Tag Archives: Philip Nothard

The rise and rise of the car broker

Car brokers

The traditional way to buy a car is at a dealer but brokers are becoming ever more popular

Ever used a broker to buy your new car? Probably not. But as the number of cars bought on leases grows, so do the number of brokers. Britain, it seems, has fallen heavily for buying cars on finance. In March 2017, vehicles worth £3.6 billion were purchased on credit agreements. Now, just short of nine out of 10 cars are bought on finance packages. A growing number of those are leases.

In 2016, the number of brokers on the books of the British Vehicle Rental and Leasing Association (BVRLA) grew by 39 per cent compared to the previous year. Industry experts are expecting similar increases throughout 2017 with escalating numbers of us turning to brokers for our new motors.

What is a broker?

If you think of a broker as a middle man saving you the hassle of doing the dirty deed with a dealer, you’re half right. Some most definitely are; others are more akin to online dealerships, except they represent pretty much every car maker going. But the main reason for the increasing popularity of brokers is that we’re turning into a nation of car leasers.

By far the most popular way to buy a new car is through the PCP or Personal Contract Purchase. However, the tide is starting to turn in favour of leasing or Personal Contract Hire (PCH) as the car industry calls it.

Mike Best from ContractHireAndLeasing.com, an online advertising platform for car brokers, explained: “The PCP is very addictive because the monthly payments are cheap. But people are getting to the end of their agreements and they don’t want to put up the balloon payment to own the car. Then they come across the PCH and find that it does what they like about the PCP but is cheaper.”

Why PCH is ever-more popular

The PCH is a pure leasing arrangement meaning at the end of the loan period, you hand the car back. What’s more, the term is the term. There are no early get-outs with a PCH, unless you want to pay a big penalty.

The reward for the PCH’s lack of flexibility is a significantly reduced monthly payment. With a Mazda3 SE 120PS, you’d pay £229 a month on a PCP if you put a deposit of £2692 down. With a PCH, the deposit on the same car will be £1145; the monthly payments £191. It’s not hard to see why people are cottoning onto the benefits.

Philip Nothard from used car valuation service CAP HPI added: “With the PCP there’s been negative press around the penalties for exceeding agreed mileages and concerns about used car values collapsing meaning people might be stuck with something that’s worthless. The PCH gets around that.”

And where do you buy cars using a PCH? From a broker. “They occupy a space in the market where you haven’t traditionally found dealers,” said Mike Best from ContractHireAndLeasing.com. Of course dealing with a broker means you have to be comfortable buying big ticket items over the internet. “But that’s the way things are going now,” Best added. 

 


When buying new is cheaper than used – it’s all because of depreciation

Looks wild, depreciates even more wildly when it's bought as a new car (Picture  © BMW)

Looks wild, depreciates even more wildly when it’s bought as a new car (Picture © BMW)

Popular opinion among bar-leaning soothsayers is that used cars are always cheaper to buy and own than new. The simple logic is that the depreciation curve is at its steepest in year one and flattens off thereafter. However, CAP Automotive has given me the figures to bust the myth that you’re wasting money by buying a car from new.

The cost of running a car is split multiple ways. Many factors stay the same year in, year out when it comes to working out a cost of ownership. It doesn’t matter what car you run, if we’re talking like for like in terms of mileage, engine, specification and driver, the cost of fuel will be the same whether that car is brand new or one-year old.

Servicing and maintenance costs, however, will be lower in the first year of ownership than in year two because the car is likely to need a more extensive service in its second year. In three years on a car that’s been bought new, you’ll just have a single expensive service, in year two. If that car was bought as a one-year-old, over three years you’ll have the two expensive services of years two and four. And that can be a significant cost. Keeping a VW Up! fettled for three years will cost £848 if it’s bought new, £1183 if it’s acquired at one-year old.

Then we come to depreciation. Some cars cling to their value so enthusiastically that they’re actually more expensive to buy second hand than they are new, assuming 12,000 miles a year. Take the Range Rover Sport. Buy it new and it’ll cost you £59,465. Buy a one-year old car and CAP claims its value to be £58,250. “If a car holds its value like this, you’d be better off buying it new,” CAP consumer specialist Philip Nothard said. Extrapolate that over three years and the figures show that you’d actually be £2677 better off. “You’d be daft to buy it used,” he added. “At the moment it really is a new car market.”

Depreciation is still the driver of the cost of ownership. Ignoring cars wearing Bentley and Aston Martin badges, which can depreciate more in three years than the average UK wage earner brings home over five, let’s look at a performance SUV. The BMW X6 M (top of the page) will depreciate by £61,385 over three years if you buy it new. Buy a one-year old and you’ll ‘only’ take a £31,425 hit. The difference in total ownership costs over three years between buying new and used are £28,816 in favour of second hand.

Cutting to the chase: the cars that CAP Automotive claims will save you money by buying new are the Range Rover Sport and Evoque five door, Skoda Roomster, Porsche Cayman plus Audis A1 and S3. Those that will really cost you are prestige execs such as the Jaguar XJ, Audi A8 and VW Phaeton. No surprises there. More ordinary cars that barely cost you over three years if you’re running new rather than used include the Audi Q5 and A3, Nissan Juke, Skoda Fabia and Mazda CX-5.

Where these costs fall down is that they don’t take into account any discounts you might negotiate. And as dealers, egged on by manufacturer masters’ sometimes unrealistic demands, are desperate to shift new metal at the moment those can be significant. Forget conventional used over new wisdom. In some cases you’d be daft to buy a used car as the man says.