Scots, it seems, are keener than other Brits on investing in a new car.
In its latest car purchase index, motoring association the AA found that while 27 per cent of UK motorists intend to change their vehicle in the next year and 35 per cent in the next two years, in Scotland the respective figures are 29 per cent and 36 per cent.
Not only that, but motorists north of the Border are more likely than those in the UK as a whole to fund their purchase via credit. Of the near 18,000 people who responded to the AA poll, five per cent said they would fund their purchase through a dealer loan, eight per cent via dealer finance and nine per cent with a personal loan. In Scotland, the figures were eight per cent, 12 per cent and 12 per cent respectively.
It comes at a time when, despite concerns about rising inflation and sterling’s weakness, car manufacturers and dealers are continuing to try to entice customers in with heavily subsidised finance deals. But, given the worries about the economy, how good a deal are customers actually likely to get?
The first point to note, according to Close Brothers Motor Finance strategy director Chris Bosworth, is that inflation and interest rates are unlikely to have much direct effect on the type of deals manufacturers will offer, with individual contracts being based on the “risk of residual value and the risk of bad debt”.
In other words, if it looks like you will look after the car and meet your monthly payments then you are likely to get a favourable deal.
While Bosworth noted that rising interest rates could have a small impact at a macro level, he said that the devaluation of the pound is of greater concern to anyone seeking motor finance in the near future.
“Unlike mortgage agreements, car finance rates are fixed but if you are in the non-prime market the car payment is normally your second biggest monthly payment after your mortgage,” he said.
“If interest rates go up and your mortgage rate goes up and that makes a big difference then you stop paying your car finance loan. The car manufacturer would have to spread that bad debt across all other customers.
“If you look at the car finance market from 2013 until Brexit, manufacturers were heavily subsidising new car finance - it became very cheap to buy a new car because you got zero per cent finance.
“The movement in exchange rates after [the Brexit vote] made those subsidies very expensive for manufacturers. Before about 80 per cent were subsidised but that immediately dropped to about 70 per cent and has crept up since [the election of Donald Trump as US president] to about 75 per cent.
“Those are quite big movements before anything has actually happened.”
While the movement in exchange rates may have impacted on some finance deals on offer, Richard Jones, managing director of Lloyds Banking Group’s motor finance arm Black Horse, said that it did not feed through to actual car prices in 2016 because manufacturers had bought their currency well in advance. That is likely to change this year.
“A lot of cars get imported and for companies that make cars in the UK the raw materials come from outside, but a lot of companies hedge forex [foreign exchange rates] a couple of years in advance,” he said.
“This year that will start to have an impact - I would expect the cost of new cars to rise in the latter part of 2017.”
Indeed, Chris Coverdale, sales director at motor finance broker Evolution Funding, noted that the Society of Motor Manufacturers and Traders is predicting “a £1,500 increase on the price of a car if we don’t get a tariff-free EU deal”.
“The industry is predicting a two to three per cent increase in new car prices this year anyway, due to the weakness of the pound,” he added.
For Jones, the key thing for customers to be aware of is how manufacturers and dealers will handle their own increased costs and, if prices do not appear to have gone up much, to check the terms of the finance deals on offer.
“Either the manufacturer makes less money, the dealer makes less money or the customer pays more,” he said.
“It’s hard to see at the moment where that will sit - you could see the actual list price not move much but the finance side will get slightly more expensive. You could see the list price move more and the finance side get even more competitive.
“The message for customers is to compare deals and look at different brands - UK brands will have less pressure than a German brand.”
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel