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Are car loans driving us towards the next financial crash?
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kenneal - lagger
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Joined: 20 Sep 2006
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Location: Newbury, Berkshire

PostPosted: Mon Jan 08, 2018 2:41 pm    Post subject: Reply with quote

We had an eleven car cull at an open air car park on an industrial estate last week caused by an electrical fault in one of the cars. Only "Pumps two" according to the local paper.
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vtsnowedin



Joined: 07 Jan 2011
Posts: 4857
Location: New England ,Chelsea Vermont

PostPosted: Mon Jan 08, 2018 3:09 pm    Post subject: Reply with quote

I've had over forty vehicles over the years, everything from new to junk of the month. I used to dive up to 45K in a year working on highway construction or paving contracts so about half of my mileage would be reimbursed. One time I bought a Mercury for $450, fixed the bottom of the doors that were rusted out and put 40K on it on just the one annual inspection sticker just dumping prodigious amounts of gas through it's 351 Windsor engine. I made a bit of profit on that one.
The cheapest way I have found is to buy a modest priced vehicle that meets my needs new and then change the oil every 5k and keep it as long as it lasts. After you have it paid for you have a good used car that you know the full history of and that second 100,000 miles can be the cheapest driving you can ever do. I once put $15,000 of gas through a $12,000 pickup over 240, 000 miles.
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Little John



Joined: 08 Mar 2008
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Location: UK

PostPosted: Mon Jan 08, 2018 3:39 pm    Post subject: Reply with quote

vtsnowedin wrote:
....The cheapest way I have found is to buy a modest priced vehicle that meets my needs new and then change the oil every 5k and keep it as long as it lasts. After you have it paid for you have a good used car that you know the full history of and that second 100,000 miles can be the cheapest driving you can ever do. I once put $15,000 of gas through a $12,000 pickup over 240, 000 miles.


Yeah, that makes sense
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Potemkin Villager



Joined: 14 Mar 2006
Posts: 1042
Location: Narnia

PostPosted: Mon Jan 08, 2018 8:43 pm    Post subject: Reply with quote

kenneal - lagger wrote:


The greatest single cause of depreciation of vehicles in the UK is driving a new car off the forecourt. They drop thousands in value when you do that.


The fact that several million people a year seem quite happy with this really does my head in! Rolling Eyes
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Little John



Joined: 08 Mar 2008
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PostPosted: Mon Jan 08, 2018 10:58 pm    Post subject: Reply with quote

Potemkin Villager wrote:
kenneal - lagger wrote:


The greatest single cause of depreciation of vehicles in the UK is driving a new car off the forecourt. They drop thousands in value when you do that.


The fact that several million people a year seem quite happy with this really does my head in! Rolling Eyes
The fact that several million people a year seem quite happy with this keeps me on the road...Smile
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raspberry-blower



Joined: 14 Mar 2009
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PostPosted: Wed Jan 17, 2018 11:37 pm    Post subject: Reply with quote

The Provident Financial connection:

Guardian: FCA investigates Provident Financial car finance offshoot Moneybarn

Quote:
Provident Financial’s share price has fallen more than 10% after the the City watchdog revealed it has launched an investigation into Moneybarn, a company controlled by the subprime lender that provides car loans to people with poor credit history.

The Financial Conduct Authority (FCA) will focus on how Moneybarn decides whether applicants can really afford its loans, and on how it treats customers who fall into financial difficulty.


The car depreciation factor will hit companies such as Moneybarn for six. After all, they will have these cars as assets on their balance sheets.
When the leased cars are returned - I wouldn't mind betting a fair percentage are "below the standard required of the terms of the lease" - there will be a glut of nearly new second hand vehicles heading back to the forecourt.
Depressed car prices will reduce the actual asset values of these companies and get into a negative feedback loop. Need to lease these cars out again at below break-even levels before too long. Ultimately they will go bust or there will be mergers of distressed companies.
Which, certainly in the case of anything tied in with Provident Financial is a case of good riddance:

Quote:
The then chief executive, Peter Crook, unveiled plans to replace 4,500 sales agents with 2,500 full-time “customer experience managers” (CEMs), who would be connected to head office via iPads, with their time managed more efficiently as a result of analytical software.

The CEMs were given iPads but were sent to the wrong addresses, or the correct ones at the wrong time, and were unable to make sales or collect payments. As a result, debt collection rates fell sharply, from 90% in 2016 to just 57%, before recovering slightly to 65% in September.


What a right Fred Karno outfit
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vtsnowedin



Joined: 07 Jan 2011
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Location: New England ,Chelsea Vermont

PostPosted: Thu Jan 18, 2018 1:08 am    Post subject: Reply with quote

Potemkin Villager wrote:
kenneal - lagger wrote:


The greatest single cause of depreciation of vehicles in the UK is driving a new car off the forecourt. They drop thousands in value when you do that.


The fact that several million people a year seem quite happy with this really does my head in! Rolling Eyes
I don't know why that bothers you. Consider if a customer finishes all the paper work and drives off the lot with their new car and then two blocks away finds they have chosen the wrong car and turn around and try to return it. The dealership can't just take it back and try to sell it to the next guy coming into the door as the title paperwork would reveal the previous sale and that brings up the question of what the first purchaser found wrong with it.
The fact is that every time a car , new or used leaves a dealer lot the dealer gets about a $3,000 cut off the deal. You can bring your car back but you are not going to get your $3,000 back and might have to pay another $3,000 to change your mind.
Back to my original theory? If you only buy one car new and drive it into the ground (maintaining it properly to get the most life out of it) then you only have to pay the dealership the $3,000 rip off once in ten years or so which with warranties and such might actually be worth it compared to buying two or three used vehicles private sale.
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kenneal - lagger
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PostPosted: Thu Jan 18, 2018 4:35 pm    Post subject: Reply with quote

raspberry-blower wrote:
.....The then chief executive, Peter Crook,....


Irony!!
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Potemkin Villager



Joined: 14 Mar 2006
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PostPosted: Thu Jan 18, 2018 8:39 pm    Post subject: Reply with quote

raspberry-blower wrote:


The car depreciation factor will hit companies such as Moneybarn for six. After all, they will have these cars as assets on their balance sheets.
When the leased cars are returned - I wouldn't mind betting a fair percentage are "below the standard required of the terms of the lease" - there will be a glut of nearly new second hand vehicles heading back to the forecourt.

Depressed car prices will reduce the actual asset values of these companies and get into a negative feedback loop. Need to lease these cars out again at below break-even levels before too long. Ultimately they will go bust or there will be mergers of distressed companies.
Which, certainly in the case of anything tied in with Provident Financial is a case of good riddance:



I think it quite likely this is what is going to happen. What drives folk to acquire new cars they cannot really afford, but to which never the less they feel entitled is, dare I say, driving the problem. They think they are clever and people are impressed by their expensive status statement but really they are a bunch of deluded muppets. Those dreaming up magic sub prime finance schemes are even bigger muppets.

This is the thing that does my head in.

It will not end well.
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emordnilap



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PostPosted: Fri Jan 19, 2018 10:03 am    Post subject: Reply with quote

PCPs are the main force behind what new sales there are over here.

However, the price of used cars is more 'competitive' than ever, so someone's taking a hit somewhere along the line.
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Little John



Joined: 08 Mar 2008
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PostPosted: Fri Jan 19, 2018 12:48 pm    Post subject: Reply with quote

emordnilap wrote:
....the price of used cars is more 'competitive' than ever, so someone's taking a hit somewhere along the line.


It ain't me.... Laughing
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clv101
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Joined: 24 Nov 2005
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PostPosted: Fri Jan 19, 2018 11:26 pm    Post subject: Reply with quote

Potemkin Villager wrote:
kenneal - lagger wrote:
The greatest single cause of depreciation of vehicles in the UK is driving a new car off the forecourt. They drop thousands in value when you do that.


The fact that several million people a year seem quite happy with this really does my head in! Rolling Eyes


Buying a new car isn't anywhere near as daft as buying a new car every couple of years. I bought a brand new car in 2004 for £10990. I was exactly what I wanted - gave me 11 years and ~120k of trouble free motoring then I part exchanged it for £1500 against another new car in 2015. £10990-1500 = £9490 / 11 = £862 per year. That's not a lot given I got to buy exactly the car I wanted, had 3 years warranty, no MOT due for free years, came with 3 years of free RAC cover etc etc.

I'm certainly planing on keeping the 2015 car for a similar period, and it came with a 5 year warranty. Time will tell.
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Lord Beria3



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PostPosted: Sat Jan 20, 2018 7:04 pm    Post subject: Reply with quote

http://www.dailymail.co.uk/news/article-5290909/Millions-drivers-struggling-pay-car-payments.html

Quote:
A tenth of drivers are feeling the strain of keeping up with their car loan bills
Almost half of these are cutting back on spending as a result, research shows
Other motorists have been hit with penalties for handing back their keys early
Experts said many customers were sold deals they do not fully understand

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vtsnowedin



Joined: 07 Jan 2011
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Location: New England ,Chelsea Vermont

PostPosted: Sat Jan 20, 2018 7:24 pm    Post subject: Reply with quote

Lord Beria3 wrote:
http://www.dailymail.co.uk/news/article-5290909/Millions-drivers-struggling-pay-car-payments.html

Quote:
A tenth of drivers are feeling the strain of keeping up with their car loan bills
Almost half of these are cutting back on spending as a result, research shows
Other motorists have been hit with penalties for handing back their keys early
Experts said many customers were sold deals they do not fully understand

Your UK PCPs are similar to US auto lease programs and have the same pitfalls. They should be highly regulated if not made illegal entirely.
They are a far cry from the last two vehicles I purchased new. Whatever down payment I had on hand , ($3000 IIRC) and sixty even monthly payments at zero percent interest with complete ownership at the end of the payments.
That ten percent are not savvy enough to shop for a good deal is not something we can do anything about. You can't fix stupid.
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raspberry-blower



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PostPosted: Sun Jan 21, 2018 6:06 pm    Post subject: Reply with quote

vtsnowedin wrote:
You can't fix stupid.


Yes the whole set-up is totally insane.
In itself PCPs are not problematic provided they are properly regulated and that Risk Management is applied to see who can actually afford it.
The trouble is that this clearly is not the case.
PCPs appear to me as being a sop to the auto-makers in both the US and Europe to bring demand forward in order to hide the fact there is an oversupply of vehicles on the market.
Having worked on several of these new build estates it is staggering to see the number of residents that have a car that is less than 3 years old - all on tick. Plus the third-of-a-million mortgage (at least) for a shoddily built rabbit hutch that has numerous defects. Can they afford it? No chance - it won't take too many interest rate rises to totally wipe them out

So what will happen?
I can see a build up of inventories at car forecourts to the extent that car manufacturers start reducing their hours to thus reduce output. Some may go on extended shutdowns - some may close for good.
In the US it is quite probable that Ford will follow Fiat-Chrysler in exiting the auto market and concentrate on selling trucks and SUVs. Wolf Richter has been extensively covering this.
PCP finance companies will be hit with a double-whammy: fines for mis-selling and the assets they have on their books are not worth their stated value when the cycle starts all over again. Therefore they will then seek re-refinancing themselves - if they fail to do so, they will collapse sooner rather than later.

What is the betting that they will then be bailed out?
So we can start the whole stupid process all over again Twisted Evil
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