How to Buy a Gas Guzzler

[st4]

The value of the car in my example, would depend on the type of car. I big motorway fleet car would lose loads, whereas a sencond Boxster for example, would not lose as much.

Now your thinking about when it might be better to HP vs PCP. Note MB are offering this PCP deal on the diesels, not the petrols. I wonder why (as its them that take on the financial risk of the cars future value).

 

[hawk20]

Just one more very interesting point if you want a good deal.

The MB offers have a built in discount on list price called 'dealer contribution'.

In fact this is a misnomer because that money comes from MB and not from the dealer. You can get another discount from the dealer and still do the PCP deal. What happens if you get say £2k off from the dealer?

What happens is, you reduce the price, can keep the same deposit and GFV, and just reduce the payments.

If you take the £33k E class offer with a £15k guaranteed residual, I reckon some dealers would do that for not much above £30k. Tasty.

 

[hawk20]

Now your thinking about when it might be better to HP vs PCP. Note MB are offering this PCP deal on the diesels, not the petrols. I wonder why (as its them that take on the financial risk of the cars future value).

Well, well well. Hadn't noticed that. Presumably the residuals on petrol driven versions are thought to be too risky?

 

[Shude]

A is definitely right but two things. First you are taking the risk on depreciation. After 3 years it may be worth a lot less than the GFV from the PCP. In fact I would take a sizeable wager that a diesel E class (or more so a petrol one) will be worth much less than the figure MB are guaranteeing in their current offer especially since the new model E will be out. I rate the PCP great value there.

As they've been in the motor industry a few years now you'd think they would spot stuff like that and build it into their figures!

If their figure is incorrect, to their apparent detriment then what is in it for them and why isn't their GFV more realistic (based on your predictions rather than theirs)?

 

[Dieselman]

Well, well well. Hadn't noticed that. Presumably the residuals on petrol driven versions are thought to be too risky?

They are probably trying to dissuade people from buying them so as to meet their Co2 quota.
In addition, selling petrols is hard now, in 3 years time it will be nearly impossible.

In your example here, you changed the deposit from £1k to £3k and used the lowest available APR, which isn't available across the whole range.

Cling on. The light at the end of the tunnel is near at hand. Have run your calcs for you.

Buy a £15k car. For simplicity put down £3k deposit. Interest rate (as MB are offering) 4.6% APR.

Does a PCP still stack up if more realistic figures are used and retaining the £1k deposit.?

 

[hawk20]

As they've been in the motor industry a few years now you'd think they would spot stuff like that and build it into their figures!

If their figure is incorrect, to their apparent detriment then what is in it for them and why isn't their GFV more realistic (based on your predictions rather than theirs)?

If they offered my figures for expected depreciation I doubt if many would take the deal. They have a new model coming, which harms current sales. They have high tax levels for company cars due to high emissions compared with BMW and their new economic engines are not quite ready to launch yet (the C class gets the amazing new diesel this autumn). So they have taken part of their marketing budget to provide some tasty deals to promote sales. That is capitalism.

Note the deals are not on all the time. And they vary the 'dealer contribution' and the APR to get the demand they need. The ML deals are for two years only (24 payments) presumably to reduce their risk?

You can spend more on ads, or give discounts or offer good finance deals --just different ways to promote sales.

 

[hawk20]

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In your example here, you changed the deposit from £1k to £3k and used the lowest available APR, which isn't available across the whole range.


Does a PCP still stack up if more realistic figures are used and retaining the £1k deposit.?

I used an APR of 4.6%. The E class 220cdi offers 4.2% so it's close.

I used £3k deposit for simplicity and because it is a realistic figure. The E220cdi offer from MB requires £5,500 deposit on £33k. To be precise I could have used £2,500 but the effect at these low interest rates would be trivial.

If you try to reduce the deposit much below their suggested figure you are increasing their risk and they compensate by changing the GFV or the APR.

 

[Dieselman]

Ah, Ok, got that, but did you account for the interest to pay on the borrowed deposit, as we have accounted for lost interest on funds used.

The E class achieves a lower APR iirc, to stimulate sales of a twilight car, the others aren't as attractive are they.?

 

[scumbag]

lowest APR i found for a loan of £15k over 3 or 5 years is 7.6 if thats helpful. barclays........


8.8 pretty much gets you any amount, for as long as you want from loads.

I did see an ad for a 4.6apr but I can't be bothered to fill in the details to find out so I wrote that off.

 

[hawk20]

Ah, Ok, got that, but did you account for the interest to pay on the borrowed deposit, as we have accounted for lost interest on funds used.

The E class achieves a lower APR iirc, to stimulate sales of a twilight car, the others aren't as attractive are they.?

Actually we haven't calculated lost interest on funds used when buying for cash. Only said we need to allow for it.


Similarly any deposit made could have earned interest if it had not been used to buy a car. Trouble is the rate will vary from person to person. Say 6% in the Abbey is worth 4.8% to a standard rate payer but only 3.6% to a top rate payer. But if you want to be more precise you can say that any deposit used for a PCP or for HP will have an opportunity cost of around 4%. But it doesn't affect the choice between PCP and HP if they both require a similar deposit. So you can ignore.

And for those lucky enough to have the option of paying cash the main question is whether the cash is earning more after tax where it is now, than it costs to borrow on PCP or HP deals. Then the issue of how much you value a guaranteed residual needs to be assessed.
The MB offers are nearly all under 6% which is very competitive. The S class is 5.9% as is the ML and the SLK, the A class are 5.7 and 5.8%, the E class is what I used and the CLK is a very tasty 4.2%.

The effect of an extra 1% here or there is small.

 

[hawk20]

lowest APR i found for a loan of £15k over 3 or 5 years is 7.6 if thats helpful. barclays........


8.8 pretty much gets you any amount, for as long as you want from loads.

I did see an ad for a 4.6apr but I can't be bothered to fill in the details to find out so I wrote that off.

The only thing you need to watch is these are often described as 'typical' rates. Alawys important toput a real deal to them and see what the rate they quote for you, on your chosen deal is.

Watch manufacturers PCP deals. Honda had 6.8% on the CRV said the advert. But it was only on one model with one precise spec. Any other model was over 10%. Important to keep asking 'what is the APR on this deal'.

 

[st4]

They are probably trying to dissuade people from buying them so as to meet their Co2 quota.
In addition, selling petrols is hard now, in 3 years time it will be nearly impossible.

I never thought of the CO2 but as its them thats taking the financial risk, i.e. they'll need to make a profit on the car in 3 years time, they need to ensure the cars bought on this lucrative deal are as resellable as possible. That means diesel, automatic, AG spec (A bit like mine really )

 

[Dieselman]

It's not just the financial risk element. They are mandated to reduce the CO2 of the fleet of cars sold by them. They can't do this with petrol engined cars, they have to sell diesels and even then, for a manufacturer of generally larger, automatic cars, this will be a problem.

An interesting experiment would be to take a petrol model in for trade in. I think they will soon be turning away all petrols apart from SL and SLK models.

 

[st4]

It's not just the financial risk element. They are mandated to reduce the CO2 of the fleet of cars sold by them. They can't do this with petrol engined cars, they have to sell diesels and even then, for a manufacturer of generally larger, automatic cars, this will be a problem.

The diesels are better anyway so as a consumer you'd be mad not to. Could MB not offset the CO2 of the larger cars with the smart cars?

An interesting experiment would be to take a petrol model in for trade in. I think they will soon be turning away all petrols apart from SL and SLK models.

They told me my 4.4i X5 was unsellable in an MB garage. Well that was a lie, I ran into the owner and it was retailed in their garage and they flogged it on pretty quickly for a £3k margin.

For the long term future I envisage that your right, for the short to medium term (5 years) I think they'll take in petrols and give you washers for them. If petrol cars were that un profitable/unsellable why do MB even make them, they'd just make CDi models.

 

[Dieselman]

The diesels are better anyway so as a consumer you'd be mad not to. Could MB not offset the CO2 of the larger cars with the smart cars?

Smarts aren't that good on Co2. The Cdi, which is the lowest is 90g/km, the Brabus is over 200g/km iirc.

They will need to shift a lot of Smarts to offset say an E63 or Maybach. They are mandated to get the level down to 120g/km across the whole range of cars sold by 2012 (?) iirc.

 

[Rory]

In your example here, you changed the deposit from £1k to £3k and used the lowest available APR, which isn't available across the whole range.

I've know a few people who have, or have had, PCP's - one thing I'd say is common is that it doesn't seem to occur to people that the deposit is "lost" as soon as they hand it over.

So Hawk20's example is typical - have a £15K car for £150 ish/mth (in practice that deal would be contructed so the payment was £149.99).

Sound great, and people will delight in telling you about the great deal they got. But they ignore the £3K.

The £15K car is only having £12K financed, and it's going to be worth £7.5K in 3 years so of course the monthly payments are low. But to do the same deal in 3yrs time, you're going to have find £3K deposit yet again.

 

[st4]

The £15K car is only having £12K financed, and it's going to be worth £7.5K in 3 years so of course the monthly payments are low. But to do the same deal in 3yrs time, you're going to have find £3K deposit yet again.

Thats why you've got to take you PCP monthly repayment and add the amount you need to save up for the next deposit to gain an accurate amount of the total amount you need to pay out of your hard earned. In my limited experience the HP option tends to be cheaper, but NOT always.

In this case £150/month + £3k/36= £233.33/month. Not so cheap now.

I am going to approach a PCP from a different angle where actually you do attempt to take ownership at the end of the 3 year term. I'll use my last car as an example. On HP it was £475*36 +£8k deposit. On PCP it was £8k deposit, plus £350*36 with an £10k GMFV.

So if I wanted to buy the car out right I needed to spend £350/month + £10l/36= £627/month. On HP it was £152 month less. Even if I just wanted to save up for the £8k the PCP added up to £572/month i.e. £97 more/month.

So really, if I PCP'd I was potentially paying £3900+ for the privileged of having a GMFV, was my car going to be worth that sum less than the GMFV. At the time I didn't think so, and I still don't, even considering the car it was.

Anyway, if I was on PCP I would still be in the car I didn't like very much. HP is much more flexible and IMO that flexibility usually makes up the "hedge" of the GMFV afforded by a PCP

 

[Rory]

In my limited experience the HP option tends to be cheaper, but NOT always.

All things being equal, HP has to be cheaper because as the GFV is guaranteed with a PCP then there's a cost to that guarantee.

The point Hawk20 is making is that PCP deals are often subsidised so it's worth looking at them.

My issue with PCP is that they're subsidised because they're designed as a trap. Not an issue if you're worldly wise and smart with money. But not many people are either of those things.

 

[Smiley]

I think you will find you pay the interest on the whole amount borrowed - ie £14k in this case.

 

[mw_C32]

Interesting thread.

I am really (I mean REALLY) struggling to choose the right option on buying my new car.

I know its a big gas guzzler and I also know it will depreciate like a brick, that is not a problem, but trying to sort out the best way to purchase this thing has been over the last week a real headache.

As has been debated I have 3 choices so maybe I will open this up to you guys and see if your combined wisdom can influence my final decision.

All these deals are in place for me to use, 2 year deal £55k purchase price:

1. PCP - Deposit £18k monthly payments £500 GFV = £32000

With this I am financing £37000, total cost is £500 x 24 = £12000 plus £18k deposit hand car back after 24 months and walk, I have paid £30k

(With my last car (ML320cdi) I had a PCP where the GFV was £31K. I paid this at the end of the deal and sold the car very quickly for £35k so there is this option to think about too.)

2. Loan - Deposit £30k Loan £25k, monthly payments are £1150 x 24 = £27600, 24 months later I have paid out £57600 but have a car potentially valued at £32000, I have paid out £27600 and have to sell my car, but I also have a large price window to sell, I could potentially sell my car for £29600 which is the difference to the PCP deal.

3. Outright purchase - sell car between £25000 and £32000 after 2 years gives a slightly larger selling window price!!!

With option 1, I can re-invest the £37000 at say 4% net, saving £2960
With option 2, I can re-invest the £25000 at say 4% net, saving £2000

At the moment I am looking at option 2


Cheers Mark

P.S. It's not really a big headache as there are far more impotant things in life than this so I am very lucky I suppose that I have this choice
M.