How to Buy a Gas Guzzler

[Rory]

My question to you Scumbag would be: since the discount (retailers contribution) Mercedes will give you exceeds all the interest you pay and some more, how can it not be a good deal?

...because the alternative to a PCP isn't to pay list price.

 

[hawk20]

Forget the numbers, the arithmetic and all the rest. Here it is in words.

With a PCP you pay all the depreciation over the three years you own the car
And you pay interest on the capital borrowed to pay for the car, while the car is yours

With HP you pay both the items above and in addition make payments to buy all the remaining equity in the car so after 3 years it is totally yours.

With cash you only pay to buy 100% of the equity in the car. You pay no interest. BUT you lose the interest you could have earned by investing the cash somewhere else.

Which is best? It depends entirely on the numbers.
How big a discount can you get under each method?
What APR must you pay?
What is the Guaranteed Final Value/Option to Purchase price?
What interest rate could you earn after tax by investing your own money?
What do you think the market value may be if you decide to buy all the equity in the car and take the risk on depreciation yourself?

And Rory's answer is correct. It all turns on the numbers as above. And in the case of the E220cdi the numbers look good. There is a good discount and more to come from the dealer by haggling. There is a low APR and there is an excellent residual of nearly 50% of the discounted price. Nice one.

 

[Deleted member 6183]

I looked hard at PCP when I bought my last car. All the dealers were pushing it hard - hard enough to get me suspicions alerted - in the end I did a straightforward bank loan plus my equity from my old car. As it turned out it was absolutely correct for me as I then sold the car within 8 months - imagine trying to untangle a complicated PCP deal?

The important issue for me was this:

I would go into a dealer and enquire about a second hand car in my price range and the dealer would try and persuade me that it would be much better to buy a newer, more expensive car on PCP and keep my deposit. The reasons for his pitch may be many but I suppose he'd rather keep the manufacturer happy with a new car sale, he ties me in for 3 years and he sees me again in 3 years when he knows I'll be buying again.

When the salesman hears that I have a monthly car allowance, he's most excited as he thinks PCP for me will hardly feel like I'm spending my own money.

In short I see PCP as a way of convincing us motorists that we can afford the new or more expensive car. The dealer is chuffed if we fall for it as he sells more expensive kit and earns bigger bonus.

If you think about it, PCP means buying a car you cannot really afford but the saleseman has convinced you that you can.

 

[hawk20]

If you think about it, PCP means buying a car you cannot really afford but the saleseman has convinced you that you can.

That convinces me you haven't read the whole thread!
But it is now very long. At least read the first few posts.

PCP shows you exactly what it really costs to own a car, depreciation and interest on capital. And it turns that into an easy to understand annual amount.

And no nasty surprises in three years time when so many find their car is worth nothing like they hoped. One owner on this forum bought the old C class for over £34k and 3 years old tried to trade in for the new model. Best he was offered was £12k. Some of the MB PCPs are guaranteeing about 50% after 3 years. Much less risky. But yes you need to know you can stay the course and want a 3 year deal. See *** postings above.

 

[Shude]

Some of the MB PCPs are guaranteeing about 50% after 3 years. Much less risky.

So as not to confuse, that means if you want to keep that car after the policy ends you have to pay them 50% of the list price instead of the realistic final value of maybe 25%? Obviously no-one is going to do that so they'll just buy another new car with PCP won't they.

 

[Deleted member 6183]

That convinces me you haven't read the whole thread!
But it is now very long. At least read the first few posts.

PCP shows you exactly what it really costs to own a car, depreciation and interest on capital. And it turns that into an easy to understand annual amount.

And no nasty surprises in three years time when so many find their car is worth nothing like they hoped. One owner on this forum bought the old C class for over £34k and 3 years old tried to trade in for the new model. Best he was offered was £12k. Some of the MB PCPs are guaranteeing about 50% after 3 years. Much less risky. But yes you need to know you can stay the course and want a 3 year deal. See *** postings above.

You are correct the whole thread was a bit daunting and I did generalise. I'm pretty confident that you didn't use PCP because you couldn't afford the cars.
I should, maybe, have said that lots of people use PCP to buy a car that they can't really afford. It's just too tempting for them not to use it this way.
You go to a dealer to buy a £15k car and he shows you a way to run a £25k car for the same monthly payment - some people will just find this too hard to resist, sod the future I want it and I want it now! is the thinking for lots of people. Throw in the dealer contribution and low rate finance and it sounds too good to be true and makes your average punter look very prudent in the pub when he's boasting about his new motor which is better than his less 'clued-up mates.

Sorry to sound cynical Hawk, I know you did the right thing for your circumstances but that doesn't make it 'one size fits all'. I'll bet that lots of buyers only use PCP once and then return to more simple ways of running a car.

 

[hawk20]

So as not to confuse, that means if you want to keep that car after the policy ends you have to pay them 50% of the list price instead of the realistic final value of maybe 25%? Obviously no-one is going to do that so they'll just buy another new car with PCP won't they.

No. It is not that simple. After 3 years you need to go through the same rigmarole again and decide what suits you best. You need to look at the deals on offer and see which are best value.
Take my case. I now have two A's. If we still need two cars I may keep one and give the other one back. Much will depend on what deals are around at the time. For long periods ther have been no deals on A's or on B's. New model in 2010/11. I may go for that. Or if we only want one car I might go for the E class, or a GLK. And I shall look at other makes and their deals.

Take your case where the residual has collapsed. Could happen on 4x4's depending on fuel prices and taxes from the govt and Europe. Take your example with a GFV of 50% but a market value of 25%. I would start by being hugely pleased and relieved that I had taken out a PCP or I would have lost all that money. I would then decide what I wanted next.

Then I would decide on the figures at the time, whether to pay cash, or HP or PCP or just get a loan. I have all those choices unencumbered by the need to sell my old car. And with no part ex I should get good deals!

 

[hawk20]

Lewyboy has a point that some may be attracted by the lower payments on a PCP to buy a dearer car than they would have chosen on an HP deal. And their long run costs of motoring could be higher because of this.

In fact, the plethora of interest-free deals out there from other car makers may well account for so many people buying new and for depreciation figures becoming so high on most makes. I accept that.

All these deals should be done with your eyes open. I am merely saying that for intelligent adults with their wits about them, the PCP can be the most prudent way to buy a gas guzzler. In fact I would buy a new one in no other way.

And PCP can be sensible on other cars too if the deal is good enough. If I wanted an E class right now, I would definitely take the PCP deal on the MB website and get some extra discount from the dealer too. Remember the so called 'dealer's contribution' actually comes from MB so the dealer has scope to help out too. Why would I?

Well first the numbers stack up. The APR is way below the market rate for borrowing.
The GFV is high. Around 50% of what you pay for the car. With a new model coming and increasing second-hand resistance to large cars, that looks a great bargain.
The discount from MB is pretty good by most standards and the dealer will give some more.

But most of all I would do it by PCP to get the guaranteed residual in this uncertain world. Gives real flexibilty in 3 years time and gives known costs of motoring in the meantime -which you cannot get any other way.

 

[st4]

So as not to confuse, that means if you want to keep that car after the policy ends you have to pay them 50% of the list price instead of the realistic final value of maybe 25%? Obviously no-one is going to do that so they'll just buy another new car with PCP won't they.

Well your hardly going to pay £16k for something thats worth £8k. In that scenario the PCP has worked in the buyers favour as its protected you from that bigger depreciation hit, they have to take the car back and theoretically have paid £16k for something thats worth £8k.

I might add that a buyer on a PCP will probably want a new car anyway and if the car was worth more than the GMFV they would use the difference as money towards their next car.

 

[hawk20]

Of course they could go to the auction and buy the car for around £8k ......

 

[Shude]

Well your hardly going to pay £16k for something thats worth £8k. In that scenario the PCP has worked in the buyers favour as its protected you from that bigger depreciation hit, they have to take the car back and theoretically have paid £16k for something thats worth £8k.

I might add that a buyer on a PCP will probably want a new car anyway and if the car was worth more than the GMFV they would use the difference as money towards their next car.

My arguement, which you have just backed up is that PCP is designed with the express intention of maintaining car stock turnover.

 

[hawk20]

My arguement, which you have just backed up is that PCP is designed with the express intention of maintaining car stock turnover.

All adverts, all marketing, all finance packages are designed to encourage the sale of cars. How awful!

If the carrot is big enough and tasty enough grab it.

 

[Shude]

All adverts, all marketing, all finance packages are designed to encourage the sale of cars. How awful!

If the carrot is big enough and tasty enough grab it.

From what you have stated so far it seems that PCP is the only finance package which actively forces you to dump the car at the end of the policy and buy a new car though .

 

[Dieselman]

From what you have stated so far it seems that PCP is the only finance package which actively forces you to dump the car at the end of the policy and buy a new car though .

Absolutely correct. The Salesman is in control of your next purchase, not you.
I know someone who had a BMW3 series, ordered a MB CLK, but due to being a new model delivery was delayed.
BMW refused to extend the term of contract thus forcing him to buy a car at short notice from their stock.

 

[Rory]

Then I would decide on the figures at the time, whether to pay cash, or HP or PCP or just get a loan. I have all those choices unencumbered by the need to sell my old car. And with no part ex I should get good deals!

The key point though, is that you have to so *something*. That's what the PCP "industry" relies upon. You are encumbered by the timing.

As Shude points out, what most people will do is to roll into another PCP - for most people it's a no-brainer.

Lewyboy noted how hard the dealers push PCPs - there's a good reason for that.

Obviously a PCP suited you and you know full well what you are doing. In the rest of the real world, few people would be mulling over whether their next purchase should be 2 x A Class's, an E Class or a GLK.

You constantly post on here that various MB schemes are "good value" and slip that message in to many of your posts, almost as if you're trying to get a message across in a subliminal way.

These schemes are not good value in any objective sense - sure, it may less risky to buy an E220CDi on a PCP than paying cash, but that doesn't mean it's good value.

 

[st4]

Absolutely correct. The Salesman is in control of your next purchase, not you.
I know someone who had a BMW3 series, ordered a MB CLK, but due to being a new model delivery was delayed.
BMW refused to extend the term of contract thus forcing him to buy a car at short notice from their stock.

PCP does make the car buyer do something, thats the key. At the end of the term a decision has to be made, unlike buying on HP/loan or cash

1. Keep the car and pay the GMFV
2. PX if there is equity in the car, and do another PCP
3. Sell privately if there is equity in the car
4. or hand back if its worth less or equal to the GMFV and do another PCP or walk away with nothing (apart from the 3 years usage of the car)

Your friend could have handed back the 3 series, hired a car until the CLK was ready. He didn't have to buy another BMW. He could have bought a used MB, audi, whatever.

However I agree that PCP is a great way for car retailers to ensure new business, but it will only capture the sort of person who is likely to buy a new car at defined intervals.

Caveat Emptor.

 

[Dieselman]

Your friend could have handed back the 3 series, hired a car until the CLK was ready. He didn't have to buy another BMW. He could have bought a used MB, audi, whatever.

Of course, but the time frame was short so he was tempted by the 330cab in the BMW showroom.
Strange how it worked out in the Salesmans favour...Oh, hang on..

 

[st4]

Of course, but the time frame was short so he was tempted by the 330cab in the BMW showroom.
Strange how it worked out in the Salesmans favour...Oh, hang on..

Salesmen are pushy, and I guess its ones ability to walk away will determine whether one is suckered into a deal that doesn't really suit.

This example highlights the forward planning one needs to do with a PCP as you need to be able to be sure you can keep/like the car for duration of the agreement. The BMW must have been good enough to walk back into.

 

[hawk20]

From what you have stated so far it seems that PCP is the only finance package which actively forces you to dump the car at the end of the policy and buy a new car though .

That is absolutely and definitely wrong.

You can if you wish end the deal, walk away and go elsewhere.
Or you can buy the car for the GFV either for cash or on HP or you can arrange a loan (doesn't need to be from the dealer).
Or you can part ex against a new or a secondhand car.
I really don't see how it could be more flexible than that.

As for Rory's point that I support PCP's that is not fair. I have merely tried to correct the many misconceptions about them and show under what conditions they can offer the motorist a good deal.

If Rory cannot see that a discount of nearly 10% off a new E class (more if you haggle), and finance at under 5%, with a guaranteed residual of about 50% of the price you pay, if he cannot see that is a good deal, well, I am amazed. (But then of course he regularly contradicts himself by saying these deals are heavily subsidised!)

And for those pondering a gas guzzler, given the posting on how hard big cars are to sell, I thought some might be interested that there are some risk free ways of owning these attractive beasts without suffering the savage depreciation that some have had.

 

[st4]

That is absolutely and definitely wrong.

You can if you wish end the deal, walk away and go elsewhere.
Or you can buy the car for the GFV either for cash or on HP or you can arrange a loan (doesn't need to be from the dealer).
Or you can part ex against a new or a secondhand car.
I really don't see how it could be more flexible than that.

I think shudes phrasing was a bit strong. I'd reword it to PCP is the only finance package that actively makes you decide at the end of the term whether to buy a new car or to retain your old one.

In most cases that's what will happen (the purchasing of a new car), but if these PCP buyers were on HP, they'd be buying anyway once their HP had run out.