The latest new car registration figures are fairly devastating, with the number of new cars sold last month down by 9.3 percent. The Society of Motor Manufacturers and Traders (SMMT), the body behind the figures, blames a knock in consumer confidence following the Brexit vote – but another organisation has suggested there’s more to it than that.
The National Association of Commercial Finance Brokers (NACFB) says many potential new car buyers are being made nervous about signing up to tempting PCP deals because of an “ongoing negative, and often damagingly incorrect, narrative around car finance.”
Around nine out of 10 private new car sales are funded by PCP, which lets buyers put down a cash deposit on a new car, followed by monthly repayments. Once the repayment period (usually three years) is over, the customer can either pay a balloon payment (usually several thousand pounds) to keep the car, trade it in for a new model or simply hand it back to the dealer with no further costs.
But a number of media reports in the national newspapers and mainstream press have been causing alarm around PCP deals. An investigation by the Daily Mail revealed car dealers were tempting young or unemployed people into dangerously high levels of debt by offering them new cars with low monthly payments. Other newspapers have warned of a PCP ‘insurance trip’. This is when a car bought using PCP is stolen or written off in an accident. Insurers will only pay the market value of the car – which isn’t enough to settle the finance, meaning drivers could be left in debt and without a car.
"While there is an issue in how some of these car finance plans have been sold to consumers, the products themselves are robust and responsible routes to car ownership,” said car finance expert at the NACFB, Graham Hill.
"In turn, this could be driving consumers towards older secondhand vehicles that they can buy outright - which could impact much-needed investment in the sector, and see the government's clean vehicle push turned on its head.
"It could also possibly cause some consumers to use part of their pension pot or release equity from their house or even use traditional bank loans to buy cars.
"While a record market share for AFVs is encouraging, the used car data which is due out later this month will give a fuller picture of whether this damaging narrative around PCPs is going to have a lasting effect."
Source: SMMT, NACFB