Dryce - ref contract hire I was with you right up until the point you mentioned the but. I personally have been in the trade for the past 11 years now and this is my forte. As such I don't agree with that because ultimately cost options are essentially dead money irrelevant of how you fund it, be it a cash sale, PCP, contract hire or otherwise.
With a contract hire as a general rule of thumb (although it depends on the vehicle discount and the cost of borrowing money) but generally if you take the cost of the option and divide it by the term it gives you an indication as to the increase in monthly cost as you will pay the total cost of the option over the term due to it not enhancing the resale value in the trade. This is the case no matter how you fund it. You could buy a car cash and add a 6CD changer, heated rear seats, upgrade the stereo and add privacy glass... it won't change the future trade value of that vehicle if they are not residual enhancing options so the cost of these options is straight down the pan but whether you pay for a grand of options split over x years or you pay for a grand of options upfront as a cash sale its still only worth what it's worth to sell so the comment is irrelevant in my opinion.
In the industry now, many finance systems/CAP valuations list certain cars under separate titles due to having enhanced residuals. For example on a new A45 although they only make the one model, the finance systems list both an A45 and an A45 Premium. It's the same car but one has the addition of the premium pack, the reason they do this is the increased residual so that it's taken into consideration on CH, PCP, FL, LP etc. Other than that most options (bar maybe metallic) are dead money, this will not change if you buy it for cash.
As a retail punter some peoples perceptions may be different in the way that you might think "well hang on a minute... I'd pay a premium for a used car if it had privacy glass and a 6CD changer" but that is personal preference and emotion. In the trade we couldn't care less
Dealerships typically quote PCP and PCP only to retail customers as it keeps things simple. One product with all the options; hand it back at the end with a GFV or pay the final payment and keep it. In reality I believe they're somewhat pointless if you're simply looking for a cheap deal.
With contract hire it's a different kettle of fish, the funders buy and register hundreds and thousands of cars so they receive increased levels of discounts and volume related bonuses so like anything, depreciation is no secret, cars lose money, as a customer all you care about is what it is going to cost YOU. Ie the difference between what the car is bought for and what it's valued at when it goes back so for contract hire funders it's within their interest to negotiate increased discounts which enable them to secure business and in addition to this they need to value the car high enough at the end of the contract so that they're competitive but at the same time not so high that they shoot themselves in the feet. Ultimately however, that's their problem, not yours.
Anyone who believes cash buying a car is the better option is for 99% of the time living in the past, money can work better for you elsewhere. If the car you want is on a deal you'll save a fortune. For example... VW Scirocco R's at the moment. There's a contract hire deal knocking about which as an example is £2000+VAT deposit + 23 payments at £150+VAT at 10k miles per annum so add that up... £5450 + VAT = £6540. This is a brand new car and includes road tax for the full duration. List price on a Scirocco R is the best part of £32k.
Cheapest one on AT at the mo is £23291 so the car has lost £8709 AT RETAIL SALES PRICE plus don't forget on a new car cash you only get 12 months tax so we need to add £265 for the second year tax which is now £8974 but whatever your car is worth trade in so probably knock £2k off their sale price putting depreciation to near £11k in realistic terms. You could have leased and kicked it back at the end for £6450 a saving of circa £4500 over the two years.
Granted you won't pay list price for a car if you barter but a. Would you get £4500 discount off that car as a cash sale? I very much doubt it because we couldn't get that level of discount on a cash sale, especially not on an R model. and B. could you be bothered going through the aggro of buying and selling anyway? and C. with a residual value arguably somewhere around the level of £21k trade at 2 years. Wouldn't you rather have kept hold of that £21k rather than inevitably tying it up in a car? When you sell one car you're just going to buy another so surely the £21k you've worked so hard for you're never going to see again because it's tied up in a depreciation heap of metal where instead it could be working for you with investments, home improvements, holidays or genuinely not leading a boring life but hey ho
