Is there a Motor Bubble?

Oafley Jones

I spent a lot of time studying the housing market and collapse in Ireland and the recent explosion in car sales has been giving me flashbacks for some time. The enormous growth in sales, driven in no small part by new financial products and low interest, zero interest rates makes we wonder how sustainable the whole thing is. And now, for the first time I've seen warnings (on autoexpress) coming from US. Maybe it's nothing, but I keep seeing the red flags.

Indricotherium

Nobody expects a new car to go up in value or even to maintain its value.

I don't really see how a bubble could occur where the equity tied up in the chattel in question is expected to decline.

Possibly if there were a sudden over supply of Ferraris then there could be some sort of collapse in the second hand hypercar market, but I think I read recently that Ferrari are limiting production numbers even more for the next few years.

Stallingrad

Oafley Jones

Indricotherium wrote: »

Nobody expects a new car to go up in value or even to maintain its value.

I don't really see how a bubble could occur where the equity tied up in the chattel in question is expected to decline.

Possibly if there were a sudden over supply of Ferraris then there could be some sort of collapse in the second hand hypercar market, but I think I read recently that Ferrari are limiting production numbers even more for the next few years.

Of course, but there's a lot more to the equation than buyers.

ofcork

I think there may be an issue down the line with pcp as not everyone is thinking it through fully.

frozenfrozen

they'll all be very upset when diesel gets taxed to match how harmful it is

Drummerboy08

There is definitely a bubble in performance and rare classics at the minute, and a lot of people are gonna feel the pain of that one when it bursts.

jimgoose

ofcork wrote: »

I think there may be an issue down the line with pcp as not everyone is thinking it through fully.

I agree. I think a lot of people will have big problems paying for cars at some stage.

Iwannahurl

I wouldn't call it a bubble, as the property mania was. There is no speculative dimension, and car prices (new and second-hand) do not inflate in the same way.

You're right though, OP, the car sales market is built on credit.

There is also an unfortunate tendency for policy-makers to see growth in new car sales as a sign of a healthy economy. Every so often you'll hear Ministers and TDs crowing about all the new reg plates they see. It's of no interest or consequence to them that people are getting into debt buy cars or that a large proportion of workers' wages is spent just on running one or more family cars.

I wonder how many days in the working year are needed to pay for driving a car to work?

Another issue is that people feel compelled to use their cars because of the substantial recurring costs. As someone once memorably said in the Roads forum (iirc), "why would anyone own a car other than to use it?" So vast numbers use their car all the time, even for short trips, with obvious and inevitable consequences, such as the fact that Ireland now has the second highest level of car dependence in the EU28.

Traffic congestion is therefore regarded as another sign of economic activity, which leads to pressure for more road building, which in itself is seen as job-boosting economic growth.

The link to the property sector is that credit-fuelled car ownership allows people to live in suburban or "rural" houses. This in turn leads to the development of more car-dependent urban sprawl and dormitory towns without public transport links, which means that people have to buy cars when they decide to buy houses in such locations. Lose-lose for society, the environment and for the hamsters stuck on the economic wheel. Win-win for the speculators, developers, car dealers and overseas car manufacturers. Until the crash comes of course, when society again foots the bill.

Now that I think of it, the Celtic Bubble property mania may have been entirely car-dependent.

hi5

It's not so much a bubble but how the whole western world economy works.
We are all consumers and we must keep buying stuff and to do this we need to keep borrowing.
It doesn't matter whether it's cars, houses, mobile phones or flat screen TV's, you have to keep borrowing to buy stuff to keep people in jobs.
It will collapse eventually, it almost did a few years ago but all the stops were pulled out to prevent it, like the bank bail outs and the bailout of the US motor industry.

R.O.R

Oafley Jones wrote: »

I spent a lot of time studying the housing market and collapse in Ireland and the recent explosion in car sales has been giving me flashbacks for some time. The enormous growth in sales, driven in no small part by new financial products and low interest, zero interest rates makes we wonder how sustainable the whole thing is. And now, for the first time I've seen warnings (on autoexpress) coming from US. Maybe it's nothing, but I keep seeing the red flags.

In Ireland, it's not so much a bubble, but a return to normality after the crash of 08/09/10, when sales were so low they could only go one way.

Sales this year have been higher than expected, but are only getting back to what industry experts estimate is a normal number of annual sales. I can see next year being slightly higher numbers wise than this year, then hopefully carrying on at a similar level.

Atlantic Dawn

There's people been given access to finance that they couldn't a few years ago from any mainstream banks. People are stupidly spending €25k plus purely to get the cheap motor tax on a depreciating asset that will lose at least 50% of its value in 3 years. When the current fleet is 3 years old and PCP plans lapse there will be a flood of used cars to dispose of. The government need a glut of car sales so the VRT can cover the cheap motor tax.

OldmanMondeo

I have recently changed car. My credit rating would be near perfect, if not perfect. I looked to borrow a lot less than I have previously borrowed but the difference in getting the loan this time compared to before. While interest rates are coming down etc, the banks, Irish ones anyway are making sure you are able to pay the loan, unlike years ago when they would chuck money at anyone.

I can't see the "bubble" bursting, it may slow down due to a lot of cars not getting change for 3 - 5 years. Remember it was difficult to get Diesel cars from 08-10 regs.

Idbatterim

here is also an unfortunate tendency for policy-makers to see growth in new car sales as a sign of a healthy economy. Every so often you'll hear Ministers and TDs crowing about all the new reg plates they see. It's of no interest or consequence to them that people are getting into debt buy cars or that a large proportion of workers' wages is spent just on running one or more family cars.

also the vat majority of this money is simply going back to German, uk, france, japan etc...

Boskowski

Stallingrad wrote: »

Awwww, a Gogomobil. Berlin reg too. I could be wrong but technically this may be an Audi

terrydel

Iwannahurl wrote: »

I wouldn't call it a bubble, as the property mania was. There is no speculative dimension, and car prices (new and second-hand) do not inflate in the same way.

You're right though, OP, the car sales market is built on credit.

There is also an unfortunate tendency for policy-makers to see growth in new car sales as a sign of a healthy economy. Every so often you'll hear Ministers and TDs crowing about all the new reg plates they see. It's of no interest or consequence to them that people are getting into debt buy cars or that a large proportion of workers' wages is spent just on running one or more family cars.

I wonder how many days in the working year are needed to pay for driving a car to work?

Another issue is that people feel compelled to use their cars because of the substantial recurring costs. As someone once memorably said in the Roads forum (iirc), "why would anyone own a car other than to use it?" So vast numbers use their car all the time, even for short trips, with obvious and inevitable consequences, such as the fact that Ireland now has the second highest level of car dependence in the EU28.

Traffic congestion is therefore regarded as another sign of economic activity, which leads to pressure for more road building, which in itself is seen as job-boosting economic growth.

The link to the property sector is that credit-fuelled car ownership allows people to live in suburban or "rural" houses. This in turn leads to the development of more car-dependent urban sprawl and dormitory towns without public transport links, which means that people have to buy cars when they decide to buy houses in such locations. Lose-lose for society, the environment and for the hamsters stuck on the economic wheel. Win-win for the speculators, developers, car dealers and overseas car manufacturers. Until the crash comes of course, when society again foots the bill.

Now that I think of it, the Celtic Bubble property mania may have been entirely car-dependent.

Credit and materialism.

Skylinehead

Boskowski wrote: »

Awwww, a Gogomobil. Berlin reg too. I could be wrong but technically this may be an Audi

It's an Isetta. BMW, not Audi :cool:

macplaxton

That's a BMW, a Goggomobil looks different and has four wheels.

Anyway, with this being Ireland, should the pic chosen have not been of a locally assembled Heinkel Trojan?

Voodoomelon

PCP baffles me. Are folks looking to get on the new-car wagon and then sustain it forever by swapping for another new car after the initial period is up? Probably the only half sensible way to do it and that's grand if it's the long term plan. Otherwise it seems to me to be a very strange way to pay for a car.

I'm single and would consider myself to have an above average income, but nothing mental by any means and I don't see how people around me can actually "afford" to run PCP deals on the likes of a new A4 which you see a dime a dozen. People I know likely earn less than me and would have a lot more commitments financially than I would.

Maybe I just couldn't justify it, but it would severely limit me to be making big deposits and monthly repayments on a new car like that. Not to mention the colossal dept.

In relation to the thread title, I do think a lot of folks are beginning to be "under pressure" to accept the likes of a PCP deal, from relations, neighbors, friends, other peers etc to be able to get a new car. It seems to be the done thing as if it's a good deal, a cheaper option or a more manageable way to pay for a car, when it actually doesn't seem to be any of these things.

K4t

Voodoomelon wrote: »

I'm single and would consider myself to have an above average income, but nothing mental by any means and I don't see how people around me can actually "afford" to run PCP deals on the likes of a new A4 which you see a dime a dozen. People I know likely earn less than me and would have a lot more commitments financially than I would.

Spend a few hours a week on Irish roads and you quickly begin to see just how uninspiring owning an a4 is.

Special Circumstances

To be fair, if I was buying a modern diesel I would want it new and get rid of it when the warranty was up. Yes, you have to keep doing that forever but once you get the initial pain out of the way...

Does pcp terms and conditions suit high mileage diesel usage though? No idea. I'm working at the complete opposite end of the scale at the moment, cheap as chips to buy, crazy expensive to tax and fuel.

corkgsxr

For some people it just makes sense.

My van the engine went and we're hard to source. The difference between buying another 08 and buying new was minimal. (Less than 10 a week difference )

So why wouldn't I?

I now have something everything works. Better spec than I had. I'm not going to get stung over poor servicing. And I have a 5 year warranty.

There has to be more people in the same position.

frozenfrozen

New cars are great, no hidden issues from previous owner, comprehensive warranty, low motor tax, no need to go through nct and all that. the issue though is people buying new cars who are going into debt to buy a new car which they're only doing to keep up with the neighbours.

PCP makes a lot of sense for a small subset of people, we have neighbours down the road who without fail have always got two new golfs every 3 years or whatever and alternate them so they've nearly always got a car with the current year reg. For these people who would be making huge losses selling slightly used cars, pcp makes sense because they just always pay the monthly amount and just stick up the lump sum every 3 years and never have to deal with actually selling the cars

It's really bizarre how people see having a new reg car as a sign of having money when everyone knows how easy it is to get one through pcp though.

and it's mad how people still buy new diesel cars for cheap tax and cheap fuel when they'll be losing thousands per year on depreciation. And how anyone can justify losing this money to depreciation by simply saying cheap tax

I wonder if it works the same in england where they have a much more concrete set of working classes where people 'know their place' more and areas are fairly well grouped like this. whereas in Ireland it seems all someone has to do to appear 'well off' to all the other airheads who give a ****, just have to buy a car with a 152 reg plate, and its dinner parties and cocaine all the way home

Voodoomelon

Voodoomelon wrote: »

as if it's a good deal, a cheaper option or a more manageable way to pay for a car, when it actually doesn't seem to be any of these things.

I think it's all of the above. Where else will you get 0% finance (VW regularly offer it on PCP)? Banks charge 10% on car loans for instance, the monthly repayments are lower than a loan is going to be for an equivalent loan ( possibly by a large amount) and if you play your cards right you could change to a new model in three years with little or no deposit. PCP makes new cars much more affordable.

I'm not planning to buy at this very minute but I was doing some figures lately and looking at paying a deposit and getting a loan for a 2nd hand car for around 20k (loan + deposit). Then looked at PCP and a similar deposit and similar (or lower) monthly repayment would get the car brand new (33k list price). No brainer really.

Iwannahurl

Evangeline Melodic Conductor wrote: »

No brainer really.

Perhaps the most successful marketing strategies are the ones based on that principle.

Crocked

I'm currently buying a new car through PCP. When I ran the figures it was going to cost me about €1k more over 3 years to get a new car on PCP, versus buying a 2-3 year old car of the same model & spec with a loan from my bank with the same monthly repayment.

To me the additional cost is worth the outlay for having a new car versus a second hand one.

Iwannahurl

Crocked wrote: »

I'm currently buying a new car through PCP. When I ran the figures it was going to cost me about €1k more over 3 years to get a new car on PCP, versus buying a 2-3 year old car of the same model & spec with a loan from my bank with the same monthly repayment.

To me the additional cost is worth the outlay for having a new car versus a second hand one.

Did your calculations include depreciation?

Voodoomelon

But dealer finance is inherently cheaper than bank finance, it always was, this is isn't exclusive to PCP (as far as i'm aware). Personally I think bank interest rates are mental.

What I meant was that PCP deals tend to make buying a new car seem more affordable than it really is and seems to have become the norm. I suppose you'd want to be thick to go into a dealer and not have some understanding of how PCP works, but a quick glance at a magazine page, an online ad or a snippet from a radio ad would have you believe PCP repayments are far cheaper than they actually are.

I'd worry that people might think that once they can come up with the massive deposit and just about manage the repayments, they can worry about the rest later. Again, yes, you'd be incredibly foolish to not work it all out first, but PCP perhaps makes it easier to decide to get a new car in the first place, despite not being able to afford it in the long run.

Crocked

Iwannahurl wrote: »

Did your calculations include depreciation?

They do indeed

Crocked

Voodoomelon wrote: »

But dealer finance is inherently cheaper than bank finance, it always was, this is isn't exclusive to PCP (as far as i'm aware). Personally I think bank interest rates are mental.

What I meant was that PCP deals tend to make buying a new car more affordable than it really is and seems to have become the norm. I suppose you'd want to be thick to go into a dealer and not have some understanding of how PCP works, but a quick glance at a magazine page, an online ad or a snippet from a radio ad would have you believe PCP repayments are far cheaper than they actually are.

I'd worry that people might think that once they can come up with the massive deposit and just about manage the repayments, they can worry about the rest later. Again, yes, you'd be incredibly foolish to not work it all out first, but PCP perhaps makes it easier to decide to get a new car in the first place, despite not being able to afford it in the long run.

The dealer finance rate for a second hand car wouldn't be as attractive as what they could offer on PCP. I think it even varies depending on what model you are looking at.

I do agree that people need to go into PCP deals with their eyes open, understanding what exactly they are signing up to, and can afford the balloon payment at the end. I can see where there will be quite a few who just have to hand the keys back in 3 years or have to roll over the debt into a new car as they can only afford the reduced monthly payments on PCP and end up renting their car in perpetuity

PCP no doubt does make it easier for people to just go ah sure I can afford the monthly payment lets get a new car without thinking of what happens at the end of the contract. However all credit makes it easy for people to make quick decisions on buying something new that they may not be fully able to afford in the long term, we only have to look at what happened to this Country in the recent past to see that.

That said that's no reason to discount the benefits of PCP once you understand the pros and cons of what it offers you.