How buying a car will change in 2012
Guest blogger Joe Pattinson of BMW Financial Services looks at the significant change in the way we now approach buying a car.
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.
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.