Used car values falling in response to PCP deals
The rise in drivers choosing Personal Contract Purchase (PCP) deals to buy their next car is leading to a sharp fall in resale values, new research has revealed...
Some of the UK's best-selling cars, including the Ford Fiesta and Vauxhall Corsa, are losing their value on the second-hand car market because of a rise in Personal Contract Purchase (PCP) sales, according to research by our sister title, Autocar.
PCP purchases - which involve the buyer paying a fixed monthly payment for the term of the contract - are increasingly popular in the UK because they allow drivers to get behind the wheel for a lower up-front cost than if they were to buy the car outright.
However, the popularity of PCP deals is now leading to the used car market becoming saturated, meaning that prices for the most popular second hand models are falling.
Read more - understanding PCP deals
The used car market is currently booming in the UK - the Finance Leasing Association (FLA) says that used car purchases rose by 34% between February 2015 and February this year - equating to around £4.9 billion worth of sales.
While those big numbers have given the UK's car industry reason to celebrate, there is mounting concern from owners who are worried they won't be getting the going rate when it comes to selling their cars.
Speaking to Autocar, one dealer said his showroom currently has an unprecedented number of used Ford Fiestas for sale, with most having come from the end of PCP contracts. "The cars are going for less than they should because of the market conditions. It's supply and demand," the dealer said.
"Even the part exchange values customers are being offered aren't worth what they expected because of the change in the market. It means that instead of upgrading their cars, they're often forced to stick with what they've got."
When coming to the end of a PCP contract, buyers usually have three choices. They can give the car back to the dealer, putting any extra money over the car's Guaranteed Future Value (GFV) towards another car, pay the GFV and own the car outright, or hand back the keys to the finance company and walk away with nothing more to pay. The majority of buyers choose to upgrade their cars at the end of PCP contracts, usually to larger and more luxurious models.
Read more - car finance explained
The same dealer also claimed that because of this latest market trend, dealers are having to sell second-hand cars with increasingly small profit margins. "On some cars there's no margin," the source said. "They're literally going for what they're worth. And when you've got a business to run, that's a problem."
When contacted by Autocar, Ford dismissed the growing impact of PCP sales, saying the issue was a local rather than national problem. The car maker - one of the largest and most popular in the UK - said that on the whole, the values of Ford Fiesta models have been largely unaffected.
Autocar's source, however, continued to dispute that claim - but did admit that the market is likely to stabilise as more people choose PCP as their preferred method of buying a car.
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