As a man that worked in finance for nearly four years, leaving the sector in 2008 just before the recession hit I find it quite concerning having read an article today expressing City watchdog fears of an impending PCP crisis.
PCPs are now a very popular way to buy new and used cars. PCP, or Personal Contract Purchase, is a way of making cars more affordable on a monthly basis. This is due to a large final balloon payment at the end should you want to own the car outright. However, instead of making the final balloon payment you can use a guaranteed value, (if you stayed within the agreed mileage and condition of the car), to then use this value as a deposit on a newer car and refinance with another PCP. There is a third option which would involve just handing the car back at the end of the monthly repayments and walking away with nothing.
The FCA are currently concerned that companies may be allowing customers into PCP agreements that they cannot afford. This certainly sounds familiar to the situation in 2008 when the sub-prime bubble burst and should be a warning to us all that we must be very careful with finance lending. Whilst PCPs can be a very good way to buy both new and used cars as an industry we must make sure that the customers taking them can afford the repayments and have a plan at the end of the monthly payments.
Different finance options within the motor industry have certainly been a good thing, allowing many more customers to afford new and used cars. With the motor industry growth clear to see across the past few years, new car sales went up 6.3% in 2014 compared to 2013, with 2016 being up 2.3% on 2015, achieving a massive 2.69 million registrations in 2016. As I say this is very good for the motor industry and something that I hope continues long into the future. However, to avoid a similar situation to that in 2008, companies, lenders and motor dealers do need to make sure that they are lending responsibly and to those that can afford to make the repayments. It is no good to build an industry on figures and loans that are not affordable to those that are repaying them. Hopefully with the legislation put in place by the FCA and the checks put in place, this is not the case and the motor industry will continue to grow based on fantastic deals and responsible lending.
In response to the article I read this morning I hope that following the FCA investigation, it will conclude that there is not a problem with current PCP deals and we will continue to see good growth in the motor industry year on year long into the future.