Negative equity

[Allan Forsyth]

Went to look at new motors 5 months prior to end of my 36 month pcp to be informed the car value is already worth £1k less than the option purchase fee.

Looks like ill have to do voluntary termination. A bit surprised and disappointed to be honest.

 

[Simon_M]

or wait 5 months and hand it back?

 

[Bobby Dazzler]

I guess it could be worse. At least with a PCP your liability is limited to the payments you've made. Have multiple dealers given you the same valuation?

 

[HumberMart]

Went to look at new motors 5 months prior to end of my 36 month pcp to be informed the car value is already worth £1k less than the option purchase fee.

Looks like ill have to do voluntary termination. A bit surprised and disappointed to be honest.

Yeah. Despite paying £11K deposit plus £6K discount on my ML and £580 a month, it's now supposed to be in £3K neg eq at 22 months old.

I've never kept one more than 2 years but can see little sense tipping this in early. Fortunately I'm still well pleased with it.

All these super low lease deals atm must be hitting residuals big style.

May consider VT but suspect on PCP you have to get very close to the full term before it can be applied the way MB over value the GFV's.

 

[Dieselman]

I can't understand why one would be disappointing with the value being lower than the GFV, when all it means is the monthly payments have been lower.

I'm quite surprised that people feel the need to attempt to avoid paying the full rented term payments to escape a few £££.

 

[Paul/]

Surely on PCP if the car is worth less than the GRV then the PCP has saved you from the full depreciation hit? Also, at least for MB UK (or whoever the PCP is with) the car is by definition worth the GRV?

So at the end of the contract you've not lost out if you go for another vehicle from the same company, and you've avoided the full depreciation if you just hand the vehicle back?

Should a car be expected to be more than the GRV at the end of the contract? I'd have thought the providers of the deal would want the deposit + monthly payments to be as low as possible (i.e. as attractive as possible) so, as do MB, they wouldn't want to underestimate the GRV.

<written before I saw DM's post above>

 

[Bobby Dazzler]

I can't understand why one would be disappointing with the value being lower than the GVF, when all it means is the monthly payments have been lower.

I'm quite surprised that people feel the need to attempt to avoid paying the full rented term payments to escape a few £££.

I suspect it's the "sales person's" false promise of equity to transfer to the next PCP which is the disappointment, but I agree with you, it actually demonstrated that you got off lightly - it would be a bigger hit/risk if buying.

 

[HumberMart]

MB seem to over value the GMFV's far more then any other brand.

Perhaps they rely on a fair percentage tipping them in early so the proportion they take a hit on at full term are not so significant.

I've just checked my contract and it would be month 32 out of 36 before I would have paid more than 50% so VT hardly becomes worth the effort/risk.

Ironically the depreciation profile on the ML's suggest that mine will drop in value very little in year 3, so MB won't have to suffer too much when I hand it back. Just in time for a GLA perhaps

 

[Rory]

Yeah. Despite paying £11K deposit plus £6K discount on my ML and £580 a month, it's now supposed to be in £3K neg eq at 22 months old.

It's weird how much cars depreciate in the UK - as best I can gather, they drop here far, far, faster than in other European countries.

And if you look at the US, cars like MB & BMW are cheaper and usually better spec'd to start with, but at 3yrs old have depreciated much less and are in some cases dearer than the same car here.

All these super low lease deals atm must be hitting residuals big style.

Have you seen any cheap lease deals on MLs?

May consider VT but suspect on PCP you have to get very close to the full term before it can be applied the way MB over value the GFV's.

The industry likes PCPs as they make it less likely that people will VT.

 

[Paul/]

MB seem to over value the GMFV's far more then any other brand.

There was some discussion in another fairly recent thread about how MB try to control the used market to keep actual values up in line with GRVs. Though later in a vehicle's life this will catch up with it, experiencing a sharp drop in value when it's no longer relevant to keeping the PCP costs low.

 

[HumberMart]

There was some discussion in another fairly recent thread about how MB try to control the used market to keep actual values up in line with GRVs. Though later in a vehicle's life this will catch up with it, experiencing a sharp drop in value when it's no longer relevant to keeping the PCP costs low.

Good point. Never thought of it that way before.

Are MB deliberately using a negative equity trap to ensure owners keep them full term? and this in itself helps to ensure the 3 year old values are kept higher than competitors and thus also helps to keep nearly new prices higher for the dealers.

 

[markjay]

While you can get either low spec or high spec new cars under PCP, when you hand the car back to MB only the better spec ones will find their way into the dealer network and sold at a premium. Mundane low spec cars will be auctioned and get into the car supermarket sector, which is one reason why there is such a big discrepancy in price.

 

[Paul/]

Are MB deliberately using a negative equity trap to ensure owners keep them full term?

I think that (but can claim no expert insight) the MB approach to Agility contracts is to assume that most people want to keep their vehicle to the end of the term and then hand it back, so MB do whatever they can to keep the deposit + monthly payments elements as competitive as possible.

 

[Rory]

I think that (but can claim no expert insight) the MB approach to Agility contracts is to assume that most people want to keep their vehicle to the end of the term and then hand it back, so MB do whatever they can to keep the deposit + monthly payments elements as competitive as possible.

The trouble with that approach is that the customer has to find the deposit again every time they change car.

The original idea with PCP was that the car should be worth a bit more than the GFV and that the extra would be enough to cover the deposit on the next deal.

I suppose Mercedes get around this in many cases by have significant dealer contributions to the deposit so the customer doesn't have to pay very much.

I still think many people put the deposit out of their minds. I know people who have used their old car in P/X as the deposit and then are dismayed to find that when they get to 3yrs and the new car is worth the GFV or less, their only option is to walk away with nothing.

 

[NISFAN]

Good point. Never thought of it that way before.

Are MB deliberately using a negative equity trap to ensure owners keep them full term? and this in itself helps to ensure the 3 year old values are kept higher than competitors and thus also helps to keep nearly new prices higher for the dealers.

Or.....IMO, in general MB's are worth less than the list price by a bigger margin than other brands.
Lease companies get huge discounts from MB, which erodes used values. In order for MB to offer competitive PCP's they over value the GFV and rape owners come hand back time with a much less lenient return condition policy.

PCP'ers that used to go by the GMFV (Note: the old definition M for Minimum) are now shocked that PX is usually less than GFV by some margin.

 

[Allan Forsyth]

Some really good points guys!!

I got offered a cracking deal on a X5 (booo I hear your cry), but the settlement is £5k more than the px offered. Hence why I'm thinking of vt.

Off to merc at the weekend tosee what deals are on offer although I'm not 100% keen on the new ml. I'd luv an e63 but not sure i could afford to fuel one

 

[moff]

The same happened to me with our C350 CDI... luckily our deposit was smaller at £3k.

The fact is that the MB dealer is meant to factor in enough equity so that you are able to move cars without the term being completed (their words), and when the term is completed there should be equity. But it seems pretty obvious that they have been flexing figures to produce monthly payments that are too low thus leaving people in negative equity.

In this instance the best option is to VT.

I've recently complained to MBFS about this as I feel we were mis-sold.

As far as I am concerned the Agility deals are a joke with their ridiculously high deposits. It makes far more sense to contract hire with low deposits so you don't have too much of your own cash tied up.

The negative is that you cannot VT and contract hire agreement.

 

[rhud]

I intend to pay off the GFV and keep the car when my 36 months are up in November. Is this really that unusual?

 

[Dryce]

I intend to pay off the GFV and keep the car when my 36 months are up in November. Is this really that unusual?

Yes.

 

[moff]

I intend to pay off the GFV and keep the car when my 36 months are up in November. Is this really that unusual?

Yes and you will could be paying more than the car is worth.

Having said that a dealership will add on cost for remarketing and selling as a used vehicle.

If I were you I would get it valued against the GFV.