PROBLEMS for used car retailers competing with historically affordable new car deals will be overturned by a new breed of dealer finance product – the used car PCP.
That’s the message from CAP Automotive, the leading independent car information experts.
Massive growth in new car registrations over recent years have been largely fuelled by low-cost Personal Contract Purchase schemes, enabling more private motorists than ever before to afford a new car.
But this has come at a cost for many dealers, who report difficulty in selling younger used cars without painful discounting that eats into profit margins. This is because the brand new car is often more affordable – through a PCP deal – than a nearly new car purchase with traditional finance.
It has meant a constant worry for franchise dealers who pre-register cars to meet manufacturer targets, because they constantly find themselves carrying late, low-mileage stock that is harder to sell than a new car.
For independent used car dealers, the growth in new car registrations has sucked motorists’ attention away from nearly new cars, making it increasingly difficult to compete with their franchised counterparts.
But the introduction of used car PCPs, with low or zero deposit schemes and more affordable monthly rates, helps to level the playing field.
Robert Hester, of CAP Automotive, said: “The market has been crying out for innovative solutions to the problem of an imbalance between the new and late used car retail markets and it looks like the used PCP is the answer.
“Used car dealers are excited about it because they are suddenly able to compete more effectively after struggling for so long to match the low deposits and monthly payments offered in the new car market.
“It’s also great news for franchise dealers who previously faced the problem of shifting nearly new cars they had registered to qualify for target bonuses and often resorted to something close to distress-selling just to keep stock moving.
“The growth in new car PCP sales has generated a lot of good quality, low mileage stock which can now be funded for sale in a much more attractive way than was previously possible and one finance provider told me recently that it is achieving 50% penetration with its used PCP product.”
Current used car PCP deals are offered on cars up to three years old, for a further three years. They are made possible by CAP’s industry-benchmark forecast used car values, which provide a trusted picture of the car’s market value all the way through to the end of the PCP period. This means the finance provider is secure in the knowledge that it will not lose money on the deal when the car passes back to it for future sale as a standard, older used car.
Robert Hester said: “One of the unforeseen benefits of PCP car sales products in general is that they drive a perception among customers that they are required to return to the supplying dealer when they want to change their car.
“This helps good dealers build longer relationships with their customers and we would expect this to become a feature of the used car PCP arrangement too.
“The same perception applies to brands, so that many customers also believe they should stay with the same make of car when they swap out of their existing PCP-funded vehicle. So used car PCPs will ultimately help to maintain brand loyalty.
“So dealers and manufacturers win but customers win too. The used car PCP widens choice for motorists and helps them get into a newer car than they might otherwise have been able to afford.”
Rob can be heard discussing the benefits of the used car PCP on the CAP Automotive podcast channel here https://soundcloud.com/cap-automotive/pcp-penetration-into-the-used