Still not sure how 5.25k on a 25k asset makes any sense when they get the car back after 24months That has to be a loss maker
I still feel the new car image and peace of mind is part of the premium and loss folk pay through PCP or other finance means. Known or otherwise. Depreciation has been mentioned and analysed but if you choose wisely and are prepared to gamble or get your hands dirty then you can buy a car that doesn't depreciate or even appreciates. As I mentioned earlier, I had a run of cars that ignoring upkeep (of which DIY maintenance was minimum) effectively didn't cost me anything. This was because I sold them for what i paid or more. The sweet spot was a car at ten years old that had some sort of flavour to it and better still a following (proper BMW M division car, RS Audi etc etc). I gave that up to release a bit of capital and started doing bigger milages. That said I do 18k a year in a 8 year old RS175dci with 140k on it. I recon I could get back what I paid for it if I was prepared to wait a little. The other issue with a PCP deal is that at the end of the term, when you hand the car back, you've got to find that next deposit payment. Where as with a low value used car, that moves to the next car. No doubt I'll be cursing my logic one morning when I am late for work and the fuel pump explodes all over the driveway. I've always ran cars this way. RS 175 Lux
Just been having a gander on eBay, a Tiguan same spec as nick frogs 2 years old from a VW dealer with around 19k on the clock can be had for 15k. If the list price was 25k as he suggested it's lost 10k so his lease deal of just over 5k loss is pretty good Sent from my iPhone using Tapatalk
Presumably if you bought one outside of a PCP or lease you'd keep it longer than two years as everyone knows that a car loses c30-40% of its value by year three. So maybe as mentioned it's suitable for short term operations.
I mean from lease car perspective They probably buy a lot cheaper, but with only 5k coming in over 2 years and however many miles, it will depreciate more than that So unless they manage to buy at, say 21... Then sell at 18, having had 5k back in two years... Their profit is a mere 2k and it takes 24 months to realise Hardly seems worthwhile for them to do it
Me and a mate were working this out, I imagine they work on volume tbh The local car supermarkets seem take advantage of the low mileage lease cars Sent from my iPhone using Tapatalk
2 factors at play here: 1 - It's not a £25k asset. Retail prices are meaningless. Particularly when you are the finance arm of VW. They make their profit out of what VW GB buy at from VAG + intercompany cost for VW FS UK. Overall their cost is far far less than £25k. The lease house makes £150 to £300 per car, their gross profit is actually transparent. You pay that if you choose not to use VW FS direct through a dealer. 2 - It's yield managed - those deals vary weekly. I didn't buy at the bottom of the market, yet others have paid closer to £6k. Think Easyjet and the lowest cost of a seat on a given plane : it's probably sold under cost too, and lower than the average selling price.
But to counteract that: 1. It doesn't matter what they pay, because equally when they sell them to trade they can't charge retail prices So if a 25k list price is 15k to them, that just means they can only sell it for 5k after the 24months 2. Not really in the current climate - cars have production lines that are far longer in timescales and more predictable in forecasting than seats on an aeroplane 5k across 24 months is still ridiculously cheap given a useful economic value (in accounting terms) of around 3 years. I'll pull a set of accounts at some point as the thread does make me curious as to what gross and net margins these lease firms must be making. Can't be much of a money spinner
The (competitive) lease houses do not own the asset. All they do is sell against a small fixed fee (£250 on average), that's their income (plus a little retro bonus on target). They have no CAPEX as such, just one bloke and a computer. VW FS own the car, lease it to me for 24 months. In this instance I didn't even have to use an intermediary, my paperwork is VW FS. It might have cost them £15k but they've got my £5k so if they sell for say £13.5k to their VW dealer, they've made £3.5k, ie 23% gross margin, job done. If I go over the mileage, I pay for it. If I don't look after it, I pay for the damage. A pretty safe business model. I think the lease market is very highly yield managed because of extreme competition where price discovery is simple and because of the unpredictability of demand. All you need to do is observe the pricing behaviour when Audi (again through VW FS) were leasing a newly launched £27,300 A4 for less then £4,300 over 24 months (!!!). Then the price went up hourly, it was a jungle. 200 cars available at that price, then it went up and then it came back down again slightly etc etc
This just comes back to my original point on PCP, leasing and finance; people always justify their renting by using a more expensive example of ownership for the same vehicle. It’s a self comforting process. The fact that you could run a similar used and reliable vehicle much cheaper doesn’t reinforce their buying decision. It has to be the new car. The other significant factor is once capital poor PCP, leasing customers are tempted into the new vehicle renting process with those seemingly attractive ‘low monthly’ payments, they become locked into long term repeat cycles. Many can never finance the PCP balloon payment or they just roll into another lease term. For the typical 2 year £6K lease/PCP, after 6 years they suddenly realise they have paid out £18K and own nothing. For low income earners that is a significant long term factor in their already stretched finances. Unfortunately, the lure of the new car, easy access to credit and more importantly, the social pressure to join the herd is too tempting.
Not really, people don't need comforting or reinforcement, they just do what they want. Besides, if no one bought new cars, how you would you buy a second hand one ? The reality is there is no need to buy second hand unless it generates a significant saving against the lowest lease deals. And hence my previous (unanswered) question:
Of course if people don’t need comforting or reinforcement as you suggest, there’s no requirement for me to analyse and answer your personal decision to lease a new car..... I’m just making some more broad observations regarding the change and development of the PCP, lease and financial market and the huge increase and drive to pull people into short term new car renting that can have longer term more expensive and detrimental financial implications on their stretched finances. Cheaper, just as effective options have become less fashionable, almost socially undesirable.
Just had a look at leaseplan - 15% GP margin, 6% PBT margin. Not really interested in the one man bands that don't own assets, that's never going to be a high margin business So goes to show, probably better off leasing if you can get deals like that - there's not much money to be made for the companies doing it so if you want hassle free motoring, it works out pretty well
No. They have become non-existent when broadly comparing like for like, unless you can find me 1 example ? People choose new cheap lease primarily because it's more cost effective. The rest is a bonus.
You lost me there. I didn't even use a middle man so the question of whether there is profit for him or not is moot : he doesn't exist. Leaseplan seem to cater for the large fleets and therefore get commensurate discounts : why would I use them ? The one man band is the extreme example, they might be or grow into bigger companies, I don't know. They might be very high net margin businesses with such low OH, which is what counts at the end of the day. It's not so much hassle free motoring (I like a hassle if it saves money), as it's the cheapest way, unless you can think of a cheaper one, even with hassle. A large new and modern family car for £3,840 over 2 years inc tax : https://www.contracthireandleasing....plied-leasing-limited/kia/sportage/103339771/
I actually can't believe how far this thread has came away from the original post subject. Sent from my iPhone using Tapatalk
Indeed. It's not a cap though. Additional miles are usually 7p which actually lowers the overall cost per mile. Still, any cheaper second hand alternatives ?
You don't have to compare new like for like. That's the whole point. Used is more cost effective. Back to my original point again, the general thrust I always get with PCP and lease deals from people (outside of this forum) is how clever they have been, no better options exist, look at how much I've saved. Short term myopia. Ignore the negatives and downsides. New car buzz.
Do you have one example please where a used family car will be more cost effective than the £172 / month amortised cost of the Kia?
Think I'm confusing you. I'm not criticising your approach, I'm just bewildered that the Tiguan can be that cheap so looked at the financials for a company The Kia - yeah sure, 8k miles on a shitbox, but the Tiguan seemed very cheap relative to what you're getting. In terms of it being 'the cheapest way' - well no, it's not. If you buy a car that's about 5 years old and don't have to fork out for any servicing costs then that's the cheapest way, but it's a risk. E.g. my wife has a polo. Bought for £4k around 7 years ago, was 5 years old at the time. Very little cost in maintaining it. Also, just from an accountant's perspective, can people stop using words like depreciation and amortisation as it's painful to read when out of context lol
Sorry, but that's not the reason in a lot of cases, and @Aerofoil has hit the nail firmly on the head with a previous comment. Take a walk around a modern housing estate and look at the value of the cars sitting on the drives, paths or roads, and compare the retail value of these against the value of the property that their "owners" are living on. What you will see is a cultural shift compared to 10 years ago, where now people have access to cars which have a dis-proportionately high value compared to that of their property, compared to previous years. In years gone by people could never have afforded the cars a lot are now driving because they wouldn't have had the capital to be able to afford to purchase a car like that, but now due to the fact they don't have to put down a lot of capital to be able to "own" one of these, they can have one. And the reason for people going down this route is hugely driven by social pressure. The "keeping up with the Jones'" effect is what's driving this, and the social pressure to have a certain car to appear in a certain way, means people are taking more expensive / flash cars on PCP than they need, just to have a certain social presence. In a lot of cases now, people do not buy on PCP because it's more cost effective, but rather because "owning" a "new" car of a certain value, and which they think therefore sends out a certain message about how successful they are, is more important, and PCP allows this.
You would have to look at the financials of VW FS. Something tells me they don't operate at a loss so I don't find it bewildering. I think my educated guess of a 23% gross margin is not too shabby. As for new vs used, cars do require maintenance and upkeep, that's kind of obvious (except 5 year old Polos ;-)). Or they need a warranty. As I said, if you compare new at those lease deals to used cars of the same size and include all parameters (brakes, tyres, repairs, warranty, depreciation, tax, opportunity cost, etc etc), there is very very little in it. So why pay more ? Which I believe is the main rational driver in a lot of peoples decision. There might be an element of snobbery from certain quarters who cares ? The fact is that it's a big ask to expect people to accept that new is cheaper than used as it's very counter intuitive (like accepting that Kia make superb cars ;-))
James, why do you care about other people's motivation to buy ? Should I buy second hand even if by my calculations it works out no cheaper simply so that I am not associated with people who might possibly overstretch themselves by people who walk past my house ? I am sure you're right, there is snobbery at play here too. It's not new. But the amount of capital dedicated is utterly irrelevant. Actual overall cost is the main consideration, surely. Your observation based thought process may be flawed because: - what you call "value" of a car is irrelevant. You're talking about your perceived value. The lease cost of a new shape A4 at £187/month including deposit should give you an indication that it's £27,300 rrp is neither here nor there. - you don't always know if a car is leased or not - the value of houses has grown significantly compared to the value of cars in real terms over the past 15 years - you don't know how much equity people have in their house. For all you know they may own all of it and notice that leasing was ridiculously cheap not only compared to cash but also compared to used for the same car.
No one is doubting you have a good deal on your new VW lease NickF, but you seem to be missing the point on the long term and expensive path PCPs etc now provide and temp the masses by making this false assumption there are no cheaper alternatives, including buying used. Maybe you have been fortunate to never had to buy a used car, but it seems strange that you think it's not possible to pick up a reliable, secondhand car and not lose significantly less than £4200 on its value over 2 years.
I can see the benefits cash vs finance and it all boils down to the individuals choice. If they feel it's right for them to buy outright or finance the deal then we shouldn't criticise that decision. Just as we shouldn't judge a person by what house or neighbourhood they live in. If they want a Porsche and the car is worth as much as there home then good on them, I can't see the problem. Ps it doesn't matter what the car dealer makes.....smaller the margin the better it is for the man on the street
What about you making the false assumption that buying used works out cheaper ? For the same size/function, I maintain that a lease can be cheaper than used when the lease is carefully selected and all parameters are taken into consideration. My deal on the VW was not particularly good, just average. I have bought plenty of used cars and will still do for a reason or another. But cost efficiency is not one. Again, which used car of the same size/function will cost less than £4,200 Kia over 2 years when ALL parameters are taken account of ? It's all very well making statements but you need to show your workings. I have.
Pop onto Autotrader and do a search for sub 30,000 mile cars between £2-3K and there are 800 of them. Loads of reliable cars of the same size and function (whatever that means). Minimal depreciation over 2 years. Low running costs.
Size refers to the dimension, like length, wheelbase, width, interior space. Function refers to what it can do It's well known at £2k-£3k cars are invariably reliable, use very little fuel compared to new ones, tax is normally lower than recent cars, none of them have any potential issues with them, they're all under manufacturer's warranty, they all have new premium tyres, brakes pads, discs. They've all just been serviced and MOTed, they all come with roadside assistance (which won't be needed anyway). Also, they're all sold within 1 miles of my house. Talk of comparing apples and pears!!
Nick, it seems that a lot of this thread is now discussing why people could / should choose PCP (so their motivations behind buying a new or second hand car), so that is the reason why I've discussed people's motivations to buy. I have also made no comment on your situation or commented on what your motivation is for getting a car on PCP. I don't care whether you have neighbours you want to impress, or if PCP is cheaper for you, that is entirely your choice. What I have commented on is a factor that influences people and their decision, because this thread is discussing this, and people are entitled to post their opinion. The amount of capital is not irrelevant. Without capital people cannot buy a car outright, and this is why people are choosing to go down the PCP route, because it allows them to have on their drive, a more expensive car, than if they were to buy it outright. As for the flaws: -With "value", yes it is perceived value of a car. It is always about the perceived value of a car when it comes to impressing people, which is why BMW does so well with its de-badge option on their cars, and so many of the 3 series you see driving around don't have the badge on the back, and a pea shooter of an exhaust. However, value or perceived value is still not crucial to the discussion because we're comparing a new vs. used car, and not the merits of a new 318 or new 320 BMW (both of which are probably de-badged). -No you don't always know if a car is leased, but I'm not sure of its relevance. It's better if someone who has a car on PCP cannot have someone tell if their car is leased or not. However, in some cases if you look at the "dealer" name on the bottom of the plate, you can tell if a car is leased or not. You can however make a good guesstimate if a car is leased by walking around a modern housing estate (assuming you have some knowledge of the local housing market and a decent knowledge of cars), and looking at the type of car and age of it (as you've previously said, it won't be more than 3 years old) and the house it is outside. That is what I have based my comment on. -A quick few minutes on Google seems to indicate a 17% increase in the average price of a new car from 2003 to 2013, with a 23% increase in average UK house prices, so yes house prices have grown more, but not sure that 6% is "significant". -Be realistic about people owning their houses outright in the context I have mentioned. In this particular context, the houses are most likely to be mortgaged or rented. Yes we have a scenario where as a percentage of all "owned" homes, more homeowners now own their houses outright than those who have a mortgage (according to the Guardian at https://www.theguardian.com/money/2015/feb/25/owners-outstrip-mortgage-holders ), but out of those outright owners, the majority had at least one tenant over 65, and are unlikely to be in the housing estate scenario I have mentioned. If you want to buy a car on PCP and you have calculated it to be cheaper, please go right ahead and do it. If you want to purchase a car on PCP to impress your neighbours or work colleagues, go right ahead; or if you want to purchase a new or used car for any other reason, do whatever pleases you. All I am saying is that the social pressure and perception, is a significant factor in people choosing to get cars on lease / PCP deals.
I don't know why this is going on so long. How can new vs old cars be compared directly? It's utterly pointless. How much is a comprehensive 4 year warranty for a £30k retail car when at 5 years/50k miles old, for instance? As to the criticism of people 'owing' cars out of their league - we better call them out on their mortgage too I guess then. Average house price is now over £200k in the UK, who has that lying around?
Lots of negatives there... It's a piece of piss to pick a reliable, low mileage £2-£3K car with a serv history, decent length MOT and good premium tyres. Flog it 2 years later for a grand less. It looks like you are also looking for convenience and risk reduction with your desire for a warranty, roadside assist and something you can rent via just a swipe on an iPad. I understand that, but it comes at a price and doesn't have to be part of running a lower overall cost used car.
3 years ago we found a 207 GT for £4.5k with only 23k miles on it at a dealer. The cam gear slipped the next day so the dealer paid out the £750 to fix it. 3 years later we have done about 40k miles in it, spent about a grand servicing it and maintenance. Its worth about £2k now so its cost us about £1200 PA + fuel/insurance/tax etc. This sort of game only makes sense if keeping cars long term. My P30 Range Rover is a case in point, bought it 6 years ago for £3k its now worth maybe 1500 and on average spent just under a grand a year at a local LR dealer fixing and servicing it over those years. I will now continue to run it into the ground over the next 5 or 6 years as its essentially free motoring here on in just fix the thing when it breaks, its definitely at this point working out cheaper than the 207 (except fuel) but only because I have had the thing for 6 years and about 60k miles. My R26 if I sold it today would have cost me about £3K for only 6k miles of use and therein lies the rub with buying secondhand cars, it only works if you either never spend any money on them or you keep them long term. Many people unfortunately like their cars in optimum working condition and want to keep them for 2 to 3 years and for these people buying several year old cars can be not very cost effective. My old boss was adamant that the best thing to do was to purchase a car outright on a deal either new/nearly new then run it into the ground over 150k to 200k miles, he may have been onto something as you get to experience the new car freshness at the lowest overall cost (as its amortised over big miles and many years).
My fault! All I did was ask how folk were affording the cars they were suggesting buying.....and possibly rattle the "PCP/Lease is a waste of money chain" [emoji38]
If we are talking about buying a car and costs. I bought a 55 plate 5dr 1.5dci Meg Oasis with 125k in 2012 as a run around for £920. That was the lowest the owner would take as that's the figure that would clear her CC. It was a second owner car always serviced at Renault. In fact she had just had the belt and discs and pads all round done when the service manager offered her a nearly new Meg. Since then I've taken it up to 172k. I've done all the maintenance. Its had four new tyres at £45 each. A track rod end. A new set of front springs (pattern off eBay for £60 inc top mounts). I've changed the oil twice and done all the filters. It does 55mpg round town. Costs £120 a year to tax (106bhp). That's it. Other than the act it gave me the inspiration to buy the RS it's cost me nothing else. About £1300 in over four years excluding tax/insurance/fuel. I recon it's still worth £500-£750. It even scrubs up well. Six speed, cruise, pano roof! It's definitely the shitbox of the street because of its age! RS 175 Lux
Servicing costs aren't as expensive as you think & Rs tuning are currently perfecting a map so it may be cheaper. If you keep the exhaust flap closed (switch on the dash) then they aren't loud & you don't get the pops & bangs at gearchange. Lee
A45 engine is over twenty grand I've heard, and a few Turbo failures, engines built by amg ,remap scary
