Wednesday 28 September 2016

More people now switching to new car every two years as PCP sales surge

* But some drivers unclear on 'equity' calculation
* Dealers hoping for big pick-up in 162-reg sales

Published 15/06/2016 | 02:30

People are changing cars more frequently
People are changing cars more frequently

More people are switching into new cars nearly every two years now - instead of the usual three-year (or longer) turnaround.

  • Go To

And that is being put down most particularly to the impact of PCPs.

The significant increase was confirmed to Motors by Volkswagen Bank here which accounts for 25pc of car financing deals in the country.

And it comes as 30,000-plus people are expected to get into a new car from July 1 when the 162-reg plate season begins.

Paul O'Sullivan, head of marketing at Volkswagen Cars here told us there has been a notable rise in those getting into a brand new car more frequently than before.

When contacted by 'Independent Motors', he said: "We are now seeing that PCP customers are changing their car every 27 months on average instead of the contract term of 37 months." Analysis of the shift, he said, suggests customers are happy with the equity that has been built up in the first vehicle and are able to use it to change their car more often.

Significantly, the level of renewal on PCPs is now twice that of ordinary hire purchase agreements - underpinning the perception that PCPs are more affordable. Virtually all brands on the Irish market report big growth in PCPs.

Volkswagen point out that as they underwrite the Guaranteed Minimum Future Value (GMFV) of the car they (VW) take the risk on the secondhand value - not the customers.

Meanwhile, the optimal deposit level is 20pc-22pc of the car's price. That is judged the best level to keep monthly repayments much the same when switching to a new one.

No doubt that, in turn, is driving the switch towards 27 months as opposed to 37.

I've had lots of mail and response following my appearance on the Marian Finucane Show last Saturday, with many people admitting they didn't realise one major factor about PCPs: what constitutes 'equity' in a car at the end of the two/three-year agreement?

Many people thought it was the agreed minimum value that they agreed when they took out the deal. That is NOT the case. The equity is the difference between the guaranteed minimum value and the prevailing market price of the car. So if the vehicle is worth €12,000 on the market and the guaranteed minimum value is €9,000, the equity is €3,000.

That is what you can use, if you so wish (you can also buy the car outright or just hand back the keys), towards a deposit on your next car.

Irish Independent

Read More

Promoted articles

Editors Choice

Also in Life