No one buys a car expecting the value to go up so the vehicle market probably won't unravel in a collapse (vehicle debt is also about 1/10 the size of the mortgage market).
Maybe not, but I heard a debt counsellor on Radio 4 the other morning who said that bankruptcies were going up hugely in the UK, and that the main cause of them was PCP - the interviewer was quite surprised by it, but the guy said it was (IIRC) an epidemic. Can't find the link for it (I have R4 on in the morning at 6am when I wake up, and not sure what day it was), but it was only a couple of weeks ago.
Possibly You & Yours? There was a section on PCP a couple of weeks ago, might get repeated early in the morning. Although it sounds like there was a report on it so maybe a few people have done articles
No, but they expect the value to be a certain amount in 3 years time. If a lot of consumers jump on this and a majority of them jump on the next 3 year contract after that then there's going to be way more used cars on the market in 3 years time than initially expected, causing values to collapse. You don't have to assume a rising value in order to have a bubble.
It is true however that it's a really small market compared to housing, car companies also aren't critical to the economy as a whole in the way banks are but it would still be bad.
That's not the point. The problem is when the person loses their job. A downturn in the economy would lead to job losses and wave of defaults on vehicle repayments.
These are the very high end vehicles, as seen on the motoring shows with a mention of how you can't buy one because they are all sold. They are sold to the existing customer base, selected customers only. In some way this is like BitCoin in that every one of these vehicles will have some log book back to when it was 'mined from some factory in Northern Italy'. Unlike BitCoin these cars are real things with engineering wonder to them.
We also get told that these 'halo cars' cost the manufacturer 'twice' what they retail at. So the Bugatti creations of the VW group 'apparently' cost far more to research and develop than was recouped over the car sales. The project as a whole being like A380 financing - the R+D never paid off. This 'legend' goes back to the first supercars for the road - the Porsche 959. Even the rebooted Ford F40 was with this same legend.
What is going on here is a genuine collectors market with vehicles actually getting raced, repaired, rebuilt and polished. This is an expensive hobby.
Beneath this market something else is going on and I am sure finance has a lot to do with it. High end SUVs are desirable for people who like such things but they must depreciate faster than I get paid and they don't seem to have the mechanicals to last more than 5-10 years on the roads. Where do all the old Land Rover group luxury products go? Maybe there is some part of Serbia or somewhere that takes all these vehicles and they serve out a long and dutiful life, but I suspect not. The only way I can see these products as viable is if the manufacturer offers the finance to make it so.
> Porsche Financial Services - a trading name of Volkswagen Financial Services [VWFS], with finance provided by VWFS - offer different finance plans across the Porsche model range. To find the right plan for you from a selection including Personal Contract Plan, Lease Purchase, Hire Purchase and Contract Hire, simply explore the options below or contact your local Porsche Centre for an individual and personally tailored quote.
Additionally, if you're in the market to buy a $850,000 car as an investment then you probably have better assets to use as leverage (Property, stocks, etc) which are less prone to suddenly becoming worthless, as a car would be in the event of a major accident.
yes they are. rich people get loans to buy expensive things instead of giving up the cash, often collateralized by their other toys/stock/trust fund/whatever. rich people also overspend, over-leverage, and overindulge just like everyone else.
the difference is they call up their banker and accountant instead of filling out a form at the dealership.
if you're expecting an asset like a 918 or 911RS or R to go up in price, you'd be stupid to not leverage your cash at a low interest rate and put the rest of it to work somewhere else. at this point it becomes a business move, not a trip to the mall. it's like financing a construction project.
do you think they buy jets and yachts and big homes in cash also? of course not. they setup holding companies and finance the purchases, and then charter or rent the asset out to make some of the money back and to pay the crew of people that run these types of properties. that's why you can rent an amazing vacation home for $1k a night, or spend a few days on that yacht with a bunch of friends for $5k, or rent a ferrari for a few hundred bucks.
rich people are exceptionally good at monetizing and leveraging facets of their life that look like giant expenditures to you or i. poor people try to emulate this behavior, and meet their financial ruin, because they aren't savvy or rich enough to make it work.
I'm plenty of aware of how people with assets are able to use them as collateral to borrow money, but this article has nothing to do with that kind of financing. It's about 72mo high interest loans on cheaper downmarket cars marketed to people who used to buy old junkers.
> Graham Hill, of the National Association of Commercial Finance Brokers, told the FT recently that using a PCP, drivers could pay less for a new BMW or Mercedes than for a second-hand Ford Focus. Or, as Bob the Dinosaur might put it, “they just make you sign papers!”
People don't tend to think of BMW or Mercedes as cheaper down markets cars.
Perhaps not in the UK, but in many parts of the US the leased (low-end) 3-series or C200 is the car if the so-called $30,000 millionaire (i.e., people living a lifestyle they can't actually afford by renting all the trappings).
The lower end BMWs are not fancy cars in the UK either. I don't know if they'd class as "cheaper" or "downmarket", but the typical example probably isn't exactly the opposite either. There are a lot of 3-/4-cylinder 1-4 series on the road, and the 520d is common too. Something similar applies to Mercedes and Audi as well.
Interestingly, lesser cylinders is spreading up the range of BMW (and other marques) and no longer an indicator of a cheap model. The 2017 330i is equipped with a 2.0-liter turbocharged four-cylinder...
>if you're expecting an asset like a 918 or 911RS or R to go up in price, you'd be stupid to not leverage your cash at a low interest rate and put the rest of it to work somewhere else
This only makes sense if your bank thinks it will go up in price and will lend you the money at low rates based on the car itself as collateral. If you're getting the money at low rates based on other collateral (like you suggest above) it makes no difference if the car value goes up or down. If you think you can make more return on your other investments than the loan rate you leverage, the rise or fall of the value of the car is irrelevant.
uh, no, the bank will loan you the money no matter what, as long as they think you can pay it back or you can put up collateral to forfeit in case of default.
they're not in the speculation game, they're in the loan making game.
But the interest is lower the more stable the leveraged assets. I get a lower interest if I mortgage my house compared to if I borrow with stocks as leverage, which in turn is lower than a car loan which in turn has lower interest than a loan with no leverage, even if I have a solid income and a stable employment.
Banks are actually very much in the speculation game, which is why different people get different interest rates for the same loan, they speculate that the person with the lower interest has a better chance of paying back the loan. See also the financial crisis of '08
You're arguing that the price of the car going up or down makes a difference for the decision if you should use a loan or not to buy it. That only makes sense if the loan is based on the car value. If the loan is based on other collateral the price fluctuations of the car are irrelevant to the price of the loan and don't enter the decision at all.
>no i'm not. i said condition B is often present in condition A, and that given A, you'd be stupid not to do B.
Are you or are you not saying that if the car appreciates you should use a loan to buy it? That's what I read from this sentence at least:
>if you're expecting an asset like a 918 or 911RS or R to go up in price, you'd be stupid to not leverage your cash at a low interest rate and put the rest of it to work somewhere else
What I'm saying that unless you can get that value appreciation to make the loan cheaper it doesn't matter.
Say you have 200k$ in cash and are considering buying two different cars both costing that amount. One appreciates and after 5 years is worth 300k$, the other depreciates and after 5 years is worth 50k$. Say you also have a bunch of other assets (a house, a boat, etc) that you can use as collateral to borrow the 200k$ at 10% over 5 years. If you take the loan after 5 years you've paid 250k$ for the car, doesn't matter which one. If you don't take the loan you pay 200k$ up front for the car, doesn't matter which one. The decision to take the loan would only be more attractive in the appreciating in value car if you could convince the bank to also use the car as collateral, reducing the risk of the loan, and giving you a lower than 10% rate.
