59% of new car "sold" now on contract rental

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nick mercedes

MB Enthusiast
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"So popular have the new PCP deals become that, in in the twelve months to July 2015, the number of new cars bought by people using them was 705,000."

"That was nearly 59% of all private new cars sold in the UK during that period"

""A C-class Mercedes can cost just the same as a Mondeo in terms of monthly repayments,""

"Apparently more than 80% of Mercedes sales in the UK now take place via this sort of leasing arrangement"

The way we buy cars today - personal contracts and leases - BBC News

So what happens to when the cheap money fuelling these deals runs out?

And what happens to the GFV of diesel Volswagens/Mercedes/Audis/BMWs?
 
So what happens to when the cheap money fuelling these deals runs out?

Luckily? for those that rent cars rather than buying, they won't see much of a downside, other than probably having to drop down a level or two when they next need to swap cars. Or staying at the same level and forking out more.

I guess in the short term, manufacturers' marketing arms will continue to subsidise in house finance deals as much as they can, but that won't last for long you feel.

The bigger problem is for home owners tied into longer term deals with charities calculating that a significant number will be facing hardship with even the slightest of interest rate rises. Successive governments have made a rod for their own back here. As Tarney noted, progressive economies need a certain level of inflation in order to prosper, yet with this, the most vulnerable in the electorate face the biggest hardship and in turn, become the most likely to vote out the govt. responsible.
 
The margins are simply built into artificially inflated "list prices" hence all the discounts that are available through brokers.

The SL we ordered last month was available at a discount of nearly 25% off list.

It's not "cheap money" and it won't dry up as long as the economy stays relatively stable. Interest rates will have to start increasing in the next 12 months, but will probably do so in 0.2 to 0.5% points so not to cause any huge problems.

It will be interesting to see what happens when rates start to increase. I can't imagine much will change.
 
It's not "cheap money"

On the contrary, almost all vehicle finance programmes are funded by Medium Term Notes (5 to 15 yrs) or Commercial Paper (270 days from memory) borrowing, with borrowing rates set at a risk premium over the local bank base rate. As such current auto loan rates reflect bank rates plus some inertia to reflect what the money was originally borrowed at. (I was co owner in a business that provided the International Primary Markets Association with its global trade platform for Bonds, MTNs, CP, Repos - since sold to a US firm)

Loans can be and are subsidised by manufacturers marketing departments , normally a couple of percent, but that tends to be for short term stock acceleration.

Here's Daimler's statement:

The majority of Daimler bonds are issued under a Multi-Currency Multi-Issuer European Medium Term Note Programme. Currently, the following issuers are covered:
Daimler AG, Stuttgart, Federal Republic of Germany
Mercedes-Benz Australia/Pacific Pty. Ltd., Mulgrave, Victoria, Australia
Daimler International Finance B.V., Utrecht, The Netherlands
Daimler Japan, Ltd., Tokyo, Japan
Daimler Canada Finance Inc., Montreal, Quebec, Canada
 
It's not cheap money if it's loaded at the front with inflated sales prices.
 
It will be interesting to see what happens when rates start to increase. I can't imagine much will change.

But what happens if interest rates rise as the Chinese economy tanks, and the future value of premium German cars goes into free fall due to the makers blagging the emissions figures?

If car makers have got used to selling 6 out of 10 cars on cheap leases, what happens when the cost of borrowing makes those deals impossible?
 
It's not cheap money if it's loaded at the front with inflated sales prices.

Overpriced cars are overpriced whether money is cheap or expensive.

But what happens if interest rates rise as the Chinese economy tanks, and the future value of premium German cars goes into free fall due to the makers blagging the emissions figures??

Much more likely due to cheap finance feeding over supply.
 
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But what happens if interest rates rise as the Chinese economy tanks, and the future value of premium German cars goes into free fall due to the makers blagging the emissions figures?

If car makers have got used to selling 6 out of 10 cars on cheap leases, what happens when the cost of borrowing makes those deals impossible?

This won't happen unless governments impose punitive financial penalties on owners. Which they won't.

To the drivers of these 'mapped' cars there will be no discernible change to ownership..
 
This won't happen unless governments impose punitive financial penalties on owners. Which they won't.

But aren't VW facing $18bn in fines?

Why would America let them off?

I doubt they'll face any fines in Germany though?

To the drivers of these 'mapped' cars there will be no discernible change to ownership..

But isn't the problem that you can have good MPG and power, but you can't if they are remapped to be clean?

Bit of a bummer if your 75mpg nippy diesel turns out to be a 35mpg slug because some Germans were slippery?
 
Much more likely due to cheap finance feeding over supply.

Bit of a perfect storm for car makers?

Take away the future values and the access to cheap capital to fund the deals and it's all over?

Apart from Nissan Micras, those funny boxy Skodas and Honda Jazz that seem to be pilotted by minted up old people who actually have some money.
 
But aren't VW facing $18bn in fines?

Why would America let them off?

I doubt they'll face any fines in Germany though?



But isn't the problem that you can have good MPG and power, but you can't if they are remapped to be clean?

Bit of a bummer if your 75mpg nippy diesel turns out to be a 35mpg slug because some Germans were slippery?



By owners I meant the car owner, not the manufacturer.

It'll be all but impossible to force owners to have their cars 'remapped'.
 
If the authorities tighten up on the emissions test there will be far more older vehicles failing.

"There are already plans to adopt more stringent emissions and mpg tests in the EU, and the VW diesel scandal will surely add fuel to the fire in showing just how important appropriate testing standards are for car buyers.

A World Harmonised Light Vehicle Testing Procedure (WLTP) is scheduled to come into force in 2017, and will introduce a global set of emissions testing standards. The WLTP is developed to be more representative of real world driving conditions, with more dynamic braking, acceleration and speed times."
 
They'll simply start selling more petrol cars.
 
Overpriced cars are overpriced whether money is cheap or expensive.

Daft statement. Cost of ownership is all that matter to the end user.

Purchase price + finance costs is what matters.

The only time it's relevant to look at either in isolation is if you're paying in full without finance.
 
Here's Daimler's statement:

The majority of Daimler bonds are issued under a Multi-Currency Multi-Issuer European Medium Term Note Programme. Currently, the following issuers are covered:
Daimler AG, Stuttgart, Federal Republic of Germany
Mercedes-Benz Australia/Pacific Pty. Ltd., Mulgrave, Victoria, Australia
Daimler International Finance B.V., Utrecht, The Netherlands
Daimler Japan, Ltd., Tokyo, Japan
Daimler Canada Finance Inc., Montreal, Quebec, Canada

The above list highlights why, at least in MB's case, the money won't dry up.

They own their own "banks" which lends money to buy the products it's selling.

It's unlikely to stop lending itself money and any point in the near future.
 
The above list highlights why, at least in MB's case, the money won't dry up.

They own their own "banks" which lends money to buy the products it's selling.

It's unlikely to stop lending itself money and any point in the near future.

Oh really? I must write to VW and remind them that apart from fiddling emissions they are also lying when they make public financial statements that its finance subs issue debt on the global markets to finance vehicle loan programmes.

Click thorough for the offending statement.

Volkswagen Group Debt Issuance Programs

Edit: Here you go, I am back at my desk now. Here's a sample from the statement. Commercial paper is short term debt, typically less than a year and normally taken to fill short term gaps in cashflow needs or when rolled over, as these are, equate to long term borrowing.

The following issuance is €10Bn with multiple financial subsidiary issuers and with funds delivered in currencies to match local loan currencies.

Euro 10.0 bn Multi-Currency Commercial Paper Programme

Issuers:
Volkswagen Aktiengesellschaft
Volkswagen International Finance N.V.
(guaranteed by Volkswagen AG)
Volkswagen International Luxemburg S.A.
(guaranteed by Volkswagen AG)
VW Credit, Inc. (guaranteed by Volkswagen AG)
Porsche Holding GmbH
(guaranteed by Volkswagen AG)
Volkswagen Financial Services AG
Volkswagen Leasing GmbH
(guaranteed by Volkswagen Financial Services AG)
Volkswagen Financial Services N.V.
(guaranteed by Volkswagen Financial Services AG)
SkoFIN s.r.o., Praha, Czech Republic
(guaranteed by Volkswagen Financial Services AG)'
Volkswagen Finans Sverige AB (publ)
 
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