Pcp's - Am I Missing Something?

[Parts-King]

Nope, nobody gives you nowt for nowt agreed, but with 0% finance, the dealer and the manufacturer pay......therefore your theory of it being built in has been shattered.......mawahahahaha :lol:

[IanIanIanIan]

Nope, nobody gives you nowt for nowt agreed, but with 0% finance, the dealer and the manufacturer pay......therefore your theory of it being built in has been shattered.......mawahahahaha :lol:

I repeat. The dealer and manufacturer claw back all such costs by adding them to the asking price.

The clever shopper will be able to negotiate a lower price if they don't take advantage of such 'offers'.

[Parts-King]

Option 1 Asking price 10K.......buy on 0%..pay 10K over the term......total price paid........10K Nothing added, price negotiated to agreed price, still 0% and enjoy FREE finance for the term, paying NO finance and a measured amount of payments each month

Option 2 Asking price 10K (cash only) regardless of any discount applied, its the same price, 10K, you pay 10K in one lump out of your hard earned, still 10K and you LOST the interest on what you would have earned in the bank / Post Office / Bond / ISA or whatever

So your theory does not hold up.......it is still FREE interest, nothing added, not built into the price, it's the same price

[IanIanIanIan]

Or; asking price 10K (cash only) paid 8K (cash) = discount 2K because the dealer is taking advantage of the lower costs involved and their profit is unharmed, lower costs = lower price.

Basic business theory:

Price = costs + profit

If you do not include ALL costs in your calculation they will come directly out of your profits without you knowing and accountants won't let you do that. You are arguing that companies are sacrificing some profits to boost volume which is possible, but it remains that ALL costs are included in the price.

[Parts-King]

Oh no you cannot have it all ways, that is why I specifically said regardless of any discount applied. You are assuming there is an element of cost in the asking price to cover finance. NO, that is not the case. The negotiated price is the figure you pay finance on, hence comparing the same like for like 10K figure. I will repeat, the dealer and manufacturer share the cost of the 0% deal, whether you agree or not, that is how it works. Yes there is profit on the car, it is not illegal to make a profit just yet in this country, it's how companies afford to keep the likes of you and I in a job, long may it continue!

[IanIanIanIan]

the dealer and manufacturer share the cost of the 0% deal, whether you agree or not, that is how it works.

Yes and that cost MUST be included in the price.

By not accepting the finance you may negotiate a bigger discount as the costs will be lower, maintaining their profit (which every company needs, it is why they are in business).

So you are indirectly paying the finance companies charges. Not directly by a percentage interest charge but by a back door via the dealer and manufacturers raised costs. The financial company's profits have to be paid by someone and believe me it is the punter, by whatever route the marketing people can find to make it painless.

No financial company's profits = lower costs.

Enough, I am off out to diner.

[Parts-King]

Anyhoo........at the risk of repeating myself, you are wrong, the cost is borne by the DEALER and the manufacturer, when the 0% offer closes, the price of the car does not alter does it?

[Astolat]

Coming back to the subject, the reason for pcp, as I understand it is to create the equivalent of a lease contract that doesn't have VAT added to it. For business customers leases allow at least some of the VAT on a car to be recovered.

On a finance lease, the finance company can recover the VAT, so calculates the figures on the net price. However VAT is added to the whole rental payment. For a business customer 50% of this can be recovered, which is better than any other way of buying where input tax recovery is totally blocked. But for a personal customer it means VAT has been added to the finance costs. Where there is an option to purchase, as in HP or pcp, there is no VAT on the monthly payment, but no VAT recovery for the finance house, so they calculate on the VAT inclusive price. That's better for a non business customer because you don't pay VAT on the finance cost, just on the car itself.

Should add, before Grumpy Cabbie does, that it's different for taxi drivers...

[Grumpy Cabbie]

With the greatest respect, can I ask what you just said in English? For the hard of understanding you know.

[Astolat]

Sorry... Tax is my subject, can get a bit geeky...

Because car lease payments have VAT added they're not suitable for private customers who can't claim any of it. Adding in the purchase option means there's no VAT on the interest bit of the payment, just on the cash cost of the car (if it's new - second hand cars is another story). So PCP is the nearest you can get to a lease that makes sense for a consumer rather than a business, and that,s the reason the car industry came up with it.

That's the simple, and inevitably not now completely accurate, version...

[cootuk]

slightly o/t but I see Golf R are back at £1485 deposit and £165pm excl vat for business users over 2 years.

That's a £30k car.

[Parts-King]

slightly o/t but I see Golf R are back at £1485 deposit and £165pm excl vat for business users over 2 years.

That's a £30k car.

.....But will not be a PCP as they are not suited to business customers because of the tax implications of VAT as mentioned above

[Grumpy Cabbie]

slightly o/t but I see Golf R are back at £1485 deposit and £165pm excl vat for business users over 2 years.

That's a £30k car.

Doesn't add up.

£30,000 minus deposit = £28,515 - 3960 (24 x £165) = £24,555.

Not sure what the starting price is, but the deposit and payments add up to £5,500. Something doesn't add up there.

But having looked up new prices for these cars, who with a right functioning mind will pay £35k for a Golf?

[Parts-King]

But having looked up new prices for these cars, who with a right functioning mind will pay £35k for a Golf?

Well there have been 45,000 odd people with poorly functioning minds so far this year

Don't forget GC you only LEASE the Golf for that period, you get nothing back at the end, but they have a 2 year old Golf to sell on, you have NO equity in the car

[Grumpy Cabbie]

I know that part but how do THEY make any money on it? Or don't they? :)

[Parts-King]

Lease company get fleet rates, so lets make some assumptions

30K retail, let's say they pay 25K

You can build in maintenance and add on's which are also a profit source

FIGURES REMOVED as I made a right hash of them!!

I am sure there are also tax benefits to the lease company too

I am certainly no expert, but just take a look at how many lease companies there are out there, thousands, based on that very simple scenario, they are making a profit on a depreciating asset. The vehicle will still have to be maintained and looked after otherwise the company leasing the car will be billed for damage etc

Edited September 29, 2014 by Parts-King

[cootuk]

Would they only get 20% discount?

Thought bulk buyers would get more like 40% so their 30k car costs them 18-20k.

I don't think the lease company make much money per car.

[Parts-King]

Would they only get 20% discount?

In days gone by when fields of British Leyland and Ford's were awash, then lease and Fleet companies would make that sort of margin

Times have changed, cars are pretty much made to order and those margins are no longer had. Your dealer will work on half the margin of a fleet operator, but will also be working hard to earn bonus's available to him from the manufacturer. Your dealer will typically have to meet very strict franchise and operating standards, otherwise the margin left in the "metal" would not keep him in business

[alan333]

Lease company get fleet rates, so lets make some assumptions

30K retail, let's say they pay 25K

£30,000 minus deposit = £28,515 - 3960 (24 x £165) = £24,555, so the car is fully paid for over two years. THEN the lease company sell the used car and get the market value for it after 2 years, again let's assume half it's value, so they get 12.5K for it

Hang on, that's adding the wrong way round is it not? The car isn't fully paid over the 2 years.

You pay a deposit of £1485 plus £3960 (24 x £165) = £5445. That's the total paid to the lease company over the 2 years (not counting vat).

Car costs the lease company £25k, less the £5.5k you've paid = it owes them £19.5k

Then even if they sell it for half it's RETAIL value (sorry, couldn't figure out how to do italics so did caps), ie at £15k, then they're still £4.5k down.

Or am I missing something now lol?

[Parts-King]

OK Sorry, I did not check those figures......hey were misinterpreted by me BUT the same principle applies

I have taken this example from the VAG website but you could find similar results elsewhere

Lease a car worth 30K, in this case through VAG, deposits and rentals are very flexible but you will get the idea

£230.24 PM x 23 months = 5295.52

£690.72 deposit (3 months)

Total paid 5986.24

Now then, there are strict rules on maintenance and mileage, 10K per year. You can choose more, but you pay more. Why? Well in this case VAG will set the residual value for the car at the end of two years. Each monthly payment includes interest, and VAG finance will be financing the car over the period. You are paying just like a rental car for 2 years, you have nothing at the end, but there are tax breaks for companies. The residuals are strong for VAG models, so the payments are based on what they believe the car will be worth in two years time, as the car will then be sold back into the VAG network or auction

Now the car is being sold in this case by VAG. The car will not owe them 30K to start with, lets say it's 25K, less 6K paid, they must be happy with a 19K residual, otherwise no profit would be made and that's not why they are in the lease business

Hope that makes better sense, sorry for the confusion, I should have checked the figures without copy and paste

On independent lease companies, they make money by getting commission on whichever finance house they put it to