Drivers Face Negative Equity

[scumbag]

Your argument is like saying pretty women should be illegal because they force men to enter into relationships 'they would not normally have chosen'.

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stunning analagy, even if complete ****** with no relation to this point.


I said, it should not be too difficult to make an assertion. But it does seem you want those who pay cash, not to benefit, not even try something that would allow them to benefit.

Whats the worse thing that could happen? They would say no, you can't have it.

 

[Birdman]

My Dad's partner always buys his cars cash, in Sept 2005 he wanted an S320cdi.
He was adamant that he was going to get one a year old at £45k and pay cash, rather than pay £55k new.
However Mercedes were doing a deal at £509+vat to buy a new one over 3 years with an option to buy it at the end for £34K.

This implies obtaining finance at an annual 11% of the principle (at list) and that all the depreciation - £21,000 over 3 years - was born by the financier.

Alternatively, the true accounting cost of the product was around £34,000 from day 1 and therefore the seller -Mercedes Benz - was charging annual interest at about 16% of the true cost, while the final trade-in value was pitched at a level which allowed a resale at break-even, or show a profit.

I would go with the second interpretation. However, the success of the model meant that the weight of three year old vehicles spoiled the trade-in market. And now the credit crunch has destroyed the new car market too.

So the finance providers - MB in this case - have got a double whack.

And the model no longer works.

So in essence, the old financing model gave such good value to the buyer that it destroyed the provider's profits.

Short-termism or what?

As always, the question is not what WAS the best way to get a car on the drive but rather, what is financially the cleverest way to do so today.

Buy a banger and wait a while, perhaps? Hang on to the one you've got?

Any ideas??

 

[Dryce]

I would go with the second interpretation. However, the success of the model meant that the weight of three year old vehicles spoiled the trade-in market. And now the credit crunch has destroyed the new car market too.

The truth probably lies somewhere in between.

Part of MB's objective with the PCP is to maintain confidence in pricing (both new list, and residual). If they quote a low residual they undermine the used car pricing. If they discount the list it has the same effect.

Good residuals lubricate the PCPs / Finance market and shifts metal. The confidence in the used marketplace also supports the dealers' pre-owned sections.

Bit of a house of cards once things go south.

 

[gIzzE]

As always, the question is not what WAS the best way to get a car on the drive but rather, what is financially the cleverest way to do so today.

Buy a banger and wait a while, perhaps? Hang on to the one you've got?

Any ideas??

But they are at it again now with contract hire packages, they are writing off any profits in the car, both Mercedes AG and UK, to shift some metal and keep some money coming in over the next 3 years. Better than them sitting in a field somewhere depreciating to probably the same point as they will if being driven and getting a small return.


Of course you can buy an older car, I have just swapped a 57 plate 3 series sport touring for a 10 year old E320 W210 estate, it cost me £3800 rather than the £28k the 3 series cost.
I'm probably going to loose £2000 over the next two years I own it.

However, so far I have needed to buy a new set of wheels for £200 used as the originals were buckled, then tyres for £400. Needs a Service B in 3k miles (BMW was an oil service at 24k miles for £120 and then an inspection I at 48k miles for £240) which will cost a few hundred, the fog light is knackered so I need another one of them, the mats needed replacing at £70, the rear seat belts both need replacing for the 7 seat option at £200.

All in all I reckon that car will cost me around £150 a month to run as long as nothing major goes wrong, that is tyres, servicing etc. etc.

With some of the deals about for say a brand new C180k for £230 a month and no worries about warranty, servicing, tyres etc. I'm not even buying a 10 year old car is worth it while Merc is throwing money to move some metal.

 

[Rory]

There is also the advantage that you can take the credit out, get all the discounts, then pay off the outstanding balance withint the first 30days.

We looked at Toyota Yaris for our daughter almost 2 years ago and Toyota has a pretty exceptional (to any other deal that was around at the time) £2000 deposit contribution on their HP. Two different dealer and a broker all advised us to take the finance and then pay it off immediately.

Contract hire have early payment redemption fees, but I don't recall seeing one on a PCP.

I'm not sure how it works with PCP but a significant complication is the issue that the GFV is only valid at the end of the term and that there's a contracted mileage over the term so calculating the amount outstanding might not be straightforward. Maybe you can just pay the GFV in advance and settle the total of the monthly payments with the statutory amount of interest (2mths)?

 

[gIzzE]

Contract hire needs to be paid in full, so no point not seeing through to the end.

PCP is front loaded so all charges put on the front, so with say 9% apr on a 36 month term you will still owe around what you borrowed even at 25 months.
Again, you need to see the term out or it starts to get very costly.



I am totally and utterly against PCP, it is only now with the money being thrown at PCP and Contract Hire that is makes sense.

Audi are currently offering 1.1% APR on the Q7 using PCP, but it is on deal that is loaded so you will loose your deposit if you exit early, but I reckon the car will be worth £16k at the end, so you should be able to hand it back and get your deposit back.


Audi Q7 3.0 TDI S line tiptronic 3-year, 10,000 mile per annum
Solutions example:
35 monthly payments of
Customer deposit
Dealer deposit contribution
On-the-road retail cash price
Amount of credit
Optional final payment
Total amount payable
Total amount payable by customer
Acceptance fee*
Option to purchase fee**
Excess mileage
£589.00
£6,885.53
£4,000.00
£40,850.00
£29,964.47
£9,940.80
£41,501.33
£37,501.33

£125.00
£60.00
13.80p per mile


http://www.audi.co.uk/audi/uk/en2/F...s/Personal_Contracts/Q7_Offers/Solutions.html

 

[Rory]

So the finance providers - MB in this case - have got a double whack.

And the model no longer works.

So in essence, the old financing model gave such good value to the buyer that it destroyed the provider's profits.

Short-termism or what?

I know you don't mean short-termism in this way, but one criticism of MB's deals is that they are usually only valid for a very short period so that to take advantage of them you generally have to be looking at vehicles already in stock in the UK.

It could be that the S Class deal mentioned was simply designed to clear out some cars that were kicking around.

 

[hawk20]

I was not making the law up over breakfast.

I was merely pointing out that you could have used that to your advantage by having suggesting it to a dealer.

Of course, you can always blame me for writing the law, however, you could quite easily have used it the way I said and see what they do.

I understand its for credit and the credit consumers act and all that. However, if you feel that its fair to offer discounts only to those who take out PCP's help yourself.

I don't and I would use anything to convince the dealer that I should be treat as fairly as someone taking out credit.

But if you want to pay more, thats fine. I don't mind.


There is also the advantage that you can take the credit out, get all the discounts, then pay off the outstanding balance withint the first 30days. Contract hire have early payment redemption fees, but I don't recall seeing one on a PCP.

Scumbag, as I posted earlier I did try to get the same discount for cash but no dice. As I posted earlier the reason for that is that the bulk of the so called 'retailer's contribution' actually comes from MB. So the dealer and you only get it if you take out a PCP. It is a very popular form of finance and every now and again they offer a tasty deal to boost sales. Why not?

Sorry but your second point is not correct either. You cannot just take out a PCP and then pay it off after 30 days with no penalties.

Nor will you be charged the full amount if you settle early as I think Gizze is saying. If the deal is regulated (under £25k) then, again as I posted earlier) there is a system controlled by law that specifies what you will be charged. Basically it allows for the saving that should be deducted because you are not borrowing the money for so long. You can ask for a redemption figure. You lose plenty if you settle early.

 

[crockers]

With some of the deals about for say a brand new C180k for £230 a month and no worries about warranty, servicing, tyres etc. I'm not even buying a 10 year old car is worth it while Merc is throwing money to move some metal.

Are you saying MB are offering a C180k for £230 a month to INCLUDE servicing, tyres etc and all one has to pay on top is insurance and fuel??

How much deposit?

That seems too good to be true ....

 

[hawk20]

Are you saying MB are offering a C180k for £230 a month to INCLUDE servicing, tyres etc and all one has to pay on top is insurance and fuel??

How much deposit?

That seems too good to be true ....

No PCP offers on the C class on their website today. Just some free upgrades.

Some E class offers are now there -were none for a few days after December 31st.

It is important to add the cost of the deposit and not just look at monthly payments. On a three year deal, as posted elsewhere, a rougfh and ready guide would be to take a thied of the deposit and add that to the year's payments.

So £3,000 deposit and £100 per month costs £1200 in payments and £1000 per year for the deposit. Equals £2,200 p.a.

You should never assume the market value will be better than the GFV nowadays and give you the deposit back. Those days are long gone!

P.S. Strictly you should allow for the interest after tax you could have earned on the deposit money had you invested it. But nowadays that is getting less and less.

 

[Rory]

If the deal is regulated (under £25k) then, again as I posted earlier) there is a system controlled by law that specifies what you will be charged.

FYI - the £25K limit was abolished in April 08 when the Consumer Credit Act 2006 came into force.

>£25K agreements used to be a little cheaper as the supplier had no fear of early termination at little penalty to the consumer. Now they should all be the same.

All agreements are regulated now unless you opt out - this option is mainly available to high net worth individuals. Not sure how it works - think you have to make a declaration that you know what you're doing.

 

[hawk20]

FYI - the £25K limit was abolished in April 08 when the Consumer Credit Act 2006 came into force.

>£25K agreements used to be a little cheaper as the supplier had no fear of early termination at little penalty to the consumer. Now they should all be the same.

All agreements are regulated now unless you opt out - this option is mainly available to high net worth individuals. Not sure how it works - think you have to make a declaration that you know what you're doing.

Thanks. I'm glad they made that change because E's and even many C class cars were often outside the limit for regulation before that change. And I met one woman who managed to spec an A class up to just over £30k at list price.

 

[raymont]

......so you should be able to hand it back and get your deposit back.


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The only way you get anything back when you hand the car back is if the actual value is higher than the guaranteed future value.

Deposit can be misleading as a term, think of it as a down payment. The larger the deposit the smaller the repayments (assuming other variables such as APR etc. remain unchanged).

 

[hawk20]

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The only way you get anything back when you hand the car back is if the actual value is higher than the guaranteed future value.

Deposit can be misleading as a term, think of it as a down payment. The larger the deposit the smaller the repayments (assuming other variables such as APR etc. remain unchanged).

It's a bit more complex than that. No wonder people are confused by PCP's!

Best I can. If you wait till the end of the, say, three year contract then you are partly right in that if the part ex value of the car is higher than the GFV they will give you the part ex value IF YOU BUY ANOTHER CAR.

If you don't want to buy another car from them and just want to hand the car back you will get their price for cash (if they want to buy) or the GFV whichever is the higher.

Or you can sell to other dealers -'the trade' - at trade value or can sell privately.

BUT and this is important- if you sell early, say to buy another Mercedes you can ask for the 'redemption value'. Then ask the dealer what he will give for the car in part exchange. If his figure is higher than the Redemption value you pay off the car and keep the surplus towards your new car. If the part ex is less, you need to pay the balance. He offers 10k, redemption is 12k so you need to find 2k. That is what you have lost on top of your payments and deposit if you settle early.

Thirdly, if you don't want to buy another car, you will have to sell for cash and pay the redemption value, or just pay the redemption value if no better cash value is available.

Fourthly, if you settle after more than half the total payments have been made, (check definition of half in your T's and C's) then in theory you can walk away and pay nothing. But some think that will harm your reputation/ chance of further loans etc. Personally I would never advocate walking away from a legal contract entered into on both sides in good faith, except in extreme circumstances.

 

[raymont]

It's a bit more complex than that. No wonder people are confused by PCP's!

Yes, understand all of that.



The post I referred to seemed to imply that the deposit is something you get back at the end of the deal, rather like the deposit you might put on a tool from a hire shop so they can deduct the cost of any damage.

I was only really trying to make the point that it isn't that kind of deposit. You don't get it back just because you haven't trashed the car.

Although if you have trashed it that will cost you as you will be charged to put it right.

Another to bear in mind when looking at MB PCP offers is that the figures quoted are, generally, cars without any extras. Often the offer only extends to cars already ordered / available. They will almost certainly have a variety of extras fitted. The cost of these extras will push the monthly repayments considerably as the majority of them will be depreciated to zero value over the duration of the deal.

I suppose this depreciation will also occur if you buy a car, but it's worth considering when deciding what to do.

 

[hawk20]

Another to bear in mind when looking at MB PCP offers is that the figures quoted are, generally, cars without any extras. Often the offer only extends to cars already ordered / available. They will almost certainly have a variety of extras fitted. The cost of these extras will push the monthly repayments considerably as the majority of them will be depreciated to zero value over the duration of the deal.

I suppose this depreciation will also occur if you buy a car, but it's worth considering when deciding what to do.

Yes. I agree. One interesting point I discoverd that may help others is that some extras are regarded by MB as ones that do increase the part ex value. Your dealer can go into his computer and see which. For example automatic puts the part ex value up a lot and so affects payments relatively little. Avantgarde etc, add about half what they cost to the part ex value. So you pay half their cost and future owners pay the other half. Looked pretty sensible to me.

Depreciation on new cars you buy is kept lowest by staying away from the toy cupboard. Same applies to PCP's.

 

[raymont]

The bit that puzzles me about the situation where the car’s value is less than the guaranteed value is that the finance company will, allegedly, refuse an offer for the car which is higher than that they will achieve when they sell the car, probably at auction. Doesn’t seem to make financial sense.

Suppose you could try to discover where they sell returned cars and see if you can go there and buy it.

 

[Rory]

Yes, understand all of that.

The post I referred to seemed to imply that the deposit is something you get back at the end of the deal, rather like the deposit you might put on a tool from a hire shop so they can deduct the cost of any damage.

I was only really trying to make the point that it isn't that kind of deposit. You don't get it back just because you haven't trashed the car.

The point gIzzE was making (the formatting makes it hard to follow) is that the GFV is £10K and he thinks the car should be worth £16K therefore you should see the £6K deposit back.

Of course, getting £16K for the car in 3yrs time is a complete gamble, and, as hawk20 points out, the cars value will likely depend a lot on whether you're trying to do a distress sale or p/xing it for another Audi.

Another to bear in mind when looking at MB PCP offers is that the figures quoted are, generally, cars without any extras. Often the offer only extends to cars already ordered / available. They will almost certainly have a variety of extras fitted. The cost of these extras will push the monthly repayments considerably as the majority of them will be depreciated to zero value over the duration of the deal.

That is a real killer with MB (and Audi, BMW etc). Even my C Class has £7K worth of options and I don't want to just throw those away every 3years.
MB have obviously realised this and they do offer a specially equipped version of the E Class for the business fleet market.

If I could have got a decently equipped (auto, leather, COMANd, phone etc) new E Class for a reasonable price then I would have one now, but those options make the price ridiculous.

Presumeably Lexus should fare well as the cars are fully equipped as standard.

 

[hawk20]

The bit that puzzles me about the situation where the car’s value is less than the guaranteed value is that the finance company will, allegedly, refuse an offer for the car which is higher than that they will achieve when they sell the car, probably at auction. Doesn’t seem to make financial sense.

Suppose you could try to discover where they sell returned cars and see if you can go there and buy it.

I agree, it seems odd. I think the reason may be that you don't take the car back to the finance company but to your local MB dealer who just applies the rules.

I can see a case for buying the 'devil you know' -the car you have looked after for three years - even if the GFV is above the part ex value. First there is no dealer's mark up and second you get a car you know is genuine.

I had intended buying one of our two A's regardless of market prices (within reason) and keeping it long term. The GFV was around £7k. Suppose the trade in price had fallen to £6k. That would still be £8k or so on an MB dealer's forecourt.

But then we bought two puppies and I sadly had to learn the rules for leaving two PCP's early. Ouch. But actually rather less of an ouch than I expected, because the part ex price was close to the redemption figure. But you still lose the deposit and the payments you've made so far, of course. As it happened, I would have lost slightly more if I had bought the cars for cash (for all the reasons I have given in earlier postings -like it was a fabulous PCP deal at the time and I could invest at a better interest rate than the APR on the PCP.)

 

[raymont]

I think the reason may be that you don't take the car back to the finance company but to your local MB dealer who just applies the rules.

Agree I'd pay a bit, not thousands, more for 'the devil I know'.

If I was that finance co I think I'd be asking dealers to see how much they could get from the customer for the car.

Although having worked with some financial organisations I guess I shouldn't be surprised at how slow witted, process bound and complacent they can be.