Leasing V Outright purchase

[Satch]

Exactly right. When I worked for a Ford dealer, we made more money on Ford Credit deals than the actual vehicle! Funny world we live in!

That is because Ford Motor Credit is, by volume of loan, one of the largest retail credit institutions in the world.

In fact Ford and a number of other car makers have for some time been not so much a car makers as consumer credit repackaging institutions with a car maker attached. And it all relies on the manufacturing/finance/sale/debt repackaging machine keeping going.

Once the flow stops, the whole thing comes crashing down. So the industry is having to encourage volume sales activity via deep discounting, low priced funding whilst at the same time trying to keep the headline prices and thus aftermarket residuals artificially up because if they plummet a great many punters are into negative (car) equity.

Any of that sound slightly familiar?

 

[Red C220]

Once the flow stops, the whole thing comes crashing down. So the industry is having to encourage volume sales activity via deep discounting, low priced funding whilst at the same time trying to keep the headline prices and thus aftermarket residuals artificially up because if they plummet a great many punters are into negative (car) equity.

Any of that sound slightly familiar?

The major difference being that vehciles are a consumable - the housing credit crunch wasn't based on consumables - but fixed assets. So whilst the business model may have similarities, it ends there.

Leasing was so effecient for businesses that the government decided to implement punitive taxes for the use of the same.

A high spec car like a Range Rover sport will cost over £800 per month in BIK tax - that's more than the lease payments.

Paul Getty was famously quoted as saying - "If it appreciates, buy it. If it depreciates, Lease it". It makes sense, until Benefit taxes are introduced.

Then the lease market was opened up to the general populous. Only a few years ago you had to be a business to lease a vehicle - it wasn't something offered to private individuals.

Opening the market this way has enabled the bandwagon to keep on rolling.

 

[Goldfish11]

The current 3 year lease and finance system is what is destroying second hand values of vehicles in the UK. We have the most crazy car prices for vehicles just 3 years old. Why? because after 3 years everyone changes them, hence the market is flooded and no one want to buy anymore.

If we had the system like in many parts of the world a nice straight loan or outright purchase your 3 year old would be worth 70% of the original value not 50%.

Most of my colleagues in Europe and the rest of the world can't believe how low second hand prices are of Mercedes in the UK

 

[Dieselman]

Leasing is a Salesman's dream, it guarantees the next sale will happen at or before the lease term, for this reason they hate cash purchasers.

 

[bpsorrel]

The current 3 year lease and finance system is what is destroying second hand values of vehicles in the UK. We have the most crazy car prices for vehicles just 3 years old. Why? because after 3 years everyone changes them, hence the market is flooded and no one want to buy anymore.

If we had the system like in many parts of the world a nice straight loan or outright purchase your 3 year old would be worth 70% of the original value not 50%.

Most of my colleagues in Europe and the rest of the world can't believe how low second hand prices are of Mercedes in the UK

Indeed. In Russia, depreciation hardly happens at all. On average most cars cost double the price they do here! When I tell my Russian friends how little MBs cost in the UK after 2 or 3 years they're stunned. No leasing there - - yet...

 

[Rory]

Indeed. In Russia, depreciation hardly happens at all. On average most cars cost double the price they do here! When I tell my Russian friends how little MBs cost in the UK after 2 or 3 years they're stunned. No leasing there - - yet...

Less far afield than that - a colleague in Holland was telling us the other day about his "new" Volvo S80. It's done 150Km and he paid €11K for it!

He was a bit crestfalled when we told him the same age car would be about £4K in the UK and there's virtually no market at all for cars that have done over 100K miles.

 

[C240Sport97]

the other contributor to low second hand price are the UK very large company car fleets

 

[Dryce]

the other contributor to low second hand price are the UK very large company car fleets

Service / repair costs (real or perceived) also have an impact.

And this is a double whammy. Because it reduces the value of a car it further magnifies the relative service/repair costs.

 

[hawk20]

temp thread about financing

Who cares. Fault gets fixed under warranty if that means a new engine so what. If its on a hire purchase or PCP like so many then it's not really the customers car anyway...

That's an odd way to look at it. Might as well say most of us aren't homeowners because we have a mortgage. It's people who pay cash who are the cheapskates! Those on HP and with PCP's pay far more for their motoring -admin charges and interest.

Of course legally you are right none of us become full legal owners until all the payments are made whether home or car. But we own the right to pay all the fuel bills, all the maintenance, all the depreciation, all the insurance, all the road tax, all the speeding fines and so on and on and on. In every real world sense it feels remarkably like owning!

 

[Dieselman]

That's an odd way to look at it. Might as well say most of us aren't homeowners because we have a mortgage. It's people who pay cash who are the cheapskates!

The cheap rate leases available on Mercedes are much cheaper than covering the depreciation.
As far as ***'s statement, He is correct, if the car is rented the "driver" doesn't have the hassle of selling it, so why worry whether an engine change would reflect poorly at that point.

Your analogy of a Mortgage on a house is not similar at all as that is purely a monetary loan, you still have to market and sell the house, you can't just give it back at the end of the period, that would be a tenancy (rental).

For an economist you make some strange statements.

 

[hawk20]

The cheap rate leases available on Mercedes are much cheaper than covering the depreciation.
As far as ***'s statement, He is correct, if the car is rented the "driver" doesn't have the hassle of selling it, so why worry whether an engine change would reflect poorly at that point.

Your analogy of a Mortgage on a house is not similar at all as that is purely a monetary loan, you still have to market and sell the house, you can't just give it back at the end of the period, that would be a tenancy (rental).

For an economist you make some strange statements.

1. Correctly analysed the lease and PCP deals on Mercedes are very similar in cost to buying, owning and reselling yourself unless you a) need to borrow money to buy and also b) cannot borrow at near to the MB APR rates. But most of the time MB are offering 5.8% or thereabouts and Tesco and others are offering about 7%. Not a great difference.

2 The MB deals often look cheap because the 'retailers contribution to the deposit' greatly reduces the payments. BUT I have not once failed to get a discount in the same ball park and often better by offering cash.
3. Lease deals quoted on forums are often ex vat which only business people can get. And sometimes they are onn pre reg cars.
4. H.P. (mentioned by *** is remarkably similar to a mortgage on a house (except you pay a lot higher interest!). You end up owning the car and being responsible for selling it when you no longer want it.
5. PCP is hybrid in some senses because you can choose to end up owning (by paying the GFV after three years) or you can hand the car back. But be in no doubt you have paid the full cost of 'owning' the car in those three years. Your deposit (many forget to add this in and just quote the payments) plus the payments, plus the admin fee will fully cover the depreciation and the interest on capital tied up.

 

[Deleted member 37751]

Why do people get so touchy about having a car on lease/PCP etc etc?

The bottom line is that you do not own it until its fully paid for in whatever way. Some of the deals that Mercedes offer, it works out that it's THEM who'll suck up a chunk of the depreciation and not the keeper, so it's sometimes the better deal to hire one.

 

[hawk20]

Why do people get so touchy about having a car on lease/PCP etc etc?

The bottom line is that you do not own it until its fully paid for in whatever way. Some of the deals that Mercedes offer, it works out that it's THEM who'll suck up a chunk of the depreciation and not the keeper, so it's sometimes the better deal to hire one.

There appears to be some kind of jealousy thing where some think people are running cars they cannot afford. In fact every time I analyse an MB PCP deal it is no cheaper than buying for cash. Each year you apy the full cost of depreciation plus interest on capital tied up. And you have all the running costs. Doing PCP's year after year after year is dearer most often than buying outright (if you happen to have the free capital).

It is not MB who suck up the depreciation but the buyer. Not once yet have I seen a GFV that is out of line with the Glass's Guide part ex price for a 3 year old. The payments cover this depreciation (above the GFV) plus interest. The retailers deposit contribution is rarely if ever more than the discount you could get for cash.

 

[Deleted member 37751]

There appears to be some kind of jealousy thing where some think people are running cars they cannot afford. In fact every time I analyse an MB PCP deal it is no cheaper than buying for cash. Each year you apy the full cost of depreciation plus interest on capital tied up. And you have all the running costs. Doing PCP's year after year after year is dearer most often than buying outright (if you happen to have the free capital).

I don't know why, but I just can't get my head around getting a car on finance in any shape or form and it's on two levels.

1. Paying interest on something that is a depreciating asset, when you think about it, it's a crazy way of doing something. A house that you'll have a mortgage on will, throughout history, be an appreciating asset.

2. Besides what I've get left on the mortgage, I owe nothing to anyone and I like to know that my car is just that; mine. If I want to smash it up with a hammer, I can.

 

[st4]

Its one thing paying £400/month out for a car, there is another writing a cheque for £15,000 out to buy one.

I remember a post on a BMW forum where the person said

"PCPs are great, they will get you into the newer model for the same monthly outlay as an HP on the older model"...

In otherwords, a great way of financing a car you might not be otherwise be able to afford to buy.

 

[hawk20]

Its one thing paying £400/month out for a car, there is another writing a cheque for £15,000 out to buy one.

I remember a post on a BMW forum where the person said

"PCPs are great, they will get you into the newer model for the same monthly outlay as an HP on the older model"...

In otherwords, a great way of financing a car you might not be otherwise be able to afford to buy.

But that ignores the fact that if you can afford to pay £400 per month for the payments on a car you can probably borrow the £15,000. It is a matter of choice whether you pay off some or all of the capital in 3 years. Take 6 if you like and then the typical PCP payments will often buy the car. Really we should all look at the annual cost of the car whether bought and allowed to depreciate, or PCP'd so the depreciation is paid as you go along (or HP or bank loans etc).

 

[hawk20]

I don't know why, but I just can't get my head around getting a car on finance in any shape or form and it's on two levels.

1. Paying interest on something that is a depreciating asset, when you think about it, it's a crazy way of doing something. A house that you'll have a mortgage on will, throughout history, be an appreciating asset.

2. Besides what I've get left on the mortgage, I owe nothing to anyone and I like to know that my car is just that; mine. If I want to smash it up with a hammer, I can.

Fine. And lucky is he who can buy either his house or his car for cash outright. Now enter the real world where most people do not have that good fortune. Usually their choice is to rent, or to buy on HP or to do a PCP or to buy an old banger for cash. Given reasonable income and a secure job I know I would rather buy a newer car and pay so much a month to cover the full cost of doing so. Furtunately the finance world allows me to buy the car either in one lump or by buying it bit by bit, oir by paying each year the annual capital cost of owning it. Whichever method I choose I will be paying the full costs of 'owning' or leasing the car. You only have to look at these things as what they will cost over a long period, say the next ten years, and you can see nobody is getting anything cheap that they cannot afford.

 

[hawk20]

1. Paying interest on something that is a depreciating asset, when you think about it, it's a crazy way of doing something. A house that you'll have a mortgage on will, throughout history, be an appreciating asset.

.

And of course we would all love cars to be an appreciating asset from new! But they aren't. So whether you buy outright for cash, or choose a method that lets you pay monthly, you will still be suffering the depreciation. The only question is which method of losing money, in exchange for having a car, suits you best.

 

[nick mercedes]

There appears to be some kind of jealousy thing where some think people are running cars they cannot afford.

Hard to he jealous of someone driving a hire car.

Perhaps this country would be in a better place if skint people were not allowed access to "luxury" imported cars at subsidised rates just so they can feel a bit more important than they really are?

Don't worry, you might be hopelessly in debt, have no real skills, a worthless throwaway degree and a pointless job in the service sector, but have a new C63 to make you feel like you're the sort of person who could actuallly afford one...

Do you not suppose the reason MB residuals are only slightly better than those of Proton Sagas is if it were not that every tom, dicky and bankrupt harry could have one for £150 a month?

 

[ChuckyYeager]

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