Depreciating resale values and increasingly attractive PCP deals could lead to an all-contract based UK market

The growing trend to purchase cars using personal contracts (PCPs) in the UK is causing the values of certain high selling models to depreciate faster than normal.

Top sellers like the Ford Fiesta and Vauxhall Corsa have been bought in record numbers in recent months, but the vast majority of sales have been processed through PCP deals. Insiders are now claiming that this has saturated the used car market with thousands of nearly new cars of the same few models.

According to the Finance Leasing Association (FLA), consumer-used car purchases increased by 34% between the February 2015 and February 2016, amounting to £4.9 billion worth of sales.

But while big sales figures have given the UK motor industry a reason to celebrate, concerns for tumbling resale values mean many owners wanting to trade in their cars could be offered much less than the recommended resale value.

One spokesman told Autocar that his showroom has an unprecedented number of used Ford Fiestas for sale, with most having come to the end of their PCP terms.

“The cars are going for less than they should because of the market conditions. It’s supply and demand,” he said.

“Even the part exchange values customers are being offered aren’t worth what they expected because of the change in the market,” he added. “It means instead of upgrading their cars, they’re often forced to stick with what they’ve got.”

Our source - who has asked to remain nameless - said that this market trend has not only meant customers are being offered less for their cars, it also means dealers are having to sell cars with increasingly small profit margins.

“On some cars there’s no margin; they’re literally going for what they’re worth. And when you’ve got a business to run, that's a problem.”

Autocar contacted Ford for a response to the claims, and the car maker dismissed the impacts of growing PCP sales, claiming that the issue was a local one, rather than national.

It said Liverpool was one of several areas with a particularly high demand for Ford Fiestas, and accepted that dealers in that region might have to trade some of them on to other areas as it wouldn’t be optimal to sell them locally.

But Ford maintained that this is an issue only felt in certain areas, and that nationally, Fiesta values have been largely unaffected.

Our original source continues to dispute this, but does believe that the market will stabilise as everyone switches to PCP sales.

“I don’t think it’s going to cause any long term problems. More people will buy PCP, and they’ll stick with it. Instead of buying their car at the end of the contract, they’ll just start a new contract with a newer model.”

This suggests the market will continue to move towards a PCP majority, agreeing with predictions made by the FLA that the new car contract market in the UK will mirror the growth that’s happening elsewhere.

Geraldine Kilkelly, the FLA’s head of research and chief economist, said: “The increase in popularity of personal contract purchase in part reflects changing consumer attitudes towards car ownership.

“With consumer confidence remaining robust, we expect new business volumes in the car finance market to continue to grow in 2016.”

Our Verdict

Ford Fiesta
Fiestas sold in Europe are ostensibly the same as those sold in America and Asia

The seventh-generation Ford Fiesta is the UK's best selling car, helped by frugal engines, handling verve and a big car feel

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Comments
30

17 May 2016
Makes the two cars listed an even better second-hand buy then. Although why ask just Ford to comment, why not ask VW or BMW for a comment!

 

Hydrogen cars just went POP

17 May 2016
My first experience with PCP was good as I had some equity when trading in my Scirocco. Come August I won't be so lucky again. Mercedes gave a guaranteed minimum value of 16.5k the car now is worth only 13-14k. Pointless buying it as I will be paying over the value. Will end up handing it back. Am considering personal contract hire as the end value is not a factor and initial deposits are low. Pointless stumping up a higher deposit and higher PCP payments when you will be starting afresh with a new contract 3 years later or paying over the odds to keep a car.

17 May 2016
Did anyone actually buy a Golf R with "cash"??? answers on a postcard!

TS7

17 May 2016
...my wife is interested in. And I'll be paying 'cash'.

Fake Elvis wrote:

Did anyone actually buy a Golf R with "cash"??? answers on a postcard!

17 May 2016
Cant believe anyone would waste their money buying a brand new car, utter madness - drive it away and within months youve wasted 1000s, even more in a few years, nearly new ALWAYS better.

289

18 May 2016
Quote "Cant believe anyone would waste their money buying a brand new car"

Well that's just it Typo's, virtually no one is 'buying them'....they are all effectively renting them through PCP's!
This is what is driving the market....over 90% of it!

18 May 2016
I bought a convertible Golf R for cash as an ex-management car from a dealership at 5 months old, with 3,000 miles on the clock. I got rid of it two days before the warranty ran out. All in all it was a bargain.

18 May 2016
I bought a convertible Golf R ex-manager car at 5 months old with 3,000 miles on the clock - for cash. I sold it just before the warranty ran out. It was a bargain.

db

17 May 2016
When I bought my car last year brand new was the most cost effective £2500 deposit contribution over allowance on my old car and 42 months 0% all amounted to a discount that made the used car on the fore court with 10000 miles look poor value. PCP doesn't work for all, people need to look at total cost and balloon payments as some so called premium manufacturers come up with some very hefty balloon payments keeping payments down but profits up on the interest paid on it overall. Result no deposit to move else where and consumer captured. PCP is not some philanthropic way of manufacturers getting us into their cars its about profit and many have front and back end fees to make the eyes water and the APR up. People often buy premium on the basis they think it will be worth more at the end but overall cost is often more hence the premium bit, Smoke and mirrors badges labels and squishy plastic !

17 May 2016
When people sign for these deals they usually get a nasty shock when it comes to handing in the keys, they expect to just hand over and walk away. Well expect a charge for every minor scuff on each wheel, every tiny stone chip on the body or windscreen, + other various charges. Add a professional valet and minor scratch repairs. Of course all this work has to be carried out by the main dealer at £100 a hour, wola a whooping unexpected bill nearing a £1,000 sometimes.

 

Hydrogen cars just went POP

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