Motor dealers in trouble...

[Gordon - Commercial Finance]

https://www.bbc.co.uk/news/business-47438681

Whether this will amount to anything remains to be seen, but it at least looks like the FCA are taking notice of shady practice within the motor trade.

I've mentioned on this forum many times that I think it is pretty bad form that motor dealers make most of their money from kickbacks from the finance companies they work with, and those finance companies in turn inflate the interest rate to the customer in order to build in enough margin to do so. This is why even prime customers routinely end up paying 9.9% and above at the moment...

I wonder though who the winners and losers would be here. I suspect a lot of motor dealers would be going out of business. I am reminded of the analogy I heard from one of my lenders who said that a particular mainstream dealer in one year had made a £1m loss on selling cars, but a £14m gain on introducing finance.
Perhaps if this route to profit dries up, they will instead have to build in decent margins on cars, and start making money from actually selling cars.

Either way, of course, it will be the consumer that loses I'm sure. Less competition in the motor trade will harm consumer choice, and dealers needing to get money from somewhere would force the price of cars up.

Maybe the winners will be reputable brokers who earn commission from providing finance to car buyers, but aren't greedy with what they charge, always with an eye on making sure the customer gets a good rate...
We can only hope.

 

[thetiger2015]

https://www.bbc.co.uk/news/business-47438681
I wonder though who the winners and losers would be here. I suspect a lot of motor dealers would be going out of business. I am reminded of the analogy I heard from one of my lenders who said that a particular mainstream dealer in one year had made a £1m loss on selling cars, but a £14m gain on introducing finance.

If they go out of business, what happens to the stock on their forecourts? I guess they're mostly financed and not owned by the dealers themselves?

The main dealer near here has vastly expanded their range of vehicles over the last year or so. I thought they'd scale back a bit, with everything being on PCP/HP these days but no, they've added a whole new showroom to one side and filled it with vehicles.

I gave up trying to replace my 5 year old car last year, the new car prices are impossible to negotiate and they give you about 5 different interest rates and monthly repayment figures to get your head around. I guess we have to treat cars like mobile phones now, pay monthly and then chuck it away after 5 years...not very eco!

 

[Mr D]

Hmmmm…. not a new problem I think.
Over the years several times I have purchased new or 2nd hand cars using cash in the bank. The sales staff in garages (and a number of shops for big ticket items) really push to use finance.
And they can get a bit annoyed at buyers financing the purchase themselves.

When paying cash there can be room to negotiate on the sticker price too. Or else try another garage.

 

[The Byre]

If that were the only trick dealerships get up to!

Top 18 tips for buying a car -

• End-of-month and/or end-of-year cash-backs for making quota mean that the dealer is most keen to sell (and therefore discount prices) for new cars at the end of the month or year.
• The dealer OWNS the cars on his lot and he is paying interest on those damn things, so he wants to sell those first and therefore will discount those most. He also needs to sell the used lemons that nobody in their right mind wants and will point you at those first.
• Whatever colour or model type the dealer has in stock is the one you don't really want, so knock a £1,000 off.
• You are always buying the car for your partner (who isn't there!) and he/she is setting a low price limit. Always put the blame on him or her!
• If the dealer can't meet your (low) offer - walk, but leave your number in case he changes his mind. Come the end of the month, he probably will!
• Buying a car is often three or more separate transactions - buying the new car, selling the old car and add-ons like serving and finance. Keep them separate!
• Get finance from your bank and NEVER the dealer! There's no such thing as 0% finance! Sales commission on a new car, £100 tops. Commission on finance £250 or more.
• Sell your old car privately - you'll get more for it.
• If you want to know when a car salesman is lying, it's when his lips are moving and noises are coming from his mouth.
• The salesman has to make a sale now and not next week, so any BS story will do to make you commit today. Special offer ends today / it's the last one and they're selling fast / a guy wants to put a deposit on that car tomorrow - you name the BS and he's got a story just for you!
• Tell the salesman nothing outside of the type of car you want and what you are prepared to pay. You set the rules of the game and if the salesman does like them apples, walk!
• Some cars are stupidly popular (e.g. used Golf, new Passat hybrid) - avoid them! Let some other suckers pay over-the-odds for them!
• Some cars are money pits and total lemons (e.g. Jaguar, Range Rover, BMW M3, VW Phaeton, Bentley, Fiat, Jeep) so stay away from them, no matter how lovely or cute they may seem!
• NEVER get your car serviced or repaired by a dealership. Somewhere out there, there will be a 'Stig-with-a-Spanner', Angus MacCrusty or Gustaf von Über-Ölwanne who is a better mechanic than any of the monkeys working at the dealership and will charge you half as much or even less!
• Angus and Gustaf will charge you for the actual time a repair takes. Dealers have set times for a repair or service and the more expensive the part, the more the mechanic gets paid. That's why a loss of power is always (at the dealership) down to a blocked catalytic converter or Diesel particle filter and never a vacuum-leak that can be fixed in five minutes with one 50p circlip! Never forget that - ever!
• NEVER buy extended warranties, service programmes or protective coats - it's all BS. Period!
• Get all those accessories after-market and not from the dealer. Dealer price for a fitted towbar £1500, Stig-with-a-Spanner £450. As Theresa May would say "Simples!"
• Remember that every red Golf 2-liter TDI is the same as every other red Golf 2-liter TDI (or whatever it is that you want) so shop around and play dealerships off against one another.

 

[Gordon - Commercial Finance]

Commission on finance £250 or more.

5% of advance every time.
So you buy a £20,000 car with a £1,000 deposit, and the dealer puts £950 in his back pocket.
That's why there's not much incentive now to pay cash...

 

[The Byre]

5% for the dealer and £250 for the salesman.

A dealership is just a vending machine for protective coatings, rust protection, finance, accessories (at stupid prices!) servicing programmes and extended warranties, followed by the formal and ceremonial ripping you of a new A-hole if you are silly enough to get the thing serviced or repaired there.

You could add to the above, all the shenanigans that the manufacturers get up to! Remember that the marginal cost of car manufacturing is between one-fifth and one-eighth of RRP.

 

[Gordon - Commercial Finance]

5% for the dealer and £250 for the salesman.

Ah yes understood.

I could add to your list that you should negotiate the discount for taking the dealer's finance, and then at the last minute once you've agreed on a price, you let them know you will be arranging your own finance.
Then....get in touch with me!

 

[Ian J]

I could add to your list that you should negotiate the discount for taking the dealer's finance, and then at the last minute once you've agreed on a price, you let them know you will be arranging your own finance.

Check out Magnitude Finance as they will give you an instant quote on their website without taking your details. When I bought my latest BMW last September I took Magnitude's quote in with me and told the dealer that's what they had to match - which they did

 

[Gordon - Commercial Finance]

Check out Magnitude Finance as they will give you an instant quote on their website without taking your details. When I bought my latest BMW last September I took Magnitude's quote in with me and told the dealer that's what they had to match - which they did

What was the rate, if you don't mind me asking?

For my own cars, I obviously just arrange the finance myself. One of the lenders I deal with let us fund our own vehicle at money cost (or 0.5% above it might be) so I get it very cheap. Guaranteed that would never be beaten elsewhere.

 

[revs]

Best way to buy a car is through a broker (drivethedeal), take out the PCP finance to get the deposit contribution (£2k on a VW Tiguan at the moment). When you receive the car, withdraw from the finance agreement and pay off the cost of the car with a cheaper loan or with cash. You'll often find that buying a brand new car will be cheaper than one which is 1 year old!

 

[FD Capital]

Finance sells cars, they are a big ticket item and along with Mortgages and pension are the biggest items of personal expenditure. There is nothing stopping you taking our a low rate loan from your bank and building society then go shopping for a cash deal. In my experience that saves a bit.

 

[UKSBD]

How long before direct sales from the manufacturers really starts?

I know Renault did it (or claimed to) a few years ago, Tesla are talking about doing it and even Mercedes don't think it will be long - https://www.am-online.com/dealer-ma...nz-chief-gary-savage-prepare-for-direct-sales

I'm surprised the manufacturers let the dealers get away wit what they do.
I.e you go in as a cash buyer and they virtually turn you away with their pushy credit sales.

 

[MBE2017]

The manufacturers know all the tricks, they invented a lot of them. Of course they look the other way whilst it suits them, many dealers are dropping their franchises due to the huge costs involved.

A manufacturer rolls up and tells these companies they have to change signage, lighting, have certain companies do the work, new hardwood flooring etc for their new look, and hand a huge £250-500k bill per site, all to sell cars for £100 margin.

People wonder why finance and extras are pushed, the dealers have little choice in reality.

 

[Mark T Jones]

There are quite a lot of sweeping generalisations in this tread aren't there?

Funnily enough the last time I bought a new car was in 2005, when I indulged my mid-life crisis with a shiny new M3. I ended up going through a sourcing agent friend because dealers did a fantastic impression of not giving a f@@k whether they sold a car or not

Whilst I can offer car finance I tend to keep it for known persons only; the main reason being that even sensible business owners turn into irrational fools where their shiny new car is concerned - hence will sign the dealer forms at whatever rate. Back in the days of lots of independent dealers, there was an unwritten competition to get the highest possible rates out of accountants - some were eye-watering! That said, from feedback I'd say dealer rates usually range from pretty cheap to a bit expensive.

These days the industry is mostly run by big corporates (operating under multiple local brands) - they have a good understanding of profit centres and effective processes; which may not favour the customer's best interests, however there is very little room for true sharp practice which used to happen a couple of decades ago

 

[JEREMY HAWKE]

On a positive note for anybody buying with a handful of cash .Auction prices for these there or four year old cars coming off contract are really low !

 

[Maxwell83]

What was the rate, if you don't mind me asking?

For my own cars, I obviously just arrange the finance myself. One of the lenders I deal with let us fund our own vehicle at money cost (or 0.5% above it might be) so I get it very cheap. Guaranteed that would never be beaten elsewhere.

Is there any downside or hidden 'interest' when manufacturers claim to offer 0% APR on new cars? I ask out of interest as I always wondered how a broker can compete with the manufacturer on a 0% deal.

 

[Mark T Jones]

Is there any downside or hidden 'interest' when manufacturers claim to offer 0% APR on new cars? I ask out of interest as I always wondered how a broker can compete with the manufacturer on a 0% deal.

No downside. It is a subsidy provided either by the dealer or manufacturer or a mix of both.

Potentially you could trade the subsidy for discount, though that will depend on who is providing it and what other incentives are involved.

 

[Gordon - Commercial Finance]

I always wondered how a broker can compete with the manufacturer on a 0% deal.

We can't!
Fortunately 0% is rarely available. I got 0% on a new Suzuki motorbike a few years ago but like Mark says that was a manufacturer special offer, subsidised.

 

[The Byre]

There is of course no such thing as 0% finance. The money must in the end come from the customer.

Let us say that you are selling a $25k car in the US that cost $4k to build (marginal cost only!) and another $3k to put into the hands of the customer, inc. recalls, warranty costs, advertising, paperwork and $2k for the dealership, plus a $2k cash-back for the customer, so the gross mark-up for the manufacturer is $14k. That is very roughly the calculation for a US spec. 2018 Ford Fusion (Mondeo).

Unsold 2018 Fusions are piling up and Ford needs to clear all those older turkeys. Used Fusions do not get high prices. The punter is tied into a service contract with the dealer (that's one big 'kerching' for the dealer!) and with a bit of luck, the customer will use that $2k cash-back to add some worthless accessories that they don't need.

Right now you can get 0% finance on about 90 models in the US - but they are all turkeys that are not selling! The average APR for a 60-month new car loan right now is around 5.5% in the US. Using this figure, a 60-month, 0% finance deal will the punter around $4,400 in interest for a vehicle costing $30,000. The Fusion offer saves around $6,500. That still gives Ford a $7,500 mark-up on a car that would otherwise have to be scrapped.

A large percentage of these 0% deals default - and then the interest rates revert to something more normal and are back-dated to day one, plus penalties!

 

[Mark T Jones]

There is of course no such thing as 0% finance. The money must in the end come from the customer.

Let us say that you are selling a $25k car in the US that cost $4k to build (marginal cost only!) and another $3k to put into the hands of the customer, inc. recalls, warranty costs, advertising, paperwork and $2k for the dealership, plus a $2k cash-back for the customer, so the gross mark-up for the manufacturer is $14k. That is very roughly the calculation for a US spec. 2018 Ford Fusion (Mondeo).

Unsold 2018 Fusions are piling up and Ford needs to clear all those older turkeys. Used Fusions do not get high prices. The punter is tied into a service contract with the dealer (that's one big 'kerching' for the dealer!) and with a bit of luck, the customer will use that $2k cash-back to add some worthless accessories that they don't need.

Right now you can get 0% finance on about 90 models in the US - but they are all turkeys that are not selling! The average APR for a 60-month new car loan right now is around 5.5% in the US. Using this figure, a 60-month, 0% finance deal will the punter around $4,400 in interest for a vehicle costing $30,000. The Fusion offer saves around $6,500. That still gives Ford a $7,500 mark-up on a car that would otherwise have to be scrapped.

A large percentage of these 0% deals default - and then the interest rates revert to something more normal and are back-dated to day one, plus penalties!

It is fairly obviously true that manufacturers use 0% finance to stimulate sales, which might be due to over-supply, or might be simply to promote a certain model or range.

However, if you work on the wild assumption that the customer actually knows what vehicle they want, then it is exactly what it says - interest free credit.

 

[Maxwell83]

There is of course no such thing as 0% finance. The money must in the end come from the customer.

Well there is though, isn't there? Provided the car on 0% finance costs the same overall as the car paid in cash upfront, but with the advantage of deferring the payment over time, then that is the exact definition of 0% finance.

The fact that the car makes the seller enough profit to offer 0% (or that they are desperate enough to offer it) is neither here nor there. That is a different debate about whether the car is simply over priced in the first place, but that wasn't the question.

 

[The Byre]

Provided the car on 0% finance costs the same overall as the car paid in cash upfront, but with the advantage of deferring the payment over time, then that is the exact definition of 0% finance.

They do not cost anything like the same!

 

[Maxwell83]

They do not cost anything like the same!

Ok, so there is some form of hidden cost with a 0% PCP deal, which seems to contradict the other replies? What would those costs be and where are they hidden?

 

[Mark T Jones]

Well there is though, isn't there? Provided the car on 0% finance costs the same overall as the car paid in cash upfront, but with the advantage of deferring the payment over time, then that is the exact definition of 0% finance.

The fact that the car makes the seller enough profit to offer 0% (or that they are desperate enough to offer it) is neither here nor there. That is a different debate about whether the car is simply over priced in the first place, but that wasn't the question.

Spot on.

Worrying about somebody else's margin is the antithesis of good deal-making.

 

[Maxwell83]

They do not cost anything like the same!

Having now looked into some of the 0% deals out there, Mark T & Gordon are correct - at least on the deals I have just looked at the total price payable on 0% finance v cash is either identical, or cheaper on finance in some examples due to a dealer contribution that is only available to the finance purchaser. For example:

DURATION 37 months
FIRST PAYMENT £985.85
FINAL PAYMENT £985.85
35 MONTHLY PAYMENTS £985.85
CASH PRICE £44,090.00
CUSTOMER DEPOSIT £6,613.55
ALFA ROMEO FINANCE DEPOSIT CONTRIBUTION £1,000.00
TOTAL DEPOSIT £7,613.55
AMOUNT OF CREDIT £36,476.45
TOTAL CHARGE FOR CREDIT £0.00
TOTAL AMOUNT PAYABLE BY CUSTOMER £43,090.00
APR REPRESENTATIVE 0.0% APR
RATE OF INTEREST (FIXED) 0.00%

The cash price (due to no dealer contribution) is £44,090.00

so £1000 cheaper on finance than buying cash.

This is a HP deal on an Alfa, but there are similar 0% deals on PCP and/or HP from other manufacturers on selected models.

A better price may be negotiated in person of course, but any additional discount/freebies negotiable in person would be applicable to either method of purchase; certainly no dealer today is willing to knock money off because you are paying cash, but refusing to budge on price if paying by finance.

So you are right in a way - "They do not cost anything like the same", but only because the 0% finance deals are often cheaper

Spot on.

Worrying about somebody else's margin is the antithesis of good deal-making.

Indeed. I have given discounts to many of my customers, but never simply because the customer is able to tell me how much I pay for the raw product. I already know they can't get it at that price because if they could, they would not be coming to me.

 

[Ian J]

The cash price (due to no dealer contribution) is £44,090.00

so £1000 cheaper on finance than buying cash.

The other thing to bear in mind is the cost of the cash if that is the way that you want to pay.

Many people on this forum are self employed and if lucky enough to be doing well will be paying 40% income tax so to withdraw £44,000 from their company to purchase the car with they will pay a huge whack of income tax on it

 

[Gordon - Commercial Finance]

Many people on this forum are self employed and if lucky enough to be doing well will be paying 40% income tax so to withdraw £44,000 from their company to purchase the car with they will pay a huge whack of income tax on it

Very good point Ian! That's why you should speak to me for your next BMW

 

[Mark T Jones]

Very good point Ian! That's why you should speak to me for your next BMW

I hope you get a deal out of this, if only for perseverance

 

[Gordon - Commercial Finance]

I hope you get a deal out of this, if only for perseverance

I'll sort your M3 out for you as well Mark if it makes you happy...

 

[AllUpHere]

The other thing to bear in mind is the cost of the cash if that is the way that you want to pay.

Many people on this forum are self employed and if lucky enough to be doing well will be paying 40% income tax so to withdraw £44,000 from their company to purchase the car with they will pay a huge whack of income tax on it

You'll pay income tax on the money you use regardless of whether it's in a lump or over a number of years.

 

[Mark T Jones]

I'll sort your M3 out for you as well Mark if it makes you happy...

It’s a bit late for that, I’m afraid

I’m strictly a used car man now

 

[Maxwell83]

You'll pay income tax on the money you use regardless of whether it's in a lump or over a number of years.

True, but if you can spread the cost across, say, 4 tax years, it becomes feasible that a person can stay under their desired tax band (e.g. 40%) and pay for the car while staying under that tax band in each tax year.

Having to pay yourself a large sum in one year to pay upfront for a big purchase could (for a lot business owners) mean that a big proportion of that lump is taxed at the higher rate as their total withdrawal goes over that tax band.

So paying tax isn't the issue, its the fact that if you want all the money in one year, you will pay a higher rate of tax. Assuming it will be dividends, then 7.5% vs 32.5%.

 

[Gordon - Commercial Finance]

It’s a bit late for that, I’m afraid

I’m strictly a used car man now

I will do you a used M3 just as easy...

 

[AllUpHere]

True, but if you can spread the cost across, say, 4 tax years, it becomes feasible that a person can stay under their desired tax band (e.g. 40%) and pay for the car while staying under that tax band in each tax year.

Having to pay yourself a large sum in one year to pay upfront for a big purchase could (for a lot business owners) mean that a big proportion of that lump is taxed at the higher rate as their total withdrawal goes over that tax band.

So paying tax isn't the issue, its the fact that if you want all the money in one year, you will pay a higher rate of tax. Assuming it will be dividends, then 7.5% vs 32.5%.

I understand that, but Ian was referring to anyone doing well. Anyone doing well is going to be in the higher rate with or without car payments. It would seem finance only makes sense if you aren't doing well.

 

[Maxwell83]

I understand that, but Ian was referring to anyone doing well. Anyone doing well is going to be in the higher rate with or without car payments. It would seem finance only makes sense if you aren't doing well.

Or, you simply choose to withdraw much less than your company can afford because you don't need any more than that and refuse to pay a higher rate of tax. Or you're just really working the system taking as much money as you can without it pulling you into a higher tax band e.g. split share holding with a non-working spouse + high pension contributions + business mileage + contribution to home office + whatever else etc - I've seen that add up to circa £120k excluding the pension...

 

[Ian J]

I hope you get a deal out of this, if only for perseverance

He'll have a long wait as I still have three and a half years to go on my PCP

 

[Ian J]

Or, you simply choose to withdraw much less than your company can afford because you don't need any more than that and refuse to pay a higher rate of tax.

That's close to my situation. I do pay the higher rate of tax but I try and keep my drawings to a minimum so that I don't pay too much tax at 40%

 

[The Byre]

Ok, so there is some form of hidden cost with a 0% PCP deal, which seems to contradict the other replies? What would those costs be and where are they hidden?

In the T&C - try falling behind by one minute with the repayments!

And if you want to know where the really massive costs are hidden, try selling that lovely Alpha Romeo at the end of that three-year credit period. You will have just finished paying £43,000 for a fully spec'ed Alpha Romeo Giulia with all the bells and whistles, only to discover that dealers are selling demonstrators of last year's model for near-half-price! Your three-year-old with 60,000 miles on the clock will not be worth £10k!

(Like most cars from Fiat, nobody wants them!)

Worrying about somebody else's margin is the antithesis of good deal-making.

You are standing in a dealer's showroom - you're not there to 'make a deal', there is no dealing involved - you are there to get screwed over by a bloke called Kevin, who will pressure you into anything and everything he can pile-on, service agreements, additional accessories (you wouldn't want to leave home without a folding towbar now would you?) extended warranty, metallic paint, privacy glass - anything and everything to turn his meagre £100 commission into a real wage.

I thought this is a forum for business people! People who pride themselves in being realistic and able to calculate! You're supposed to be the people who employ Kevin, not one of his prey!

There are two objectives in business - profit and equity. Debt is the opposite of both!

If you can't pay cash - don't buy the bloody thing!

 

[Gordon - Commercial Finance]

If you can't pay cash - don't buy the bloody thing!

Did you pay cash for your house?

 

[Mark T Jones]

In the T&C - try falling behind by one minute with the repayments! Not specific to 0% - keep up with your payments!

And if you want to know where the really massive costs are hidden, try selling that lovely Alpha Romeo at the end of that three-year credit period. You will have just finished paying £43,000 for a fully spec'ed Alpha Romeo Giulia with all the bells and whistles, only to discover that dealers are selling demonstrators of last year's model for near-half-price! Your three-year-old with 60,000 miles on the clock will not be worth £10k! Completely irrelevant to the 0% conversation

(Like most cars from Fiat, nobody wants them!)


You are standing in a dealer's showroom - you're not there to 'make a deal', there is no dealing involved - you are there to get screwed over by a bloke called Kevin, who will pressure you into anything and everything he can pile-on, service agreements, additional accessories (you wouldn't want to leave home without a folding towbar now would you?) extended warranty, metallic paint, privacy glass - anything and everything to turn his meagre £100 commission into a real wage. Always assuming you are a complete gullible idiot! (and again irrelevant to the 0% discussion)

I thought this is a forum for business people! People who pride themselves in being realistic and able to calculate! You're supposed to be the people who employ Kevin, not one of his prey!

There are two objectives in business - profit and equity. Debt is the opposite of both!

If you can't pay cash - don't buy the bloody thing! I could go with this, or I could favour J Paul Getty, not sure which way to go

I strongly suspect that pretty much anyone buying an Alfa is very aware of reliability and residual issues. Indeed I know for a fact that when Alfa owners gather they will discuss with some pride the 'quirks' of their individual car.