Britain's preferred car-loans are incomprehensible financialized garbage: what could go wrong?


#1

Originally published at: http://boingboing.net/2017/06/02/subprime-autos.html


#2

Apparently PCP has led to this result: the value of PCP leases has gone up 13% in a year while the number of cars sold has gone down. This means that, at a time when real wages are declining (thank you Osborne and Cameron), people are actually spending more on “status” cars. It’s visible around where I live; the number of Mercs, BMWs and Audis is up.
Since I was 20 I have always bought vehicles with cash I know I can afford, which makes me very boring. I have always heeded the wise words of an MD I worked for, who said “What I want is to know I can walk into a Bentley dealership and buy any car there for cash. And then, of course, not do it because that’s a stupid waste of money.” (He had a Saab.)

I’m now retired and yes, in theory I could walk into a Bentley dealership and buy any car there for cash. But I wouldn’t because I’m not stupid. I buy nice middle of the road Japanese cars. For cash.

But how do you explain to people the connection between financial security and not trying to keep up with next door by leasing an Audi rather than by buying a second hand VW and working up?


#3

So what could possibly go wrong with millions of people using financial instruments that no one understands to buy big ticket items?

We might find out, except that researching ancient history* is something most people aren’t inclined to do.

Seriously, there are concerns about a car loan bubble even if it might not have the same impact as a housing crash.

[* defined as anything occurring before the last five years or, for an American MBA, anything occurring before the last fiscal quarter]


#4

So, Toxies for the auto market :question:

Sounds legit

/s


#5

I know two people who worked back office in a bank, and even they couldn’t explain how this works.

One was massively in favour of these contracts, because “it’s cheaper than buying” the other was massively anti, because “how on earth can not buying a car be more cost effective”.

I’m just glad I don’t drive.


#6

This.

My car is >10 years old, and I just cannot find a really good reason to change it. Eventually it will cost more to maintain than a new car, but until I’m a billionaire, it serves well!


#7

Brings PayDay Loans to mind.

Financial rape, revolting.


#8

Exactly this.
In the 2006 boom a neighbour, who didn’t strike me as being particularly well off, took out a lease on a Porsche Cayenne. In the 2008-9 period, of course, they depreciated faster than a very fast depreciating thing. They then presumably could not afford to replace it and so were stuck on-lease running an extremely expensive vehicle for 9 years. Have they learned the lesson? I don’t know.

I noted that Smart claim that spares for the new models will be available for 30 years. I hope this is a new trend. The main annoyance with current cars is needing to replace the airbags at around 12-15 years.


#9

Don’t spend money you don’t really have, on things you don’t really need, to impress people you don’t really like. Not quite sure who said that, but it’s good advice. This is a dumb thing to do – entering into an infinitely long car lease – but creating a bubble in a depreciating asset is very different than creating a bubble in the primary reserve of household wealth; I don’t think (stand if corrected) that these financial instruments for cars are being collateralized in any of the same way where risk is being shifted away from original lenders.

Our primary car is a 2005 Honda Pilot and when I was working for Big Law, I went so far as to pick out a brand new 5 series BMW and then, realizing that neither owning it nor driving it would fill the Big Law sized crater in my soul, bought a then-20 year old used Mercedes from my in-laws. Worked out fine.


#10

Oh, THAT Graham Hill.

(Classic Formula One will be on my mind all day now!)


#11

My problem is that I want to be a cash buyer in a world where cars carry “prices” that are structured for the dodgy-loan, dodgy-lease paper signer.


#12

There is no hyphen in “car loans,” Cory.


#13

Smart cars are owned by Mercades, and merc will sell you parts for pretty much any car they’ve ever made (for a price).


#14

British punctuation.


#15

It doesn’t indicate the same level of systemic risk, but at least one company called Skopos is creating CDO cakes composed of tranches-o-crap:

The bonds were built out of subprime auto loans and sold in November. Through February, about 12% of the underlying loans were at least 30 days past due, a third of which were more than 60 days delinquent. In another 2.6% of loans, borrowers had filed for bankruptcy or the vehicles had been repossessed.


#16

I was just thinking about this and how I see more 70’s - 90’s Mercedes/BMW/Porsches than ten year old ones, and I was wondering if it’s because they were built to be more durable and/or when banks repo’d them they just junked them rather than resell.


#17

True, but the new Smart is actually either a Renault Twingo in disguise, or a Twingo with the centre part removed.

One factor is that a real air cooled Porsche in good condition is vastly more expensive than a ten year old water cooled one. It’s worth keeping and looking after. I think too that currently Merc and BMW are the cars “executives” drive and are regarded as more disposable, so they don’t get treated like the old ones did when they were a prized possession.


#18

I’m also at a loss as to why anyone would bother. 1500 quid can buy you a lot of second hand car in the UK, and if you’re prepared to go to £2k, even more. You can get a nice used Lexus IS or a Jag x-type for that, drive it for 3 years, sell it for enough to cheer you up about the whole process and then buy another one (ok, the Jag might break horribly, it’s pot luck. Lovely comfy seats tho).


#19

You might.
My mother once recounted with amusement the story of the husband of a friend who apparently bought a second hand Royce* for £300 (this is a long time ago). It made funny noises so he took it to a garage who told him a service would be £400. He paid. They told him it needed £2500 of work. He scrapped it, £700 down and somewhat wiser.

*Rolls was just the salesman, Royce was the engineer.


#20

Heh. Yeah, there was a Bentley Mulsanne near me up for sale for £2k for quite while with no takers. Mind you, I’ve had my £500 Lexus IS for three years and all I’ve had to do is feed it petrol, tyres and a little bit of oil and one set of brake pads.