Many of the promoted finance packages are running below current market rates, meaning carmakers are stepping in to subvent (or subsidise) the deal. The 'per unit' marketing cost of each car sold goes up and margins across the industry are squeezed. We will see whether dealers or manufacturers bear the pain in the long run.
Customers coming back in three years time will find rates have risen and the 'cost to change' will be greater than anticipated. But at least three-year deals are better for dealer and customer alike than some of the five-year terms currently being written by both captive and independent finance houses.
Falling residual values remain the greatest worry for anybody trying to put together a finance package. There are reports of increased negative equity in the market with savvy customers walking away from cars where the payment to clear finance is higher than the vehicle's residual value. So, it is surely no surprise most of the promoted rates in the market this month - and for the foreseeable future - are linked to hire purchase (conditional sale) deals rather than PCPs. Even manufacturers are wary of committing themselves to guaranteed future values at present and PCP rates are edging up to cover the risk as a result.