and have full main dealer Service histories, run as company vehicles.

Without knowing the vehicles it's impossible to have a view on that, but the value does depend (amongst other things) on how you intend to dispose of the vehicles. P/X against another car could produce a good result if there are incentives available, or selling privately might give the best return.

However there was a poster on here who was offered less in p/x for his 3yr old E Class than the GFV he was given with a PCP quote. My brother has handed back 2 cars, a Ford and an Audi, as the p/x offers were less the GFV. I think you could be disappointed by how little a 3yr old cars are worth, especially as straight trade buys.

Obviously it's possible to set the GMFV really low, but the resulting monthly payments kinda defeat the attraction of PCP. Unless heavily subsidised, even that £20K example above must have a monthly payment of something like £400/mth.

 

[raymont]

GFV often set low to make it likely that there would be a 'profit' come the end of the agreement so that the 'profit' could be used as a contribution to the down payment on the next deal. Thereby keeping you in the system.

An unusually high GFV, as sometimes offered by MB, seems to me to be a disguised discount. E.g. MB offers on SUVs, big front end discount and an unusually high GFV.

 

[IanA2]

I've just handed back the ML270cdi SE. They wanted £18.1K for it which I thought was far too much. I offered to take it off their hands but met a brick wall.

Details: 30,710 miles. No comand, three years old, in good nick.

As I suspected they would, they're trying it on on the the dings and dents front! Fortunately I took Pics, but it still leaves a bad taste in the mouth!

 

[amwebby]

Presumably this will drive up the prices of cars pre 2001, as their car tax doesn't go up. It has certainly put me off upgrading my 2000 W215 until sanity returns.

 

[Mudster]

Without knowing the vehicles it's impossible to have a view on that, but the value does depend (amongst other things) on how you intend to dispose of the vehicles. P/X against another car could produce a good result if there are incentives available, or selling privately might give the best return.

However there was a poster on here who was offered less in p/x for his 3yr old E Class than the GFV he was given with a PCP quote. My brother has handed back 2 cars, a Ford and an Audi, as the p/x offers were less the GFV. I think you could be disappointed by how little a 3yr old cars are worth, especially as straight trade buys.

Obviously it's possible to set the GMFV really low, but the resulting monthly payments kinda defeat the attraction of PCP. Unless heavily subsidised, even that £20K example above must have a monthly payment of something like £400/mth.

This is finance lease , not PCP. Likely I'd buy these outright at the end and sell privately. I wouldn't be considering this type of arrangement if I was intended to trade anything at the end, in that case, contract hire would be far more suitable.

Mercedes C63T - £812.16 p/m
Audi A3 1.4 Tfsi S-Line - £309.39 p/m

 

[crockers]

Historically the finance companies have been very conservative in MGFV, by the very fact it's guaranteed, they built in a reasonable margin for error, after all, they don't want to be financing any part of your vehicle do they.

So in answer to your question, yes it's common if not quite normal for the vehicle to be worth more than the MGFV.

I've just been quoted Finance leases for two vehicles:

The first has a list of £54,727.00 - MGFV @ 36 months 30K miles = £20,653.62 (37.73% of new price)

The second has a list of £20,460 - MGFV @ 36 months 30K miles = £7,288.99 (35.62% of new price).

I'd expect both of these vehicles to be worth closer to 50% of their new value in reality. They will both be low mileage and have full main dealer Service histories, run as company vehicles.

Of course if there is a massive drop in used values as suggested then this would effect deals such as this, but generally the margin for error has been quite large unless the dealer in question has been artificially increasing the MGFV in an attempt to lower monthly payment and shift more vehicles....If this is the case, it's something that's more the concern of the FSA than anyone else.

I think expecting 50% on a car after 3 years is very optimistic... also you havent state expected mileage...one person's definition of low isnt the same as another persons .. so I would assume you mean less than the average of 36,000 over that period.

Why not look into HP Finance -- when the car reaches 50% of the deal you can hand it back and walk away...mind you I have no idea of you cash flow etc and tax position so it may not make sense...

Is the first one your C63 ?? That may well get hammered in residuals - depending on taxation etc or if still rare hold up well..

 

[Dieselman]

GFV often set low to make it likely that there would be a 'profit' come the end of the agreement so that the 'profit' could be used as a contribution to the down payment on the next deal. Thereby keeping you in the system.

I thought that was to protect the financier/dealer from having a car handed back that was worth less than the GFV, thus leaving them with a loss situation.
In addition because there is a greater amount on finance due to the smaller offset then they charge more interest on the loan.
In essence the customer is paying more whilst reducing the finance companies risk.

 

[raymont]

I thought that was to protect the financier/dealer from having a car handed back that was worth less than the GFV, thus leaving them with a loss situation.
In addition because there is a greater amount on finance due to the smaller offset then they charge more interest on the loan.
In essence the customer is paying more whilst reducing the finance companies risk.

I think we're both right. Your comment makes sense and the 'profit / surplus' (actual value less GFV) enables the manufacturer / dealer to get the punter into another car with only a small cash contribution and a continuation of similar monthly payments to before. Makes the sale easy.

 

[IanA2]

I thought that was to protect the financier/dealer from having a car handed back that was worth less than the GFV, thus leaving them with a loss situation.
In addition because there is a greater amount on finance due to the smaller offset then they charge more interest on the loan.
In essence the customer is paying more whilst reducing the finance companies risk.

Well that's precisley what has happened in my case. See above. The GFV was £18.1K I thought that was way too much so walked away. I can't see them making any money on it.

 

[hawk20]

I think the AA have a rather odd way of looking at it. To me, who has a PCP, the more secondhand prices fall, the more I shall be glad I took an MB PCP deal. If the depreciation on 3 year old cars becomes enormous I just hand the car back at the end of the 3 year term. Their loss not mine.

A lot of the MB deals have offered about 50% residual as mine did, and a sensible APR, and a reasonable discount on the new car. Good deals.

I accept that those who want to leave a PCP deal early because of changed circumstances may find it expensive to do so. But then I don't think it sensible to take a PCP deal if you may want to leave early.

I specifically took PCP deals and chose the A Class because, as I had posted, I expected the next few years to consist of govts clobbering car owners due to their belief (not mine) that man is causing global warming and I did not want the large but uncertain depreciation that goes with big cars (much as I love them to drive). I also expected huge improvements in economy and technical change in cars over the next few years. So a guaranteed residual is appealing. As is having cars below the level that MPs wish to clobber.

 

[Dieselman]

Well that's precisley what has happened in my case. See above. The GFV was £18.1K I thought that was way too much so walked away. I can't see them making any money on it.

Don't you mean it's the opposite of your case. You had a high GVF so paid lower payments and interest which then backfired on the finance company as the vehicle is worth less than the GVF.

you won..

I've recently heard of someone handing a car back with over £4k of negative equity. They offered to buy it at the lower value and the finance company declined and sold it at auction for...just less than they offered...

Not sure where I heard that...might have been here..???

 

[Satch]

This gives a good idea of one of the big downward price drivers in all this in the volume market:

"Finally, fleet managers need to know when to sell. Today’s market is tough and prices are lowered to keep stock moving, which means that price expectations for a certain vehicle may not be met.

“It’s important not to get too carried away with what you believe is the correct value for your vehicle,” says Mr Henstock.

“If you’re advised it’s not worth what you think then don’t try in vain to go after that price.”

“All fleet managers need to know the remarketing basics,” adds Mr Pilkington, “but I think the hardest thing when it comes to disposing of vehicles is to be brave enough to get it sold.”

http://www.fleetnews.co.uk/news/story/?nID=47466

 

[Dieselman]

How many fleets are purchased now.? The figure must be tiny.