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How buying a car will change in 2012

John Fitzsimons
by Lovemoney Staff John Fitzsimons on 25 February 2012  |  Comments 20 comments

Guest blogger Joe Pattinson of BMW Financial Services looks at the significant change in the way we now approach buying a car.

How buying a car will change in 2012

The prospect of buying a new car is a daunting one for most. Historically this has meant shelling out hard cash and paying for everything up front.

However, new car ownership trends are emerging, suggesting that times are changing. At BMW Financial Services, we’ve seen a big uptake in personal contract purchase (PCP) over the past year, which represents a seismic shift in consumer attitudes to buying cars.

What is personal contract purchase?

PCP requires the customer to pay a certain amount upfront and sign a contract to take on the car for anything from 24 to 48 months. After the agreement ends the customer has three options - part-exchange, keep or return the vehicle.

The first is proving very popular, which is hardly surprising given the benefits it provides for both parties. What’s more, the Guaranteed Minimum Future Value (GMFV) built into the package ensures that the customer gets a fixed price for the vehicle should they wish to return it, ensuring they don’t have to worry about depreciation after the start of an agreement.

PCP acts as a mutually beneficial package. Car dealers benefit from the PCP model as a customer retention too. And customers get great value on their monthly payments (due to a large amount of the car’s value being deferred until the end of the contract) and a brand new car every two to three years. It has taken the industry a little while to perfect this model, but it’s now really starting to gather pace as the finance package of the future.

What’s more, the PCP deal has become synonymous with the new-age of automotive advertisement. You may have noticed the term gaining an increased share of voice on the T & C’s of radio and TV commercials which have been forced to adapt as today’s savvy consumer not only searches for the right car, but the right deal.

Manufacturers now have to work harder and place emphasis on the finance deals that accompany the car itself as people become more used to shopping around for the best option; the car alone no longer sells itself, even for the premium automotive brands.

Personal contract hire

Another popular package on the forecourt, which reinforces this new pay-as-you-go notion, is personal contract hire (PCH).

Big in the US, PCH is now starting to make waves in Britain as it’s the perfect model for anyone wanting a fixed cost price plan.

In exchange for a very reasonable deposit (which are coming down as manufacturers now realise people are struggling to find lump sums), buyers can drive away in a brand new car on a long-term lease, safe from the worry of tax, MOT, and other services. PCH in truth is still yet to take off in the UK, but as people start to become more accustomed to new ways of financing products, I think we’ll see a real uptake in 2012.

'Fuel & Go' and 50:50 packages

The emergence of the ‘fuel & go’ and 50:50 packages are a sign that the car finance market is really opening up and manufacturers are now having to be extremely flexible in order to align themselves with the demands of customers.

Fuel and go sees the provider cater for everything, including the insurance package, meaning all the driver is responsible for is petrol and driving.

Meanwhile the 50:50 package is the finance option which allows those able to buy a new car with cash to do so without a having to tie up their money. The model is simple; put down 50% of the car's value as a deposit and pay nothing until month 24 of the contract where the standard three options apply (return, keep or part-exchange). There really is an option for every financial situation, something that couldn’t be said pre-recession.

This new, more accommodating stance by manufacturers shows that by introducing these financially viable choices, they are making the car buying process more accessible. Perhaps it is a testament to just how savvy today’s consumer has become.

Joe Pattinson is marketing manager of BMW Financial Services

What do you think? Would you go for a PCH or PCP deal? Or are personal loans a better choice? Let us know your views in the comment box below.

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Comments (20)

  • burgdorf
    Love rating 6
    burgdorf said

    All of the above schemes are much more expensive than a cash purchase of a new car by the private user. They just represent very expensive credit on a fast depreciating asset ! The car industry is obviously keen on any route they can find to sell new cars to individuals who don't have the available cash to buy them ! These schemes are most suitable for company or business car acquisitions, where there are various tax benefits that can be used and favourable cashflow advantages.

    As a private user you will be far better off buying a 2 or 3 year old vehicle with less than 24000/36000 miles on the clock and a FSH. You will avoid the largest element of depreciation - between 25% & 40% - and you've still a nearly new vehicle.

    Report on 26 February 2012  |  Love thisLove  1 love
  • davedale
    Love rating 0
    davedale said

    If the customer is financially a winner here then someone has to be a loser - presumably the manafacturers or vendors. If the manafacturers and/or the vendors can afford to take a loss with these schemes I would prefer that they just sold the cars more cheaply to those who have no need to spread the cost.

    Report on 26 February 2012  |  Love thisLove  0 loves
  • amips
    Love rating 17
    amips said

    Biased bloggers - whatever next Lovemoney??!!

    Report on 26 February 2012  |  Love thisLove  0 loves
  • burgdorf
    Love rating 6
    burgdorf said

    "If the manafacturers and/or the vendors can afford to take a loss with these schemes"

    They are not taking any loss ! They retain their profit on the original selling price of the car (most of which they realise at the end of the contract period) plus they are making a profit on the credit extended to the customer to finance the deal and also on other ancillary components, such as servicing, MOT and insurance where applicable.

    Don't be fooled by any claims that somehow the customer is getting a better deal and the vendor a worse one. They are only making new car acquisition more accessible by spreading the payments for the customer. You will always be better off buying the car for cash !

    Report on 26 February 2012  |  Love thisLove  0 loves
  • MK22
    Love rating 149
    MK22 said

    Change in 2012??? These types of schemes have been around for donkey's years. The only difference is that BMW are also using them and who other than a saleman (sorry salesperson) wants a BMW? (sorry, off topic) As has already been commented these are an horrendously expensive way of buying a car unless you want to be tied into one manufacturer for life. Buy your car secondhand when it has done 10k miles and is handed back to the lease company. You will pay no worse interest than on a new car and will save in the region of 25% on the value.

    Report on 26 February 2012  |  Love thisLove  1 love
  • Offa
    Love rating 40
    Offa said

    I cannot believe any sane person that can add up would enter into such a con. The whole point of these , and it has ben around years, is to tie you to a make for years with all teh servicing. The dealer can rip you off thrice , once when they sell you the car , once when they sell you the finance and once when you hand it back. You will find that there are plenty of body defects that you did not notice but they will and charge you big time for them! Then they will make another fat profit selling the car on as a one owner fully serviced car. What a con , why is not Lovemoney not pointing out the defects in this schem?

    Report on 26 February 2012  |  Love thisLove  2 loves
  • soulman
    Love rating 1
    soulman said

    Insult to our intelligence!

    Report on 26 February 2012  |  Love thisLove  1 love
  • Freenow1
    Love rating 1
    Freenow1 said

    I wouldnt go for one of these deals. Call me traditional but I like to own the car I buy, even if it is bought on credit. If you buy a quality car there should be a few years of inexpensive motoring once it is paid for. As others have said, combine this with buying a car second hand with about 15,000 on the clock and you avoid the massive depreciation suffered by call purchasers of new vehicles.

    Report on 26 February 2012  |  Love thisLove  0 loves
  • smithdom
    Love rating 34
    smithdom said

    I've bought new and nearly new and in my experience it is a lot harder to find a nearly new car with a discount equivalent to that which you can get without trying by going through a broker. If you have time to wait until something comes up then a nearly new car that exactly fits your needs may be possible, especially with the ability to get alerts from eBay and AutoTrader. But with 20% off the RRP for many popular new cars attainable the new option can sometimes make more sense.

    I'd look very closely at PCP or PCH before taking the plunge, and carefully work out the relative costs over the intended term of ownership.

    Report on 26 February 2012  |  Love thisLove  0 loves
  • edwardmk2879
    Love rating 57
    edwardmk2879 said

    I've always bought cars two years old. I usually get them for more than fifty percent off the original retail price in VGC condition with a full service history. One exception was an MG which I got brand new for 50% off when Rover went bust in 2005. I'm still running that one. It's been totally reliable, so a bit of luck there too. One downside of modern cars is that when they do go wrong, they can be fearsomely expensive to buy new parts for, so sometimes a contract might work out. My sister is an accountant, and very tight with her cash, but she's bought her second BMW 1 series diesel on a maintenance contract and is clearly convinced the figures make sense for her. She does large mileages between clients, and relies heavily on the car. Personally I feel most private owners should buy carefully second hand and pay cash. That's a lot cheaper usually.

    Report on 26 February 2012  |  Love thisLove  0 loves
  • gk141054
    Love rating 18
    gk141054 said

    "I've always bought cars two years old. I usually get them for more than fifty percent off the original retail price"

    I always hear outlandish claims like this, with the only problem being that no one in their right mind pays list price which I believe is where you are getting your "50%" discount....

    If I am wrong then please feel free to show me where I can get a two year old car at 50% off the cheapest online broker price?

    Report on 26 February 2012  |  Love thisLove  1 love
  • nickpike
    Love rating 277
    nickpike said

    What might help is if they slashed prices. Presumably they could keep reducing prices until they get to the price charged in the USA. Most cars there are two thirds the price here on Treasure Island, and my last car was half the price in the USA.

    There's also discrepancies between here and the EU, despite efforts by the motor trade to dispel this years ago.

    Pay cash and make sure you get a 10% discount. I do. If they won't give it, there are plenty of other dealers.

    Report on 26 February 2012  |  Love thisLove  0 loves
  • povertypot
    Love rating 4
    povertypot said

    15 years back I bought a brand new Vauxhall Corsa through lease purchase with Hendy Lennox. I paid the equivalent of three months up front and then payments for five years after which the car was mine. The total paid equalled the list price at the time of purchase i.e. no percentage increase for paying this way. Of course, HL would have had it at trade cost. I had the option to trade it in after three years and start again, but chose not to.

    The servicing after the first year was at my cost and the first year's tax and insurance were all part of the deal. If I had defaulted the car would have been theirs to claim back, but of course I had no intention of doing that.

    Not many people had heard of this scheme then, but I wonder if it still exists now. It seemed a win win to me. I bought my subsequent cars cash and secured substantial discounts, as a result, but couldn't have done this at that time.

    Report on 26 February 2012  |  Love thisLove  0 loves
  • Tumbleweeed
    Love rating 22
    Tumbleweeed said

    gk141054 - Youre right, I have just bought a 3 year old car for 50% of the original retail price on PCP, not sure its possible to buy a 2 year old car for 50%.

    Personally for me PCP fits the bill, my old car was on deaths door so a new and reliable car was needed, not having the cash to buy a lovely car that would be reliable for years to come I bought a 3 year old diesel, 36000 miles, one owner, FSH, new MOT, tax, free breakdown for a very reasonable monthly price. At the end of the 3 years I am guaranteed it will have value which I can either pay off and own it or the sensible thing is to use that value to trade in for a newer car.

    The downside in trading in though rather than buying outright is that you are tieing yourself in with the same car manafacturer for years to come.

    Report on 26 February 2012  |  Love thisLove  0 loves
  • OorWullie
    Love rating 38
    OorWullie said

    Those offers were previously only available to companies but are now open to the public. A few years ago I had a company contract and was able to part exchange the car every two or three years and it proved to be excellent. On one occasion on obtaining one of the first 1.9 BMW 3 series it brokedown after 3 months and the service provided ensured that I was given the same model courtesy car until my own car was repaired was the best I had ever received. At the end of the contract one enters into another with a new vehicle which, during usage, never required any maintenance except for the basic service. The contract was slightly more expensive but well worth it for the convenience and pleasure of always having a new vehicle.

    After a break of some 13 years and now that those offers are available to the public and that I am retired I am currently considering entering one for principally two reasons; one, that I work out my monthly budget, tell the company, and it provides a list of cars available within the budget and what meets my requirements (what could be better); two, I can get a vehicle with a low consumption which, in comparison to the older type engines, the saving on fuel almost pays for the monthly subscription.

    The one difference between the first scheme and what is on offer today is the need for the extra insurance to cover write-offs but the cost is not penal. While those contracts are slightly more expensive than buying a car it is certainly worth the convenience.

    Report on 26 February 2012  |  Love thisLove  0 loves
  • This_is_me
    Love rating 24
    This_is_me said

    Anyone who buys a car in any way other than cash is paying large amounts of interest either directly or in some hidden way. If you can't afford it then don't buy it.

    Report on 26 February 2012  |  Love thisLove  0 loves
  • Denthemen
    Love rating 12
    Denthemen said

    I work for a Peugeot dealer, and although I personally wouldn't obtain a car on PCP or any other similar-type deal, the Peugeot 'Just Add Fuel' deal must be appealing to anyone who can afford the monthly payments, possibly saving on rip-off excessive insurance costs (insurance is included), and servicing plus road tax is also included. So anyone who is not bothered about ultimately owning the car may find the deal attractive. And no, I am not a car-shark salesman, just a humble driver

    Report on 26 February 2012  |  Love thisLove  0 loves
  • killick_becki
    Love rating 61
    killick_becki said

    For me, the car industry / government is not tailoring to the market of people who don't use a car day to day but need a car to visit relatives etc. on a infrequent basis. If it was day trips it would be ok, hiring a car makes sense. However, if you need to hire for a week when you are only using it on the first day to get there and the last day to get back (not having the opportunity to give it back once you have arrived) then it doesn't make sense.

    You need a cheap to run car, i.e. low road tax, good mileage. Equally you want something that will shift because you are only doing motorway driving. It appears as though these two aims are at odds. Although, if anyone knows of a car that can do both, please let me know!!!

    Report on 26 February 2012  |  Love thisLove  0 loves
  • electricblue
    Love rating 653
    electricblue said

    Peugeot deal would only be attractive to someone wanting a Peugeot. As it is one of the car marques with the least British engineering input and components, that would never be me.

    Other than 'home grown' cars, prices in the USA are NOT vastly different to here and used car prices are incredibly high there, at least double and often treble what cars would fetch here at four or five years old. UK prices are among the lowest in Europe now, if they weren't there would be the grey importers around in the volume which existed ten years or so ago.

    Report on 27 February 2012  |  Love thisLove  0 loves
  • Mike10613
    Love rating 600
    Mike10613 said

    For once I agree with electricblue, used cars are cheap and you can get a decent runabout for less than £5,000 and it you're lucky less than £1,000. I find the best way of financing the purchase of a used car is a bundle or £20 notes. A fair price is a lot lower when the seller can see the cash. My oil light switch stuck the other day, that's as much drama as I get with my car. With luck I can get it to last me 10 years or more. The mechanic who services it says it will last longer than me; a distinct possibility! I've always found that BMW drivers think they own the road. If it's not them passing people on the inside it's the Jag drivers!

    Report on 27 February 2012  |  Love thisLove  0 loves

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