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PCP customers will expect equity when the term ends


Consumers choosing a new car on a PCP will expect some equity to remain towards their next car when the motor finance term ends.

Research by Manheim showed that 95% of consumers on a PCP are expected to hand the vehicle back and 'trade it in' for a new vehicle on another PCP.

But that 'trade in' is dependent on there being extra value in the vehicle - 80% of consumers expect to have up to 10% equity remaining in the vehicle to take into the next contract.

However, outside Manheim, one used car market analyst told AM there is some concern that consumers reaching the end of the PCP might be disappointed in future after enjoying several years of finance deals that have been very heavily supported with manufacturer contributions.

One dealer group chief recently told AM of a premium brand with a 'negative equity' product because its recent volume push had left insufficient equity in some models when PCP customers were due to change.

Manheim's research showed a third of dealers target 75% of their PCP customers for an early exchange into another car before their plan is reaching the end of term.

"It feels to us that it is under control, dealers can handle the volumes of cars coming back," said Craig Mailey, strategic planning director at Manheim's parent Cox Automotive International.



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  • CG - 31/03/2015 15:54

    PCP Miss-selling. The next scandal.

    • emeles - 31/03/2015 15:54

      @CG - wrong.....PCH Miss-sold as PCP - The next scandal

    • Steve Boucher - 31/03/2015 15:54

      @CG - I agree - I've even had customers telling me that the Guaranteed Future Value is theirs to use as a deposit - they didn't understand it was a debt they owed! Whilst the onus is on the dealer to explain the nature of the agreement and provide the necessary paperwork, the customer sometimes only hears what they want to hear and very rarely will read the terms and conditions.

    • mikeb - 31/03/2015 15:54

      @emeles - The next scandal will involve both PCP and PCH but on miss-selling on mileages that were too low. The next big opportunity is PCH to retail customers who are fully aware. If dealers/manufacturers are early adopters they will do well.

  • Weave - 31/03/2015 15:54

    PCP has long been an attractive way for businesses to tempt the retail man to part with his cash. Before we enter a period where customers become disgruntled and poorly served by the industry over final residual values (and let me assure you we are already there in some cases) I believe the industry, possibly the FCA ought to work to create some values to operate around. Taking a car in px or a £5000 deposit and then to run for a two or three year term on an unrealistically low monthly in order for a customer to come out with nothing is often a short term sales tactic to get a quick deal. PCP needs thoroughly explaining to serve a customer and I'm sure many do a good job at explaining but some don't. Maybe as an idea to get debate going the FCA should ask the industry to always ensure the residual value is set to equal the original deposit as a minimum. Of course this would increase monthly payments but it would always ensure satisfaction at the end of a term. "Discuss" !

  • Russell - 31/03/2015 15:54

    Insufficient equity in PCP and taking a negative equity product?????? Surely I'm missing something here...? Personally I'd just hand the car back, after all, it's a PCP!!!! On Weave's point below I agree that consumers are attracted to the payment to purchase a car they couldn't otherwise afford. BUT... how much sympathy do we give customers who are paying £150 month on a £9k loan - the maths don't work. I am a fan of manufacturers incentivising customers with deposit contributions as the cost of a customer renewing on PCP is so much greater so they are buying customer retention through an increased renewal percentage and the customer gets a big fat discount. Win win. Will this survive with unscrupulous dealers encouraging customers to take the finance and then settle the agreement after a few months? Doubt it. Still can't get over neg eq products for PCP.

  • max - 01/04/2015 13:47

    Customers: relationships of trust ‘A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.’ If the dealership doesnt explain ANY product, finance or insurance, (and can't provide the records to prove it) when the customer challenges a sale on the above principle - almost any sale could become the next PPI - when will dealers rise to ethos that the FCA clearly have expressed?

  • Rob Chisholm, Applewood Vehicle Finance Ltd - 02/06/2015 14:48

    The whole idea of a PCP/PCH (or any lease product for that matter) is to maximise the RV, thereby providing the customer with the lowest possible monthly rental. If the customer wants any potential equity (and therefore risk also) then they are in the wrong finance product to begin with. It is the professional responsibility of us all to ensure that the client understands the pitfalls, as well as the benefits, of any funding product.