When is conspiracy theory just a theory?

[JOG]

Some ramblings from me - posted in “The Pub” as that is normally where I talk bollox best!

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The whole supply chain / component and chipset shortage has actually been a blessing in disguise for the motoring industry - so much so, it’s almost worthy of a CMA review.

A few years ago, a greater proportion the PPI payouts were being recycled into PCP type products. “Crap credit score? No probs - give me your PPI windfall and I’ll give you a luxury badged car for £200 a month over three years. Sure, you can drive only a few thousand miles during that term, but if you blow that limit, it’s ok as it’s only 10p per mile - cheap as chips! Have a shiny new Mercedes Benz for £199 per month!” (In short, another rope-a-dope mortgage structure/model!) A great number of units were shifted this way.

So, at the end of three years, rope-a-dope discovers his arse is hanging out of his trousers. That car on his drive isn’t looking so shiny now, especially as next door have an even shinier one! The £199 a month has spiked more than a smackhead with a new dealer (see what I did there?!!) and did you know that 100 miles over limit is £10?!!

Only thing for it is to exercise the “hand it back” option or risk having every slight blemish getting docked from what he might get for the car if he hangs onto it for a day more and then tries to flip it!

Now, this “return risk” has been looming over the industry and reportable to the city (essentially as a deferred debt exposure!) What to do?!!

Magically, mysteriously and ever so fortunately, the clouds of a perfect shit-storm gathered! (Proper storms have a name so let’s give it a name: who likes “China” as a name?!!)

We can’t get bits for new cars because of the storm. We couldn’t build the new cars even if we had the bits as the workers had to stay at home because of the bad storm. We couldn’t sell the new cars as the buyers were afraid to go out in the storm. Oh dear, new stock got throttled - bad, nasty storm!

Remember rope-a-dope who by now had stopped singing “Oh Lord, won’t you buy me a Mercedes Benz?” Poor rope-a-dope was about ready to kick off another flood of computer generated texts and missed calls just like in the good old days of PPI. The only change needed was the name: “Were you mis-sold PCP?!! Text ‘PCP’ to….” Right?

No, wrong! The boys with the sharp pencils had covered themselves this time…properly evidenced “Key Fact” sharing and even video recordings of rope-a-dope having the agreement explained to him before he signed it! The lovely salesman would be absent (making another nice cuppa for Mr and Mrs rope-a-dope or “just checking that the boys are finished prepping your car”) as rope-a-dope watchs a prepared video explaining all the key facts and signs that he understood the video he’d just watched! No coercion from salesman possible as the salesman wasn’t even there!

Nope, rope-a-dope had caused a different problem: a glut of relatively expensive, relatively low-mileage second hand stock that the industry had flogged, booked the sale for, but now was left holding like a hot potato. Worse, they also had taken back the responsibility for servicing the remaining debt! (Who fancies a big profit write down? You know, so big that even the “too big to fail” companies can’t handle.)

With the throttled new stock, courtesy of the perfect storm, the void could be satisfied by the glut of used stock. An oversupply normally drives the market down but this time the storm disrupted the market. (Punching a car reg into auction houses’ websites became a new game when the ads came on the telly as did bragging how much your car had gone up in “value” whilst ignoring that a rising tide lifts all boats!)

Was the perfect shit-storm the best ever “get out of jail free” card for the motoring industry? Ignore the red herring of the name given to the storm - that was artistic licence for entertainment purposes! Is the industry a victim of the perfect storm or did it create an elegant solution to treat/manage a financial black hole?

 

[Pete C]

Interesting thought. What I thought was happening was that as the second hand market flooded with cars coming off finance deals, so the industry started to push these on to new finance deals, so deferring the pain.
Not only are most new cars on finance deals, so are many 2-3 year old cars.
Of course this practice keeps prices high, as the consumer focuses on monthly costs.

Pete

 

[dubber36]

Couldn't sleep last night @JOG ?

 

[JOG]

Couldn't sleep last night @JOG ?

Unfortunately true! That’s why I posted in “The Pub“, where I assume we can talk nonsense!

I still like my drug-induced “thinking”…..yep, I’m on some heavy medication at the moment and the icing on the cake was catching covid this week!!!

Interesting thought. What I thought was happening was that as the second hand market flooded with cars coming off finance deals, so the industry started to push these on to new finance deals, so deferring the pain.
Not only are most new cars on finance deals, so are many 2-3 year old cars.
Of course this practice keeps prices high, as the consumer focuses on monthly costs.

Pete

That’s the business model and it does accommodate that the PCP period is essentially the buyer financing the interest element of the debt and defers a greater proportion of the principal debt. (This deferred debt had to be accrued for and reported to the city.)

The PPI injection facilitated a wave of PCP deals, many of which were more fragile as the underlying “affordability” test was skewed by the cash windfall. So, the deferred debt included a greater element of hidden bad debt that the PCP model would leave the industry holding the baby for!

 

[DXX]

I had an offer of PPI from Abbey National BS around 33 years ago. I wasn’t particularly switched on financially as I didn’t have any money to be concerned about (the pub had it).
It took an hour reading the small print to realise what a seriously crap deal it was with so many clauses and waiting periods that I rejected it.
@JOG has highlighted that stupid people persist throughout their lives regardless of how many times they are bitten, as long as they walk the Earth they will be prey.
However it is nice when the greedy financiers get their fingers burnt.

 

[JOG]

I had an offer of PPI from Abbey National BS around 33 years ago. I wasn’t particularly switched on financially as I didn’t have any money to be concerned about (the pub had it).
It took an hour reading the small print to realise what a seriously crap deal it was with so many clauses and waiting periods that I rejected it.
@JOG has highlighted that stupid people persist throughout their lives regardless of how many times they are bitten, as long as they walk the Earth they will be prey.
However it is nice when the greedy financiers get their fingers burnt.

Ha ha ha!

I was sorting out my “office” at home. (Sounds grand….it’s a desk and bookshelf in the corner of the spare room!!!) I’ve always kept my bank statement and the folder fell out…..lo and behold, my eye spotted a line saying PPI.

It was 24 years old on my first ever mortgage! SWMBO was chuffed and couldn’t believe I wasn’t making a claim! There was about two years left on the window to make a claim.

I set myself a calendar reminder and made my claim two days before the window closed via registered and signed for post!

Why? Because the ombudsman had forced the mis-sellers to compensate interest lost at a minimum of 8%. There was no way I could get even 0.8% on a savings account, so I took the 8% they had to give for an extra two years! Was I wrong or simply gaming them at their own game?!!

 

[The Bear78]

There's no denying that PCP is awful. Its purely a money making scheme for manufacturers who take advantage of society's desperation to look well heeled. That's exactly why we did it...
SWMBO was very keen for a new car and for a reasonable monthly sum we had ourselves a new family SUV (I hate that American names have crept in...).
We even paid for another go on the merry go round when we downsized the SUV after I bought the T6!

Typically the balloon payment is cleverly set at an amount that is higher then the deposit to renew the PCP deal yet close enough to the second hand value of the vehicle to make you think it isn't worth keeping.
The rise in second hand car values that we are seeing has actually made the balloon payment option a decent proposition. Manufactures are still cashing in because most people cannot afford to pay it but it could be a decent proposition if you can. This is what we did as our car is selling privately for at least £4k more than it cost to buy at the end of the term. We actually intend to keep it as it suits our needs perfectly and currently couldn't buy similar for anywhere near the same money.

A small tiny victory after throwing so much away over the 3 year term I'm certainly over the new car thing (unless i win the lottery) and I'm just glad that we managed to escape.

 

[JOG]

There's no denying that PCP is awful. Its purely a money making scheme for manufacturers who take advantage of society's desperation to look well heeled. That's exactly why we did it...
SWMBO was very keen for a new car and for a reasonable monthly sum we had ourselves a new family SUV (I hate that American names have crept in...).
We even paid for another go on the merry go round when we downsized the SUV after I bought the T6!

Typically the balloon payment is cleverly set at an amount that is higher then the deposit to renew the PCP deal yet close enough to the second hand value of the vehicle to make you think it isn't worth keeping.
The rise in second hand car values that we are seeing has actually made the balloon payment option a decent proposition. Manufactures are still cashing in because most people cannot afford to pay it but it could be a decent proposition if you can. This is what we did as our car is selling privately for at least £4k more than it cost to buy at the end of the term. We actually intend to keep it as it suits our needs perfectly and currently couldn't buy similar for anywhere near the same money.

A small tiny victory after throwing so much away over the 3 year term I'm certainly over the new car thing (unless i win the lottery) and I'm just glad that we managed to escape.

Spot on: the balloon is pitched at “close but not quite there” which forces a “stick or twist” decision.

Before the “perfect storm” the numbers were running such that the likelihood of consumers handing back the vehicle was rising to the extent that concern was growing that the industry would be lumbered with a secondhand stock glut (and the requirement to pay for that stock!)

The finance houses (whether dealership owned or 3rd party) are obligated to report the provision they had to make for deferred debt in their accounts.

The “perfect storm” actually resulted in an ability to shift secondhand stock, and often at an enhanced margin (as you discovered when selling privately!)

The “conspiracy theory” challenges whether the “perfect storm” was “luck” or “manufactured”?!!

 

[The Bear78]

We didn't actually sell but feel that our three year old deal favoured the balloon payment in the current climate.

As with most economic changes those at the top are well ahead of the trend. I don't think that the shortages are manufacturered but the way that manufacturers have taken advantage of the changes to the used market would have been planned for years ago.

 

[JOG]

We didn't actually sell but feel that our three year old deal favoured the balloon payment in the current climate.

As with most economic changes those at the top are well ahead of the trend. I don't think that the shortages are manufacturered but the way that manufacturers have taken advantage of the changes to the used market would have been planned for years ago.

I completely agree.

I don’t believe the “perfect storm” is manufactured. Yes, there has been an element of capitalising on the consequences of it, but that’s normal.

I agree that the used car market has been better forward-managed both through massaging of allowable balloon values and better data mining when assessing “hand back” risk.

The “perfect storm” has many variables: component/chip shortage; pandemic; consumer appetite; and economy! My thesis was that the industry was staring down the barrel until the “storm” fanned the flames. The used car glut had an escape route (compensating the new car voids) and the much looked down upon “secondhand car salesman” actually pulled the proverbial rabbit out of the hat for the corporates! The smaller players, the independents and the private sellers benefited to!

I was becoming irked reading about folk who have been waiting months for their van and then getting stiffed with amended finance deals as they approached delivery, with arrogant take it or leave it attitudes! Being bed-ridden and bored recently, I reviewed a few market statements made by the big boys over the last 6 months and rapidly came to the conclusion that the “perfect storm” was a gift from heaven for them. My inner cynic simply queried the degree of surprise - too many variables to know nothing about any of them!!!

 

[drinfinity]

Good for the value of the second hand market, but if you have invested in car making facilities you need to use them to turn orders into cash as fast and efficiently as possible. The current situation means order to cash has gone out a year. Efficiency will be down the pan, as volumes are not going down the production line, and they will be warehousing components till they can build. So the fixed cost continues, but producing very little output.

 

[JOG]

Good for the value of the second hand market, but if you have invested in car making facilities you need to use them to turn orders into cash as fast and efficiently as possible. The current situation means order to cash has gone out a year. Efficiency will be down the pan, as volumes are not going down the production line, and they will be warehousing components till they can build. So the fixed cost continues, but producing very little output.

Very good point!

 

[DXX]

Buying less sh&t we don’t really need is one of the key points to leaving a planet for our descendants.
May as well start now.