Finance

[S & J Trading 3]

Hi Guys, firstly thanks for the help and advice given so far, it is appreciated!!

OK, so as we get closer to moving in to our new unit I am considering getting into offering finance, any advice or recommendations would be welcome?

The premises will take 15 vehicles inside and 7 outside. At the minute we stock vehicles that retail up to £4500, as we grow this will grow with us. Due to the area advertising will be done on line and visits to the unit will be by appointment only.

TIA, Steve

 

[Paul C 75]

Indirectly related, but be aware of this: https://www.fca.org.uk/publication/multi-firm-reviews/our-work-on-motor-finance-final-findings.pdf (gory details), https://www.fca.org.uk/news/press-releases/fca-acts-protect-those-buying-motor-finance (summary) and also your requirements under CONC (full details here https://www.handbook.fca.org.uk/handbook/CONC.pdf) 

For sure, there is going to be increased public awareness of motor finance and I suspect a lot of high-end dealers and car supermarkets making a number of changes. Basically, don't look at making extra money on finance at the expense of the customer! 

[S & J Trading 3]

Thanks for the response Paul, not looking to make the vehicles more profitable, more to reach a wider audience.  I'll read through the links,.

Cheers

Steve

 

[awc1000 93]

23 hours ago, Paul C said:

Indirectly related, but be aware of this: https://www.fca.org.uk/publication/multi-firm-reviews/our-work-on-motor-finance-final-findings.pdf (gory details), https://www.fca.org.uk/news/press-releases/fca-acts-protect-those-buying-motor-finance (summary) and also your requirements under CONC (full details here https://www.handbook.fca.org.uk/handbook/CONC.pdf) 

For sure, there is going to be increased public awareness of motor finance and I suspect a lot of high-end dealers and car supermarkets making a number of changes. Basically, don't look at making extra money on finance at the expense of the customer! 

It's already looking like some lenders are going to exit this industry, a clear indicator on where they think things are heading, one supercar dealer i spoke too saying his choice of lenders likely to be reduced from 10 to 4, 

Is anyone being given notice on finance company withdrawals in the £5k - £20k sector ??

[trade vet 702]

1 hour ago, awc1000 said:

It's already looking like some lenders are going to exit this industry, a clear indicator on where they think things are heading, one supercar dealer i spoke too saying his choice of lenders likely to be reduced from 10 to 4, 

Is anyone being given notice on finance company withdrawals in the £5k - £20k sector ??

Proper finance companies ( not brokers) prefer and reward loyal supporting dealers and not those who prop various lenders at the same time.Future finance income could be in the form of a volume bonus.

[awc1000 93]

2 hours ago, trade vet said:

Proper finance companies ( not brokers) prefer and reward loyal supporting dealers and not those who prop various lenders at the same time.Future finance income could be in the form of a volume bonus.

 

depends what your selling, if you are selling stuff up to say £10k the relationship between a dealer and finance house becomes straight forward, no need to have multi lenders, can't see any finance company's loosing sleep in the next year over a customer defaulting on say a £5k ex fleet car, the future value of the car is not such an issue.

bit different for supercars, profit is in the car not the finance deal, it's not a case of propping various lenders, the customer doesn't need qualifying, it's totally about matching a lender to a specific car and customer, these customers are not mugs, hence you need a bigger selection of lenders, the reason for the exit as mentioned is the future value of the car in this sector is an issue, a defaulting customer or a future RV shortfall on a £200k car that's lost £30k-50k in a recession is a major problem, it's easy to understand how some lenders will loose the appetite to lend with the inevitable down turn that's coming.

was just curious if anyone had been informed of lenders withdrawing support on the cheaper stuff?

trade vet - yes commission paid in a different form has been talked about, but fca not likely to say you can't earn commission? some dealers can't grasp they arn't going to be earning as much commission just presume they are going to get paid current rates in a different way, need to be more worried about any capping of rates and APR, if the FCA turn round this july and say you can't use non prime at over 10% APR anymore (example, unlikely?), how many dealers would loose their lenders?

Edited June 11, 2020 by awc1000

[awc1000 93]

just thinking on, if lenders start leaving this industry due to risk, remaining lenders are going to want (rightfully) even higher rates if they are going to keep lending in this climate, how is that going to sit with the fca?

[Paul C 75]

27 minutes ago, awc1000 said:

just thinking on, if lenders start leaving this industry due to risk, remaining lenders are going to want (rightfully) even higher rates if they are going to keep lending in this climate, how is that going to sit with the fca?

In theory, with increasing/decreasing DiC commission barred, the "market" would function better and so long as enough lenders stay in the business, would result in generally lower interest rates for customers. I believe the finance companies themselves (with a few exceptions*) won't suffer much at all with the FCA-imposed changes in the summer, because they are carrying little blame. The main miscreants were the dealers who sold the inappropriate (interest rate of) finance; the lenders were somewhat guilty of lack of oversight though.

* There are a handful of manufacturers who were/are sufficiently big, that they ran their own bank/finance, eg Renault (RCI).

I don't think we'll reach the situation where lots of lenders pull out of car finance. I think more likely, there will be a general downturn in 1) the number of cars sold (in total, new & secondhand), 2) the average amount financed per car, 3) the proportion of cars bought on finance. 

But I think the existing lenders - most of them - will be happy to continue to operate in a smaller overall market. Car finance is still pretty good, compared to other types eg mortgages, credit cards, business lending.

[awc1000 93]

29 minutes ago, Paul C said:

In theory, with increasing/decreasing DiC commission barred, the "market" would function better and so long as enough lenders stay in the business, would result in generally lower interest rates for customers. I believe the finance companies themselves (with a few exceptions*) won't suffer much at all with the FCA-imposed changes in the summer, because they are carrying little blame. The main miscreants were the dealers who sold the inappropriate (interest rate of) finance; the lenders were somewhat guilty of lack of oversight though.

* There are a handful of manufacturers who were/are sufficiently big, that they ran their own bank/finance, eg Renault (RCI).

I don't think we'll reach the situation where lots of lenders pull out of car finance. I think more likely, there will be a general downturn in 1) the number of cars sold (in total, new & secondhand), 2) the average amount financed per car, 3) the proportion of cars bought on finance. 

But I think the existing lenders - most of them - will be happy to continue to operate in a smaller overall market. Car finance is still pretty good, compared to other types eg mortgages, credit cards, business lending.

trouble is it's not just new FCA rules that finance houses are facing, they are likely to suffer defaults on a level unaccounted for over the next year, and they are aware that manufacturers are likely to offer keen finance deals on new cars sometime soon, witness toyota finance's recent ccff loan, two reasons why they took that, but quite obvious what some of that money will be used for, so in theory the finance lenders are facing grief on 3 fronts, they must be asking themselves if its worth the risk, surely some will exit.

paul - you seem pretty switched on regards this stuff, what profile car do you sell? and if you had to take a punt on the final fca ruling what would it be?

[trade vet 702]

10 hours ago, awc1000 said:

just thinking on, if lenders start leaving this industry due to risk, remaining lenders are going to want (rightfully) even higher rates if they are going to keep lending in this climate, how is that going to sit with the fca?

Surely these novelty ‘super cars’ should be 50% deposit and for A credit score hirers only.Are you saying there are subprime lenders out there for this stuff.

[awc1000 93]

On 6/12/2020 at 9:46 AM, trade vet said:

Surely these novelty ‘super cars’ should be 50% deposit and for A credit score hirers only.Are you saying there are subprime lenders out there for this stuff.

no i don't think subprime but i'm no expert,  - what's happened is a lot of these cars have had such high residuals its elevated customers up the ladder and ownership has been cheap, traditional say £60k used 911 cash buyers can now own new £150-200k cars which have had a very high RV for sometime now, for some it's been free motoring - example new 911rs list £125k used value at 1 year old £160k, these will probably never end in neg equity but plenty of other brands are starting to show big depreciation, mclaren in chaos, some ferrari's are taking a £100k hit at 1 year old and even new reg's, i'm not sure what deposits these folks are putting in to buy but its likely quite low as many of these new car deals are pcp based (or similar?) with a projected high 3 year RV, its looking like even if a customer does not default the projected RV value is going to be way wrong, either way it's looking like the lender is in the shit.

Daft as it sounds, most supercars are financed, even if the customer has the hard funds, apparently they prefer to sink their money elsewhere and take the finance, i guess that's been the wise way to do it with such high rv's and overs.

you can understand the lenders who are looking to bail out of this sector.

It's hard to understand whats going on in this sector at the minute, some used prices on this stuff is going through the roof but some are crashing in value, then on the other hand new car orders are being cancelled on mass due too the expected downturn and also customers who are now fed up with manufacturer's taking the piss with their underhand customer selection  process, but then new blood is entering the market due to crazy deals being offered.

trade vet - regards A grade customers and 50% deposits, i think no matter what scheme they use to buy they probably have to be grade A customers?, regards how much deposit its shocking how little it can be (those high rv's again), here's an example of a current offer, mclaren have gone from having a waiting list for a £240k car to building cars and despatching some cars to the dealer network unsold, the deal is - car lists at £240k, mclaren contribution £40k (yep!), 3 year agreed return value is circa £150K, deposit down is £15k then 36 months at £1500, the deal makes no sense as the future rv has no chance at £150k, it's a cheap way into supercar ownership, i couldn't get my head round this deal but a trade mate also reckoned the £150k return rv will fail and come up short, but reminded me the factory profit margin is the unknown here, its obviously huge, so mclaren underwrite the deal falsely at £150k and the factory keeps spinning.

Iv'e seen some mad things in this sector down the years, but some of the stuff over the last few weeks has shocked me, 

[trade vet 702]

40 minutes ago, awc1000 said:

no i don't think subprime but i'm no expert,  - what's happened is a lot of these cars have had such high residuals its elevated customers up the ladder and ownership has been cheap, traditional say £60k used 911 cash buyers can now own new £150-200k cars which have had a very high RV for sometime now, for some it's been free motoring - example new 911rs list £125k used value at 1 year old £160k, these will probably never end in neg equity but plenty of other brands are starting to show big depreciation, mclaren in chaos, some ferrari's are taking a £100k hit at 1 year old and even new reg's, i'm not sure what deposits these folks are putting in to buy but its likely quite low as many of these new car deals are pcp based (or similar?) with a projected high 3 year RV, its looking like even if a customer does not default the projected RV value is going to be way wrong, either way it's looking like the lender is in the shit.

Daft as it sounds, most supercars are financed, even if the customer has the hard funds, apparently they prefer to sink their money elsewhere and take the finance, i guess that's been the wise way to do it with such high rv's and overs.

you can understand the lenders who are looking to bail out of this sector.

It's hard to understand whats going on in this sector at the minute, some used prices on this stuff is going through the roof but some are crashing in value, then on the other hand new car orders are being cancelled on mass due too the expected downturn and also customers who are now fed up with manufacturer's taking the piss with their underhand customer selection  process, but then new blood is entering the market due to crazy deals being offered.

trade vet - regards A grade customers and 50% deposits, i think no matter what scheme they use to buy they probably have to be grade A customers?, regards how much deposit its shocking how little it can be (those high rv's again), here's an example of a current offer, mclaren have gone from having a waiting list for a £240k car to building cars and despatching some cars to the dealer network unsold, the deal is - car lists at £240k, mclaren contribution £40k (yep!), 3 year agreed return value is circa £150K, deposit down is £15k then 36 months at £1500, the deal makes no sense as the future rv has no chance at £150k, it's a cheap way into supercar ownership, i couldn't get my head round this deal but a trade mate also reckoned the £150k return rv will fail and come up short, but reminded me the factory profit margin is the unknown here, its obviously huge, so mclaren underwrite the deal falsely at £150k and the factory keeps spinning.

Iv'e seen some mad things in this sector down the years, but some of the stuff over the last few weeks has shocked me, 

Thank you,good post AWC,all above my head.Supercar status cymbals on chucky or on PCP which is even worse.I don’t get it.It’s different in the US,where corporations buy them on finance for executives and get hidden in their accounts.( making them tax deductible ) No company car tax or Benefit in Kind obstructions over there of course.I only know this because I met some US super car dealers who were attending a Lambo sales conference where I was recently staying.( They were down to earth guys )

[awc1000 93]

2 hours ago, trade vet said:

Thank you,good post AWC,all above my head.Supercar status cymbals on chucky or on PCP which is even worse.I don’t get it.It’s different in the US,where corporations buy them on finance for executives and get hidden in their accounts.( making them tax deductible ) No company car tax or Benefit in Kind obstructions over there of course.I only know this because I met some US super car dealers who were attending a Lambo sales conference where I was recently staying.( They were down to earth guys )

iv'e probably not explained it properly, in fact i omitted the main point lol

new car £200k, traditionally the customer in theory needed to be good for £200k, =  likely big deposit and high repayments to spread the £200K, not easy, outcome - if the car drops heavily in value tough shit you owe the finance company the balance regardless, not their problem.

the pcp (or equivalent)way - £200k car, the finance house do a 3 year pcp, projected future return value say £150k which they underwrite, all of a sudden the customer only needs to be good for a £50K loan, add say a £15K deposit and all of a sudden a £50k customer has his backside in a £200k car, this is all cushty in a upward market, but when things go the other way all the customer needs to do is honour the 3 year monthly payments, if the car falls heavily in value after 3 years not his problem, yes he loose's the deposit but that's expected anyway, the problem at this point is firmly the finance company's as they underwrote the deal .

this is across higher priced cars too, so £200k customers are now £400k lambo customers etc right the way up to mega money cars, you can imagine the scope for carnage with lenders when it all moves backwards, its looking like its partly heading that way at the moment.

might be some cheap supercars around soon, already some strange trade deals going on.

 

 

[CCC 31]

^this. A lot via pcp’s as the smart money knows this reduces their exposure significantly and moves it to the finance company. 
 

buy assets and lease liabilities. Some people think a super car is an asset which it generally isn’t in the long term. Genuine rarity isn’t what it used to be. Look at all manuf’s numbers.

[trade vet 702]

1 hour ago, awc1000 said:

iv'e probably not explained it properly, in fact i omitted the main point lol

new car £200k, traditionally the customer in theory needed to be good for £200k, =  likely big deposit and high repayments to spread the £200K, not easy, outcome - if the car drops heavily in value tough shit you owe the finance company the balance regardless, not their problem.

the pcp (or equivalent)way - £200k car, the finance house do a 3 year pcp, projected future return value say £150k which they underwrite, all of a sudden the customer only needs to be good for a £50K loan, add say a £15K deposit and all of a sudden a £50k customer has his backside in a £200k car, this is all cushty in a upward market, but when things go the other way all the customer needs to do is honour the 3 year monthly payments, if the car falls heavily in value after 3 years not his problem, yes he loose's the deposit but that's expected anyway, the problem at this point is firmly the finance company's as they underwrote the deal .

this is across higher priced cars too, so £200k customers are now £400k lambo customers etc right the way up to mega money cars, you can imagine the scope for carnage with lenders when it all moves backwards, its looking like its partly heading that way at the moment.

might be some cheap supercars around soon, already some strange trade deals going on.

 

 

I do understand that it will be the finance companies who will be taking a hit.From what you say they might have done well previously with this stuff so it could average out.As for dealers,good luck to them,I cannot imagine what some of their punters are like and the headaches  they get.

[Halfpenny 114]

7 hours ago, awc1000 said:

iv'e probably not explained it properly, in fact i omitted the main point lol

new car £200k, traditionally the customer in theory needed to be good for £200k, =  likely big deposit and high repayments to spread the £200K, not easy, outcome - if the car drops heavily in value tough shit you owe the finance company the balance regardless, not their problem.

the pcp (or equivalent)way - £200k car, the finance house do a 3 year pcp, projected future return value say £150k which they underwrite, all of a sudden the customer only needs to be good for a £50K loan, add say a £15K deposit and all of a sudden a £50k customer has his backside in a £200k car, this is all cushty in a upward market, but when things go the other way all the customer needs to do is honour the 3 year monthly payments, if the car falls heavily in value after 3 years not his problem, yes he loose's the deposit but that's expected anyway, the problem at this point is firmly the finance company's as they underwrote the deal .

this is across higher priced cars too, so £200k customers are now £400k lambo customers etc right the way up to mega money cars, you can imagine the scope for carnage with lenders when it all moves backwards, its looking like its partly heading that way at the moment.

might be some cheap supercars around soon, already some strange trade deals going on.

 

 

Nicely explained.  IMHO we are about to reach the day of reckoning on all these 'Spanish Practices'. PCP and leasing is an unexploded bomb under the economy. Its all smoke and mirrors.

There's a guy lives near me who runs a fairly grotty little bar - about twice the size of my living room.  Just after lockdown started we talked about business and he was moaning to me all about his debts, which he can't pay. Leased Range Rover was something like 550/month, then he'd got couple 100k's on his house, another 100k on the business and some more on other stuff. It was around 400k plus the lease.  I'm just thinking WTF?....  how can you sleep?

Of course when this goes belly-up it won't be the finance houses that lose out.  The losses will be 'socialised' as in 2008 and we will all pay for it.  £500bn I believe the last bail out cost us...

[metcars 397]

Just out of curiosity. Who are the guys that lend these UK car youtubers huge amounts to buy super cars. Without naming names. One or two guys on YouTube have sufficient ‘family money’ to back up any debt. But there’s at least one ‘working’ guy with a garage full of exotic cars all on finance. I don’t know how he sleeps at night? Are those specialist lenders sleeping easy too?

[Rory RSC 596]

42 minutes ago, metcars said:

Just out of curiosity. Who are the guys that lend these UK car youtubers huge amounts to buy super cars. Without naming names. One or two guys on YouTube have sufficient ‘family money’ to back up any debt. But there’s at least one ‘working’ guy with a garage full of exotic cars all on finance. I don’t know how he sleeps at night? Are those specialist lenders sleeping easy too?

Do you know how much they make off youtube?  

Shmee150 posts on pistonheads and has been quite open with revenue and even a fairly modest subscriber base with regular contents and adverts brings in quite a lot of money. It was considerably more  than I ever expected. 

[Mark101 536]

3 minutes ago, Rory RSC said:

Do you know how much they make off youtube?  

Shmee150 posts on pistonheads and has been quite open with revenue and even a fairly modest subscriber base with regular contents and adverts brings in quite a lot of money. It was considerably more  than I ever expected. 

I'm well on my way to Youtube fortune. I now have 6 Subscribers and I bet they all reside here 

[Paul C 75]

There's that many good YouTube channels that now it would be difficult to find a niche - its effectively a saturated market, just like so many others. The better ones have a good, almost professional ability to present to the camera and slick video editing (which takes ages!) and post regularly - its almost a full time job in itself. And, its necessary to keep producing new content, at least weekly. 

So the ones with loads have subscribers have earned it (and work for it), sure there's a handful of people who have done really well (Doug Demuro, Hoovies Garage etc) but for the others its pretty much a normal job.

 

[metcars 397]

Isn’t schmee  the heir to the burton tailoring business?

i was thinking more of tgetv, Tom exton. Who apart from having a well paid city job has a large car collection that is mostly on finance. 

[Rory RSC 596]

1 hour ago, metcars said:

Isn’t schmee  the heir to the burton tailoring business?

i was thinking more of tgetv, Tom exton. Who apart from having a well paid city job has a large car collection that is mostly on finance. 

Its not burtons biscuits as I know he went nuts at someone that kept asking and commenting about it  

[Frank Cannon 812]

On 6/14/2020 at 9:09 PM, Halfpenny said:

Nicely explained.  IMHO we are about to reach the day of reckoning on all these 'Spanish Practices'. PCP and leasing is an unexploded bomb under the economy. Its all smoke and mirrors.

There's a guy lives near me who runs a fairly grotty little bar - about twice the size of my living room.  Just after lockdown started we talked about business and he was moaning to me all about his debts, which he can't pay. Leased Range Rover was something like 550/month, then he'd got couple 100k's on his house, another 100k on the business and some more on other stuff. It was around 400k plus the lease.  I'm just thinking WTF?....  how can you sleep?

Of course when this goes belly-up it won't be the finance houses that lose out.  The losses will be 'socialised' as in 2008 and we will all pay for it.  £500bn I believe the last bail out cost us...

I've a friend I've known since it was all fields around here. Has always had huge debts, just doesn't worry him, skin of a rhino, been bankrupt twice I know of and, still people throw money at him.

As long he can make every month with a pack of fags in his back pocket he is happy.....I sometimes wish some his laissez-faire attitude would rub off on me, not much, just a touch. 

[David Horgan 564]

Talking Finance 

One garage i came across has changed name , took 50 k Bounce loan on two garages , so 100k, changed name and is adamant its not going to get clawed back .

how these people sleep is astonishing 

Regards being in debt to some of the above figure is eye watering , Not my way .

Young guy over the road where i live in 300k house , two range rovers on lease his and hers , both white . two kids about 12 /14 , now redundant due to the virus mess and is for sale with cars gone , one old £2,000 Mondeo on the drive , how life can change overnight . I might put an offer on the house as they have spent huge money on it recently . 

[CCC 31]

13 hours ago, David Horgan said:

Talking Finance 

One garage i came across has changed name , took 50 k Bounce loan on two garages , so 100k, changed name and is adamant its not going to get clawed back .

how these people sleep is astonishing 

Regards being in debt to some of the above figure is eye watering , Not my way .

Young guy over the road where i live in 300k house , two range rovers on lease his and hers , both white . two kids about 12 /14 , now redundant due to the virus mess and is for sale with cars gone , one old £2,000 Mondeo on the drive , how life can change overnight . I might put an offer on the house as they have spent huge money on it recently . 

I’m not sure it’ll get clawed back but he’ll have to make the payments (cheap) or fold. HMRC will find it easier to claw back money taken fraudently than looking for cash via VAT inspections I suspect. 

Getting money after going bankrupt might be a lot harder going forwards as I’m sure lenders will be more circumspect after this. 

Unfortunately a lot of people are going to learn what a real recession is, we’ve not had one since the early 90’s. Those of us who lived through that and  the 80’s one have generally been more cautious as we know what can happen.