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Are car loans driving us towards the next financial crash?
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Potemkin Villager



Joined: 14 Mar 2006
Posts: 779
Location: Narnia

PostPosted: Wed Jul 26, 2017 7:05 pm    Post subject: Are car loans driving us towards the next financial crash? Reply with quote

Whilst many on this forum may resist the constant pressure to buy a new car many it seems cannot . Apparently the lure of that wonderful toxic organic solvent new car smell is so strong that the amount of car debt in the UK is now a staggering £31.6bn and large swathes of it are regarded as dodgy and sub prime.

There is a certain pleasing symmetry in car as major environmental disaster and car purchase as major potential economic disaster. The prospects of the optimistic vision of replacing all the neanderthal ICE vehicles with sexy EVs seems even more unlikely.

https://www.theguardian.com/money/2017/feb/10/are-car-loans-driving-us-towards-the-next-financial-crash

"A record 2.7m new cars were sold in Britain last year – the fifth year in a row of rising sales. Per head, the British are buying more new cars than any other large country in Europe. "
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Last edited by Potemkin Villager on Wed Jul 26, 2017 8:51 pm; edited 1 time in total
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Little John



Joined: 08 Mar 2008
Posts: 5666
Location: UK

PostPosted: Wed Jul 26, 2017 8:38 pm    Post subject: Reply with quote

Well...I'm as green as they come

I always buy cars that are around 10 years old and sometimes older with at least 80k miles on the clock. But, more often, around 100k

I keep them going with parts all sourced from breakers yards. Usually, they last me around 3 years and around 40k to 80k miles put on them by me. At which point they truly are ready for the breakers

Typical capital cost to me is around £400 to £800 for the initial vehicle. Around another £500 to £1000 in parts and occasional labour (if I need a garage to carry out the work) to keep them on the road.

So, taking the bottom end figure, that's about £900 for three year's motoring or, taking the higher end figure, around £1800 for three years motoring.

It all evens out in the end though. So on average, over a number of cars, I'll take a guess at somewhere between £400 and £500 per year.

The downside is one has to be prepared to do a lot of the repairs oneself and faff about sourcing second hand parts from the breakers. But, it becomes a bit of a sport, actually, seeing how cheaply I can keep it on the road. So, I quite enjoy it.

In any event, given how little I spend and given that monetary expenditure is an index of consumption, which is an index of carbon footprint (either directly or indirectly via the magic of fractional reserve banking), I'm as green as ****...Very Happy


Last edited by Little John on Thu Jul 27, 2017 11:15 am; edited 1 time in total
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Potemkin Villager



Joined: 14 Mar 2006
Posts: 779
Location: Narnia

PostPosted: Wed Jul 26, 2017 9:20 pm    Post subject: Reply with quote

Little John wrote:
Well...I'm as green as they come........


......In any event, given how little I spend, and given that monetary expenditure is an index of consumption, which is an index of carbon footprint (either directly or indirectly via the magic of fractional reserve banking)....I'm as green as ****...Very Happy



The single greatest improvement to my quality of life would be being able to dispense with a car all together. In the meantime I content myself with the vehicle end life eco impact minimisation techniques you describe.

Every day however I see seemingly ordinary folk apparently happy to pay the interest and depreciation costs of having a new car to inject into the second hand supply chain.
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emordnilap



Joined: 05 Sep 2007
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PostPosted: Thu Jul 27, 2017 10:56 am    Post subject: Reply with quote

Yeah, the PCP scam is going to drag us all down with it. 4 in 5 car sales are on the never-never in the UK, not far behind in Ireland. They're totally unregulated here, not even basic statistics are taken - no-one over here knows the true proportion of cars sold on HP.

PCPs are being pushed big-time, in the media, at the dealers, by people who are paying one back. Not just new cars either, high-quality, we-usually-get-lower-spec used vehicles too.

We were pressured to get a PCP deal last time we swapped cars but we saved a good deposit and got a small, manageable loan from the credit union: we didn't really need a loan, we just wanted to support the CU! (You get back part of the interest yearly and we're really just contributing to paying the staff, it's a non-profit body.)
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vtsnowedin



Joined: 07 Jan 2011
Posts: 4269
Location: New England ,Chelsea Vermont

PostPosted: Thu Jul 27, 2017 2:02 pm    Post subject: Reply with quote

I've always found leasing a car, (what you call a PCP) to be a bad deal for most motorist and especially for those that have a long commute to work. The pain comes when it comes time to turn the car in and you find that you have no bargaining ability and you haven't paid down the principle as fast as you put miles on the car. My last two new vehicles were bought at very low interest rates and paid for in five years each with the vehicles both retaining about half the purchase price as residual value.
I plan to drive both of them into the ground but as I no longer commute to work and the wife's job is just five miles away they should last a few years each and when the time comes I'll probably buy used rather then new.
That you Brits. bought 2.7 million cars in a year is not by itself concerning. What is concerning is the terms you bought them under and how much you would be under water if you had to sell them quickly. I like to put enough down so that each payment keeps the balance due somewhat less then average trade in value.
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emordnilap



Joined: 05 Sep 2007
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PostPosted: Thu Jul 27, 2017 2:11 pm    Post subject: Reply with quote

These PCPs include strict maintenance schedules, penalties for minor/cosmetic damage and a mileage/kilometreage maximum, often quite limiting.

Effectively, if you decide you need a car, such deals commit you to handing over a substantial amount of money every single month for the rest of your driving life or until you get lucky.
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vtsnowedin



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

PostPosted: Thu Jul 27, 2017 8:12 pm    Post subject: Reply with quote

emordnilap wrote:
These PCPs include strict maintenance schedules, penalties for minor/cosmetic damage and a mileage/kilometreage maximum, often quite limiting.

Effectively, if you decide you need a car, such deals commit you to handing over a substantial amount of money every single month for the rest of your driving life or until you get lucky.

Yes if you really need a car and to put a normal or high amount of miles on it your much better off buying it the traditional way. Right now here in the USA you can get zero percent financing for 72 months which means you can own a $23,000 Camry or equal car for $320 a month.
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Little John



Joined: 08 Mar 2008
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Location: UK

PostPosted: Thu Jul 27, 2017 8:36 pm    Post subject: Reply with quote

vtsnowedin wrote:
emordnilap wrote:
These PCPs include strict maintenance schedules, penalties for minor/cosmetic damage and a mileage/kilometreage maximum, often quite limiting.

Effectively, if you decide you need a car, such deals commit you to handing over a substantial amount of money every single month for the rest of your driving life or until you get lucky.

Yes if you really need a car and to put a normal or high amount of miles on it your much better off buying it the traditional way. Right now here in the USA you can get zero percent financing for 72 months which means you can own a $23,000 Camry or equal car for $320 a month.
That comes to $11,500 over three years that will be paid. However, since the loan will be over 6 years, I am guessing the you wouldn’t be able to sell the car before the end of the loan. At which point is is not going to be worth much.

For the sterling equivalent of way less than half of that $11500, I could buy a second hand car in the UK that would have very little, if anything go wrong with it (over and above tyres and brakes and the usual servicing) over the course of three years.

Buying a new car on tick is a convenience. It is not a necessity. And it is definitely not the cheapest way to drive.

It's debt for no reason other than vanity.
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Lord Beria3



Joined: 25 Feb 2009
Posts: 4102
Location: Moscow Russia

PostPosted: Thu Jul 27, 2017 8:47 pm    Post subject: Reply with quote

I hardly drive.

Mainly walk, use public transport and get the odd lift.

For me, a car is purely functional, I use it when I need to get from a to b but I struggle to understand why so many people waste so much money on these things.
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raspberry-blower



Joined: 14 Mar 2009
Posts: 1452

PostPosted: Thu Jul 27, 2017 10:54 pm    Post subject: Reply with quote

If you want to see just how precarious the situation is in the States, Wolf Richter has a highly active column here

Car companies in serious strife include Hyundai-Kai and Fiat-Chrysler

Meanwhile on the finance side of things - I think we've heard this one before Evil or Very Mad

Bloomberg: Auto Lender Santander checked income on just 8% on Subprime Car Loans
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vtsnowedin



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

PostPosted: Thu Jul 27, 2017 11:36 pm    Post subject: Reply with quote

Little John wrote:
vtsnowedin wrote:
emordnilap wrote:
These PCPs include strict maintenance schedules, penalties for minor/cosmetic damage and a mileage/kilometreage maximum, often quite limiting.

Effectively, if you decide you need a car, such deals commit you to handing over a substantial amount of money every single month for the rest of your driving life or until you get lucky.

Yes if you really need a car and to put a normal or high amount of miles on it your much better off buying it the traditional way. Right now here in the USA you can get zero percent financing for 72 months which means you can own a $23,000 Camry or equal car for $320 a month.
That comes to $11,500 over three years that will be paid. However, since the loan will be over 6 years, I am guessing the you wouldn’t be able to sell the car before the end of the loan. At which point is is not going to be worth much.

For the sterling equivalent of way less than half of that $11500, I could buy a second hand car in the UK that would have very little, if anything go wrong with it (over and above tyres and brakes and the usual servicing) over the course of three years.

Buying a new car on tick is a convenience. It is not a necessity. And it is definitely not the cheapest way to drive.

It's debt for no reason other than vanity.

It is not like you will not need a car three years from now so the five or six year loan is not an issue and cars last ten years or more today if properly maintained. And you can trade it in anytime as long as the trade in value is equal or more then the balance owed. Just like closing on a house. If you need a car every workday and put on a lot of miles a new car is often the cheapest way and most reliable way to get to work. Buying used you always run the risk of buying the other guys problems. Sure you can go for cheap used as long as you can afford being late for work on occasion and getting unexpected repair bills.
Look at it this way, when you get the car paid for you will then have a used car that you know exactly how it has been maintained. I've driven vehicles that I bought new and had 150K on them when the loan was paid of and then drove them another three years and 100K for just gas and oil changes. One figured out to just 14 cents per mile when the IRS was allowing you 25/mile.
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raspberry-blower



Joined: 14 Mar 2009
Posts: 1452

PostPosted: Thu Aug 03, 2017 10:26 pm    Post subject: Reply with quote

vtsnowedin wrote:

It is not like you will not need a car three years from now so the five or six year loan is not an issue and cars last ten years or more today if properly maintained. And you can trade it in anytime as long as the trade in value is equal or more then the balance owed.


Therein lies the problem. While a well maintained car can be an asset, particularly if you are competent to undertake its maintenance, I very much doubt that it would have anywhere near as much comparative financial value in the near future. Reason being is the shear number of cars bought on the never-never - when the keys start jingling through the post there will be a glut of second hand cars that will deflate car prices significantly.


Quote:
The unanswered question is, what happens to the PCP car market when people are losing their jobs, and can't afford — or don't need — their cars?


I suspect that we will find out - probably sooner rather than later. Judging from Wolf Richter, that scenario is already well under way in the States.

UK Business Insider: The UK car finance has "the same problems that the mortgage markets had 10 years ago"

Wolf Richter: Carmaggeddon for Hyandai, GM Fiat-Chrysler, Ford

Wolf Richter wrote:
•Total new vehicle sales fell 7.0% year-over-year to 1.415 million, according to Autodata. This is the number of vehicles sold and delivered by dealers to their customers, or delivered by automakers directly to large fleet customers.
•It was the seventh month in a row of year-over-year declines.
•Year-to-date, total new vehicle sales are down 2.9%.
•Car sales plunged 13.8% to 525,020 vehicles. They’re down 11.7% year-to-date.
•Truck sales – which include pickups, SUVs, compact SUVs, and vans – had been booming as Americans are shifting from cars to trucks. They accounted for 63.3% of total retail sales, the highest ever for any July, and the 13th month in a row above 60%. But even these erstwhile booming truck sales fell 2.5% from a year ago to 890,119 vehicles.
•The Seasonally Adjusted Annual Rate (SAAR) of sales fell to 16.7 million, the fifth month in a row under 17 million, and down from 17.8 million in July 2016.
•The average new vehicle sold to retail customers had spent 72 days on the lot, according to J. D. Power, the highest since July 2009 during the collapse of the auto industry.
•Loans of 84 months and longer accounted for more than 6% of retail sales for the first time ever.

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Lurkalot



Joined: 08 Mar 2014
Posts: 168

PostPosted: Fri Aug 04, 2017 8:05 am    Post subject: Reply with quote

To go off at a slight tangent I've a question. Last weekend I went with a friend to the Upton on Severn steam fair which as the name suggests is a gathering of steam traction engines along with numerous old vehicles , cas , lorries , tractors , and even a few tanks chucked in too.
My friend is really keen to get a "classic" car. Partially because he likes the idea of showing one at events like the one we went to but part of his eagerness is prompted by rising prices in the classic car market . He wishes to get his classic before prices get that high he is priced out of the market. Even some less classic cars seem to be going up in price . For example my wife has a 20 year old MG softtop which now looks as if she would get more for it now than what she paid for it three years ago.
I'm a little more skeptical that prices are going to carry on rising and think that at some point , and probably not too far in the future , prices will at least plateau or more likely the bubble will burst. My friend takes the opposite view that as cars get older and become economically unviable to repair numbers will slowly drop and that in itself will put pressure on prices of remaking cars ever upwards.
Obviously maintenance costs will come into this but can prices carry on rising?
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vtsnowedin



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

PostPosted: Fri Aug 04, 2017 9:03 am    Post subject: Reply with quote

Lurkalot wrote:
To go off at a slight tangent I've a question. Last weekend I went with a friend to the Upton on Severn steam fair which as the name suggests is a gathering of steam traction engines along with numerous old vehicles , cas , lorries , tractors , and even a few tanks chucked in too.
My friend is really keen to get a "classic" car. Partially because he likes the idea of showing one at events like the one we went to but part of his eagerness is prompted by rising prices in the classic car market . He wishes to get his classic before prices get that high he is priced out of the market. Even some less classic cars seem to be going up in price . For example my wife has a 20 year old MG softtop which now looks as if she would get more for it now than what she paid for it three years ago.
I'm a little more skeptical that prices are going to carry on rising and think that at some point , and probably not too far in the future , prices will at least plateau or more likely the bubble will burst. My friend takes the opposite view that as cars get older and become economically unviable to repair numbers will slowly drop and that in itself will put pressure on prices of remaking cars ever upwards.
Obviously maintenance costs will come into this but can prices carry on rising?
collecting and showing classic cars is a hobby you can get into at whatever level your means allow.most don't make any money at it unless they are the craftsmen doing their own maintenance and restortation work.If you don't have cheap garage space and a good mechanic at your disposal it can be a money pit.
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emordnilap



Joined: 05 Sep 2007
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PostPosted: Fri Aug 04, 2017 9:47 am    Post subject: Reply with quote

And of course if the vehicle is kept undercover in dry conditions and is only driven two or three times a year, what's to wear out? Laughing

Yes, rubber perishes, I know.
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