The Irish car market has been improving over the last couple of years. We've been watching sales and registrations rise and there is a quiet air of confidence coming from the industry, which looked like it was beaten until 2013. But what is it that's making Irish customers go back to the dealers? Well, it could be due to a number of reasons. Consumer confidence is slowly growing, there's less negativity constantly in the media, and maybe people are just sick of not spending their hard-earned money on themselves.
A couple of things are for sure. The Irish car market needs this lift we're currently seeing. The average national car park age is anywhere between 8.83 years old (according to Cartell.ie), and for safety reasons alone we need to look into updating our fleets. But I doubt that safety is the reason for our sudden increase in purchasing new cars. One of the major reasons is the accessibility of products. Banks and manufacturers are dangling better deals in front of us. They’re making those who have some disposable income realise that they can actually afford to spend a certain amount of money per month. What type of deals am I talking about? For the main I'm talking about Personal Contract Plans, or PCP deals. Recently I’ve seen PCP offers that range from the extremely attractive APR of 0% all the way up to a not-quite-as-nice 8+%.
Personal Contract Plans are currently playing their part in helping the market get on its feet again. They’re making people aware that they might be able to afford to get behind the wheel of a new car by not buying outright. But what is PCP and how does it work?
It’s not overly complicated, but my advice is to read the terms and conditions very carefully. The first thing you do is find a new car which appeals to you. Research, test drive, sleep in it, sleep on it, and most of all make sure it’s the car for you - they’re not cheap!
When you’ve chosen, go to your dealer. By this stage you’ll have seen an ad for the car you are looking at that says “you can own one of these from as little as €*** a month”. Bear in mind that these figures are generally based on the lowest specified model of that particular car, in some instances you may even find that the figure which is advertised doesn’t include delivery and related charges. You should use that figure as a guide price. One thing that customers should consider is that just because they’re not buying the car straight out, doesn’t mean that they’re not allowed to haggle. Do it, argue for every penny. As I always say, “if you don’t ask, you don’t get”.
Before you sign up you’ll be asked to pay a minimum deposit, which depending on the manufacturer can be anything from between 0% (rare) and 30%. Next, agree with the dealer on the amount your monthly installments will come to. Normally PCP agreements are over 36 months, but some manufacturers give options on this.
These installments over the 36 months, along with the value of your deposit, aren’t enough to pay off the car in total. Before you sign any dotted line the dealer will tell you the Guaranteed Future Value (GFV) of your car. This amount is the minimum value that your car will be worth at the end of your agreement – this comes with a reasonable catch though. This GFV depends on whether or not you keep to the contract. It can be based on mileage, service agreements and the general upkeep of your car – so STICK TO THE AGREEMENT!
After you pay your final installment you have three options;
Firstly you can return the car without any further payments – this depends on the condition of the car and whether or not you have stuck to the agreement. If you have stuck to the agreement you can give back the keys and just walk away. Pretty cool, huh? The downside is that you’re left with no car.
The next option is that you can pay the remainder of the vehicle's worth (based on the GFV) and fully own it, or if your dealer is willing you might even be able to re-finance the rest of the payments.
For your third choice, and I feel that this will be a popular choice, you can part exchange your car for another one – which means you get into a brand new car for another three years at another monthly payment rate.
PCP seems to be going pretty well here in Ireland. I’ve spoken to some manufacturers, and for those who have their own banks like Volkswagen Group, PCP offers account for a massive amount of their sales here (Volkswagen – 60%, Audi – 70%, Skoda – 57% and SEAT – 55%). Because they have their own bank, they are in a slightly better position as with regards to APRs (some offers are as low as 0%). Peugeot, who don’t have their own bank, offer their packages through Bank of Ireland. At the moment their 508 for example has an APR of 3.9% - the only way that they can offer this rate is by subsidising the real rate through giving a support package to the bank – i.e. they’re paying money to the bank to get a better deal for the customer.
PCP offerings are a major step for manufacturers here. From talking to a couple of them I have found that Mazda have a target of 30% PCP sales, Peugeot are currently operating on circa 20% PCP sales and VW group figures are outlined above.
If you do decide to go down the PCP route, two things you must always remember are to HAGGLE and to STICK TO THE AGREEMENT – I have even written it in capitals to make sure the message rings through.
Daragh Ó Tuama.
