We take a look at the enormous cost of new ‘Premium’ cars from car makers like Land Rover, and ask if they’re getting too expensive for their own good.
Over the past few years, there’s been a huge increase the number of prestige car sales. For many, these brands encompass the personal aspirations of a consumer market that have aspirations to be considered amongst society’s elite. But under the surface of this glossy, new car market lies an epidemic that is only just revealing itself and putting a strain on the new car market.
Over the past couple of the years, car retailers have been able to push those earning moderate salaries into high-end, prestigious vehicles, thanks to increasingly lenient credit policies held by the funders they have access to. Never before had the UK roads seen more new vehicles on the road until earlier this year, when new car sales took a hit.
Many will point the finger at Brexit, citing that the uncertainty of the UK’s economical state has heavily impacted consumers buying thoughts, based on a future that holds an unknown. But, in truth, despite having some impact on the market, Brexit is a flat track excuse for the dip – it’s the easy answer. The real truth lies in the car market itself.
There will be many of you out there that have bought or committed to PCP finance products when buying your new cars. If you’ve cycled through this product more than twice, you’ll probably be in a better position to explain why the car market has seen a dip in recent months.
For those of you that don’t know, PCP has become incredibly popular over the past 4-6 years and it’s the root of what is happening to the car market. Why, I hear you ask? There’s 3 definitive reasons why PCP has become so popular.
The first is that it is incredibly flexible, because it allows consumers to buy out of contract at any point (if you have the money to do so), which obviously triggers a sense of control with the consumer.
The second reason is similar. PCP is sold to many consumers on the premise that as you make the monthly payments, you’re building equity in the vehicle, which provides the consumer with a sense of ownership.
But the truth is, 81% of consumers that take out a PCP agreement never fulfil the contract. Instead, they trade in the equity that they have built up in the vehicle and use that as a down payment on a new car.
The second cycle around, the consumer feels great. More often than not, they have had their new car for two years, building enough equity in that vehicle to prompt a sales call from the retailer, informing them that they can bring their car in, increase their payments marginally and upgrade their vehicle to a model far more prestigious in the manufacturers’ range.
Of course, there’s nothing to put down or no need for a deposit, as the salesperson tells them that this is how a PCP works – that they use the equity that has been built in their current car. What’s actually happening though is that you’re adding to your debt and increasing the likelihood that you’ll never own the car.
The final reason why PCP has proven to be most popular is the most important. Consumers are exposed to a PCP first and foremost because it’s profitable. When you find yourself sat in the car dealership, nine time out of ten, the first finance product the salesperson will put down in front of you is a PCP. Ask yourself why that is.
The profitability of the PCP works as a two-pronged attack. First off, the sales person sells you into a APR, some of which are far more than the standard bank loan, which turns a substantial product. Additionally, the salesperson knows that the lifecycle of this product could extend out for years. They understand that in all probability, the consumer will take out a second vehicle with them.
By the time that the consumer has reached the lifecycle of their second PCP, they’re much more aware of their current state of play. When the dealer calls them again after two years, the offer sounds a lot less appealing, down largely to the debt that the consumer would need to move onto the new vehicle.
The consumer reviews their contract and at that point realises the length of their contract term, which in some cases can extend into 4 plus years. Essentially, they become trapped, now in the knowledge that they either need to summon the money to pay off the contract, which in many cases exceeds the value of car, or continue down the road of seeing the contractual term out.
The rise of PCP has created this lull in the car market. Consumers have gone quiet because they feel trapped, in car retail purgatory, not knowing where to turn.
There is relief though for some consumers. Personal Contract Hire offers a straightforward solution that offers far more realistic terms and clear-cut payment plans.
Personal Contract Hire, or PCH, is in principle a long-term rental where the consumer pays off the rate of depreciation based on the amount of mileage and age of the vehicle at the end of the term.
There is no sense of ownership with a PCH, which means that consumers aren’t subjected to APR rates. The result is that consumers find they can afford far more for their money.
Take this Range Rover Evoque deal from Vantage Leasing for example that is just £255 per month. A PCP for the same monthly cost would probably put you in the range of an Audi A1 S-Line, which roughly retails for £10,000 less.
It’s also worth noting that for the cheapest rentals on PCH, there are a whole host of brokers that will be able to beat the rentals you can achieve at a dealership. Furthermore, a lot of these leasing brokers operate online, so there is plenty of opportunity to shop around.
Take the time to research your next vehicle. Chances are that if a deal feels too good to be true, it more than likely is.