Car 'industry' built entirely on credit, says George Mordaunt

Iwannahurl

George Mordaunt, entrepreneur and author, was interviewed by Pat Kenny on Monday.

They were discussing his new book, Back in the Driving Seat.

His main business has always been selling cars, and a comment he made in this regard during the interview really made me wonder: "The entire industry is built on credit."

Now this might not be news to some, and it may have been done to death before on Boards faik, but I find it quite startling, as well as revealing.

We made a conscious decision to buy only one car, and not to add to our debt in the process (a perspective our car salesman didn't seem to appreciate). So it was cash for the car and cash for the alternative means of transport (later aided, abetted and subsidised by the Bike to Work Scheme).

The car therefore stays on the driveway 99% of the time, but because it's not costing us to do so (other than the unavoidable outlays such as Motor Tax, insurance, NCT etc) there is no sense of waste involved.* Meanwhile the main transport alternative, the common push-bike, does pretty much the same job more satisfactorily and efficiently in the urban setting and with vanishingly small annual operational costs by comparison.

Had we bought the car on credit, and got a second 'run-about' as well, we might feel compelled to use either or both more frequently in order to get value for money.

So, what I'm wondering is this: did easy credit therefore fuel a car bubble as much as a housing bubble? Were the two phenomena highly inter-related, ie the banks made urban sprawl (seemingly) affordable and the car-finance companies made urban sprawl accessible? And does the 'buy-in' involved tend to encourage more car use (ie I'm paying through the nose for it so I'm damn well going to use it)?

Food for thought or old hat?










*Depreciation perhaps, but that's also unavoidable and anyway we're content to drive the same car until the day it dies and crumbles into a heap of brown mush.

Richard Logue

I certainly think that without credit we would not see so many new cars on the road, but you'd be surprised how many people do buy new cars for cash. I suspect we would have more cars lasting for longer, maybe not on the same scale as in Cuba, but not too far off. Having said that, the stringent conditions required to pass the NCT means there are hardly any outright bangers on the road these days.

Iwannahurl

It would be instructive to see the figures for the proportion of cars bought for cash versus on credit.

Your point about new cars is also important. I wonder to what extent credit encourages mostly upgrades rather than the decision to purchase any car in the first place?

bk

If your car remains unused 99% of the time. Might it have been cheaper to not buy the car and instead hire one when needed. That is what I do.

TINA1984

Car is king here in our great little country, with 'the industry' having an inordinate amount of pull on our hapless politicians. Let's not forget that in 2009/10, with the first in a series of 'austerity' budgets being introduced, FF-Greens (!) somehow convinced themselves it would be a tremendous idea to introduce a new scrappage scheme.

That's right, after over a decade of booming new car sales, somehow the car dealers lobby SIMI managed to convince messrs in cabinet - like Noel Dempsey I presume - it would be a great idea for the state to give buyers a state subsidy to buy a new car!

Absolute madness when you think about it. You could probably make an argument that the mid 1990s scrappage scheme was a good idea on the basis of the supposed amount of bangers on the road*. But in the late naughties after a bubble? Its banana republic-esque, but its a good example on the ability of small lobby groups to influence government decision-making.


*I wouldn't consider any form of scrappage scheme a good idea, why should the state subsidise consumers to buy a particular product but not the other? If I walk to work will the state pay a subsidy for me to buy new shoes?

bk

TINA1984 wrote: »

*I wouldn't consider any form of scrappage scheme a good idea, why should the state subsidise consumers to buy a particular product but not the other? If I walk to work will the state pay a subsidy for me to buy new shoes?

Well in fairness their is the bike to work scheme. There is no VAT on childrens shoes and Dublin Bus, Bus Eireann, Irish Rail, etc. are all subsidised.

I agree that while the original scrappage scheme was necessary to improve road safety, the current one is pure craziness.

dowlingm

Iwannahurl wrote: »

The car therefore stays on the driveway 99% of the time, but because it's not costing us to do so (other than the unavoidable outlays such as Motor Tax, insurance, NCT etc) there is no sense of waste involved.*

Don't forget depreciation.

Fratton Fred

The margin that a dealer makes on a car is quite small, selling you the loan is often more profitable.

I'm not too familiar with the vehicle leasing market in Ireland, but in the UK the major lease companies are owned by banks. The car is just a means to sell finance.

Iwannahurl

bk wrote: »

If your car remains unused 99% of the time. Might it have been cheaper to not buy the car and instead hire one when needed. That is what I do.

I think most cars are parked most of the time, in our case more than average because of bike use and residential location. Car hire would not make sense for us, financially or logistically.

Car use and car dependence have to be distinguished from car ownership. In the context of whether easy credit might have created a car bubble, which in turn might have facilitated the growth of urban sprawl in Ireland, car use and car dependence at population level is what is really important. If most people own cars, and then use those cars liberally, the cumulative effect is massive (as we can see).

TINA1984 wrote: »

That's right, after over a decade of booming new car sales, somehow the car dealers lobby SIMI managed to convince messrs in cabinet - like Noel Dempsey I presume - it would be a great idea for the state to give buyers a state subsidy to buy a new car!

Its banana republic-esque, but its a good example on the ability of small lobby groups to influence government decision-making.

I wouldn't consider any form of scrappage scheme a good idea, why should the state subsidise consumers to buy a particular product but not the other? If I walk to work will the state pay a subsidy for me to buy new shoes?

The car sales lobby must be a lot more influential than the car maintenance lobby! It was a populist move to be sure, but presumably they all had their eye on the voting motoring public. Somewhere I have on file an EU paper on the economics and (I think) environmental impact of scrappage, which iirc claimed such schemes are good for the economy, jobs etc. One argument against scrappage is that it distorts the market, and I would argue that easy credit does something similar.

bk wrote: »

Well in fairness their is the bike to work scheme. There is no VAT on childrens shoes and Dublin Bus, Bus Eireann, Irish Rail, etc. are all subsidised.

I agree that while the original scrappage scheme was necessary to improve road safety, the current one is pure craziness.

What the government chooses to subsidise is if course down to politics and perhaps even ideology. The level of subsidy and government investment allocated to public transport and 'active commuting' reflects these political considerations, and 'active commuters' collectively have much less political influence than their motorised compatriots.

The economics of all this is highly ramified of course. Governments are addicted to revenue from car sales and car use, so they quite like car dependence really. It's a bit like alcohol and tobacco: governments are prone to taxing these addictive substances just enough to raise revenue and be seen to make the right noises, but not at a level that might kill off the golden goose.

Stamp duty might also be (have been) comparable: the government just loved rolling in all that money from the housing bubble.

External costs are ignored or downplayed, in my opinion, as are the substantial benefits to be had from promoting 'active travel'.

serfboard

Interesting thread.

On a side issue I hear "Volkswagen Bank" advertising a lot these days. German banks, not being able to fire money at us now like they were a few years ago to buy houses, are now firing money at us to buy cars!

Iwannahurl

serfboard wrote: »

Interesting thread.

On a side issue I hear "Volkswagen Bank" advertising a lot these days. German banks, not being able to fire money at us now like they were a few years ago to buy houses, are now firing money at us to buy cars!

Not a side issue at all. In fact, bang on the money.

"Every manufacturer is offering [finance] deals – and they are remarkably good," says Jon Morgan, acting consumer editor at Auto Express and Car Buyer. "When a monthly payment is only a couple of hundred pounds, it makes buying a new car affordable for so many more people."

http://www.guardian.co.uk/money/2013/feb/17/motoring-consumer-affairs

Of course, you don't get something for nothing. The "0%" finance deals really mean that you pay a bit more for the car instead of on the loan.

smash

Iwannahurl wrote: »

George Mordaunt, entrepreneur and author

How anyone can be classed as an entrepreneur because they got involved in their family owned car dealership is beyond me...

murphaph

bk wrote: »

I agree that while the original scrappage scheme was necessary to improve road safety, the current one is pure craziness.

Not sure the original one was necessary either. Could have just strictly imposed the NCT rules back then. Ireland doesn't benefit much from such schemes as we are not heavily involved in the automotive sector.

MGWR

In the news next: Housing industry built entirely on credit, says opinion-monger.

Iwannahurl

MGWR wrote: »

Housing bubble built entirely on easy credit

FYP.

MGWR

Iwannahurl wrote: »

FYP.

Just how many houses are sold for cash in the business? I stand by my post as written.

yohan the great

George Mordaunt is an absolute prick so nobody should listen to him