Author Topic: The UK's coming credit car crash  (Read 3287 times)

Butterfingers

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The UK's coming credit car crash
« on: May 09, 2017, 02:13:13 AM »
https://www.theguardian.com/commentisfree/2017/may/08/credit-car-crash-sub-prime-crisis-cause-next-financial-collapse

I lived outside the UK for a decade or so, and on returning a few years back it was really noticeable how many new, high-end cars there were on the roads. Everyone and her dog seemed to have a new Audi or Beamer. Turns out it wasn't down to increased affluence, it was down to the popularity of financing for cars (which I had previously thought was just an American thing). Now the authorities are starting to take note that many people with "fragile" incomes could quickly be in over their heads if things start to go south, which in turn could lead to the car financing companies going under if enough loans go bad.

This quote, from the article, says it all:
Quote
Car leasing has a large fanbase of customers who consider themselves much better off than they really are.

squirrel

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Re: The UK's coming credit car crash
« Reply #1 on: May 09, 2017, 06:47:56 AM »
Having recently fully paid off a pcp agreement on my car, I'm inclined to agree, for those of you who can access it, Money Box on BBC radio 4 did a piece on PCP plans this week. What was really sad was that people were taking out finance on their cars that was of the order of about a year's take home pay and signing it off in a matter of minutes.

Playing with Fire UK

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Re: The UK's coming credit car crash
« Reply #2 on: May 20, 2017, 11:34:53 AM »
I'm really surprised that you can get these loan agreements on a zero-hours contract. It seems like it is just asking for trouble. I find it interesting how much the car retailers expect depreciation to be over three years - that in itself would have me running for cover.

It's basically an interest only mortgage for a depreciating asset. That's never ended badly before has it?

Butterfingers

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Re: The UK's coming credit car crash
« Reply #3 on: May 20, 2017, 01:40:53 PM »
I'm really surprised that you can get these loan agreements on a zero-hours contract.
Reminds me of the stripper in The Big Short with six condos.

Chris22

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Re: The UK's coming credit car crash
« Reply #4 on: May 20, 2017, 07:13:17 PM »
Two potential mitigating factors:

1.  Audis and BMWs in Europe are not the same as in the US; they get smaller-engined less-equipped variants that are analogous to a Chevy or Ford here in the US.

2.  Lots of middle-management types get these cars as company (paid for) cars as a tax-avoidance perk from their employers.

Not saying there isn't a problem, but it may not be as it appears to an outsider unaware of the above.

Playing with Fire UK

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Re: The UK's coming credit car crash
« Reply #5 on: May 21, 2017, 01:45:12 AM »
Chris22, you are right that European cars generally have smaller engines and less equipment. I suspect that only the highest spec'd variants are worth shipping out to the US. But Audis and BMWs are still more expensive and considered a higher end car than a Ford would be for the same sized car.

Interesting point about the company cars. I'd have assumed that these numbers were being measured differently (if nothing else, at my work, the company owns the lease not the individual, so if I lose my job I lose the obligation to pay the lease), but maybe the absolute numbers don't represent the number of stupid loans that are out there?

I'm really surprised that you can get these loan agreements on a zero-hours contract.
Reminds me of the stripper in The Big Short with six condos.

Yes!! It's like the legislation killed the party on irresponsible mortgage lending so they looked around and asked: 'what irresponsible lending is still legal? High-end cars to zero hours workers?!? Sign me up to that.'

Now, what to invest in to take advantage of the coming crash? Those trucks with the lifting bars for repossessing locked cars? PCP miss-selling lawyer firms? Bicycles?

cerat0n1a

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Re: The UK's coming credit car crash
« Reply #6 on: May 22, 2017, 03:03:01 AM »
Chris22, you are right that European cars generally have smaller engines and less equipment.

Indeed. Very few of the Audis in the UK appear to be fitted with indicators, for example.

There's been a bit of press about dangers of PCP recently, but I find it hard to get too concerned about it. I think around 75% of new car finance deals were PCP last year, but as people don't actually own the cars and the term is typically 2 or 3 years, the amount that individuals potentially owe is limited - unlike a HP agreement, or credit card debt. It's a fixed term lease rather than a loan. And losing your car doesn't generally lead to loss of job, home and spouse here. There is public transport and people share lifts...

Most of the finance comes from the car companies themselves and I'd say the danger is that they end up with a lot of unwanted 2-3 year old cars to sell elsewhere in the world and that their new sales take a big hit, not that they go bust under the weight of bad loans. We're not at the 2007 point where the likes of GM were huge finance operations with a small manufacturing concern attached.

A company car isn't particularly tax efficient. It was in the past, but not today and I would say most businesses who offer them tend to actually provide a monetary allowance rather than a car. (Fewer than a million company cars last year according to HMRC figures.)

Butterfingers

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Re: The UK's coming credit car crash
« Reply #7 on: May 22, 2017, 03:11:00 AM »
Very few of the Audis in the UK appear to be fitted with indicators, for example.

Ha!

Good points across the rest of your post anecdotally the number of jobs in my field (mostly office-based middle management) that I've seen advertised with a company car has dropped drastically since it became a taxable benefit. The government went a step further by closing the salary sacrifice loophole for everything but pensions (bloody hell, praise for George Osborne, whatever next?).

cerat0n1a

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Re: The UK's coming credit car crash
« Reply #8 on: May 22, 2017, 05:00:30 AM »
Interesting to do the sums though.  You pay a significant premium for a new car, and PCP is the most expensive way to do it. For the kind of people who replace their car with a brand new one every 2-3 years and who don't have savings, I can see the attraction. It's not much different in terms of cost compared with trading in your old car with the dealer and taking the dealer's loan offer, and significantly less hassle.  The flipside of all this is that second hand cars are pretty cheap.

I recently took a downward career move at work (gentle glide to RE in the next year or two) and lost my 8000 a year car allowance as a result. The only driving I ever did on business was to the railway station, and the most expensive (by far) car I've ever owned, is my current vehicle, bought for 6 995 in 2010.

Linea_Norway

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Re: The UK's coming credit car crash
« Reply #9 on: May 22, 2017, 06:37:30 AM »

Most of the finance comes from the car companies themselves and I'd say the danger is that they end up with a lot of unwanted 2-3 year old cars to sell elsewhere in the world and that their new sales take a big hit, not that they go bust under the weight of bad loans. We're not at the 2007 point where the likes of GM were huge finance operations with a small manufacturing concern attached.


But all those people who can't afford their lease car anymore, don't they want to buy a cheaper second hand car? Seems like the market will be flooded with nice second hand cars in some years.