There’s blood on the salesroom floor. With the possible exception of the housing market, nothing has been hit harder by the financial panic brought on by the credit crunch than the car industry. Sales of new cars in the UK fell by 36.8 per cent in November compared with the previous year, the biggest monthly drop in 28 years. And that has been mirrored by prices on the secondhand market going into freefall. Some sectors of the market have collapsed so quickly that current prices take your breath away.
Now, it would be easy for us to highlight a few headline bargain supercars, jump up and down with excitement and suggest everyone rushes out to make the most of the incredible deals that can be had. But the situation is complicated and requires a more detailed investigation. Where you should look to find the best deals is just the starting point. How do you finance a purchase? And how can you buy now and protect yourself from yet more depreciation? When Porsche 997 Turbos are currently losing £3500 a month and ragtop F430s almost twice that, it doesn’t make a great deal of sense to use your life savings to get one. Interest rates are at their lowest for several generations, but as the banks get tighter can you still get credit?
Subscribe to evo magazine
These are strange times indeed, and the market has changed massively in the last four months. The best guide to where prices are right now can be found at auction. Which is why to kick off this special report we spent a day in early December at a BCA sale at Blackbushe, Surrey, watching the cars come through, speaking to some of the people whose livelihoods depend on the sales, and finding out how ordinary blokes like us might be able to take advantage of this unique situation. We’ve looked into personal finance and got the lowdown from specialists and dealers, whose advice might just help you avoid the pitfalls and secure that killer deal.
The AuctionIn terms of car numbers, December is traditionally a quiet time at car auctions for the prestige sector with less metal rolling through the bidding halls, but Blackbushe, sited just to the west of London in the heart of the wealthy commuter belt, still hosts one of British Car Auctions’ ‘Top Car’ sales every fortnight. Other auction houses hold similar sales – and all are quoting prices 15 per cent down across the board (the average sale price has slipped from £5500 to £4750). But it is the top end that has suffered most.
Prices may be down but activity certainly isn’t. The halls were packed as a line of glittering metal from lease and contract-hire firm Lex kicked off the action, starting with a 1997, 24,000-mile Ferrari 550 Maranello. A year ago a specialist would have been asking around £50K for just such a car; here it went for £26,800, or to put it another way – peanuts. And that was just the start. Next in was a Range Rover Sport TDV8 almost identical to the £60K long-term test car we’d arrived in. Just £27,800 was all it could muster; it had lost over half its value in 20 months. And so it went on: a 2000-mile, £135,000 Lamborghini Gallardo Spyder scrambled to £85K, while an Aston DB9 Volante scored £44,100, meaning almost £75,000 had been scrubbed from its value in just three years.
A large number of sales were provisional, meaning they failed to meet their reserve, which indicates that prices are still falling and traders were not prepared to pay the minimum price advised by the auctioneers. In these cases the car will either be re-entered into a sale with a revised reserve (possibly at a different location) or a private treaty sale may be agreed between the seller and the top bidder.
So they’re the headline figures, but how do you go about buying at auction and what about sourcing finance? The bidding is easy; you simply walk into the room and stick a paw in the air – if yours was the last one waving as the gavel falls, it’s yours. No pre-registration is necessary, but you will need to pay a 10 per cent deposit immediately at the rostrum and then complete the payment at the cashier’s office and have transferred the funds within 24 hours (including the auction house’s fee – typically four per cent).
To find out more, and to read the full terms and conditions, always spend time perusing the auction house’s own website, where you’ll also find tips on the best ways to bid, and some pointers as to the homework you should do in advance. This is vital because you will probably be bidding against an expert – trade buyers account for nine out of every ten bidders and of those buying privately the majority will be used to buying wholesale. It’s a consequence of the need to decide instantly on a purchase and the requirement to pay the full amount immediately that precludes most finance options other than a straightforward bank loan when buying at auction. There are, however, a few agents who will search for specific cars for you and bid on them on your behalf, usually for a fee of around five per cent.
Finance dealsYou may not be able to get a finance package for an auction purchase, but despite the current reticence on the part of many banks, there are still plenty of ways to get an attractive loan. Car finance expert Julian Hek, from Outwood Cars, told us: ‘Generally, cars can be financed over periods of between 12 to 60 months and due to the drop in interest rates the lowest rate available is around 4 per cent flat which is about 8 per cent APR. The rate will generally increase as the age of the car increases. Usually a minimum deposit of 10 per cent will be required, although this depends on the credit rating of the customer.
‘Straightforward hire purchase can range from 12 to 60 month agreements. With a personal contract purchase, a balloon or final payment can be put at the end of the agreement (see glossary, overleaf). Generally this would be 50 per cent of the vehicle’s value on a 24-month agreement, 40 per cent on 36 months and 30 per cent on 48 months, but it depends on the residual strength of the model you are looking at. Caterham, for example, have exceptionally high resale values leading to comparatively low monthly repayments. Many of the lenders will only offer balloons on cars below 36 months old and, perhaps understandably right now, they are very cautious about offering balloons on 48-month agreements.’
Main dealersIn such an uncertain marketplace, dealers are desperate to move stock rapidly. In good times, most are happy to hold on to cars for up to 90 days to secure the best price, but with prices falling so fast they have to move them on inside a month. Generally, for the first two weeks a car is on the forecourt it will be priced competitively for a profit; after that it has to be shifted, so if you see something you like that has been standing with a dealer, make him an offer – deals are there to be had.
One bit of good news for the main dealers has been an increase in sales of finance packages. Jason Sutherland, financial services business manager at Mercedes-Benz Croydon, reports that although sales targets have been drastically revised downwards at their dealership (50 per cent down for new, 25 for used) there has been a 15 per cent increase in credit protection sales over the last three months. These packages (of which Mercedes sells four different types) can include redundancy cover. Apparently part of their appeal is that they actively help you find new employment should you be made redundant.
He points out that nine out of ten balloon payment schemes that are reaching the end of their term are in a negative equity situation – the car is valued at a lower price than the outstanding ‘balloon’ – stressing the need for buyers to select packages that come with a guaranteed future value agreement. Almost three-quarters of all the balloon sales he oversees are for Mercedes’ own ‘Agility’ package, which gives buyers this guarantee, a low monthly payment and the option of ending the term early or buying the car outright. In such uncertain times, it makes sense to leave as many options open as you can.
Specialist dealersJohn Hawkins, of Specialist Cars of Malton, deals mainly in Porsches and, despite a reduction in overall sales, says that prices are holding on low-volume and classic models. ‘Thankfully we don’t deal in new stuff,’ he told us, ‘so we’ve escaped the huge depreciation in stock being suffered by the main dealers. It’s already possible to pick up a 997 Turbo for £55K and you’ll be able to get them with pricetags that begin with a four soon. There will come a point where it will level, however, because this market has been exaggerated by the high number of pre-orders and sales in the first few months after its launch. Now no-one is buying new, so there will come a point where there’s a second-hand shortfall that will drive prices back up again.’ He has recently sold two Cayenes, neither of which commanded much more than £20,000, which is the same price as he can still achieve with a 1988 911. Prices for 993s and early 996s are holding (they appear to have reached the bottom of their depreciation curve) and he has just sold a low-mileage ’03 GT2 for £70K and a Carrera GT for £300,000 – only 10 per cent under its original list price.
Nick Dove is a BMW specialist. His used sales are 20-30 per cent down on this time last year, mirroring the new car drop-off. Nearly all of his sales are on finance – even those with several million to their name still prefer to avoid having a large lump of their cash tied up in a car. Of those buyers who have purchased outright, over 80 per cent will have used some sort of windfall (inheritance, bonus, etc) rather than raided their savings. ‘All sales are credit- led,’ explains Dove. ‘Ask someone if they want to blow fifty grand on a car and they’ll say no; tell them the same car will cost £699 a month and it’s a different story.’
Buying onlineSince the start of the credit crunch, one particular web-based retailer has bucked the sales downturn. Autoquake.com has seen a 260 per cent increase in traffic since June and is predicting continued growth thanks to low prices and one-stop-shop ease of use.
Just like the auction houses, its stock comes from leasing companies, and while you may not score quite the deal you would at auction, prices are 10 per cent lower than car supermarkets (and 16 per cent lower than specialists) and you can sort finance (including PCPs) at the same time. There are warranties available and a no-quibble returns policy, so it’s no surprise it’s flying in the face of the crunch. You won’t find top-end stuff here, but if you fancy a good deal on a Z4, Boxster or MR2 and can get your head around buying one without physically seeing the car, then it’s worth a look.
Recent sales at Blackbushe
Range Rover Sport TDV8, 2007, 33,000 miles
Aston Martin DB9 Volante, 2005, 47,000 milesSold for: £44,000 Original price: £118,750Saving: £74,750
Mercedes AMG SL65, 2006, 13,000 miles Sold for: £49,100Original price: £150,000Saving: £100,900
Lamborghini Spyder, 2007, 2000 miles Sold for: £85,000Original price: £135,000Saving: £50,000
Porsche Boxster 2.5, 1999, 51,000 milesSold for: £6300Original price: £34,000Saving: £27,700
Bentley Continental GT Convertible, 2008, 2800 miles Sold for: £83,000Original price: £130,500Saving: £47,500Audi RS4, 2007, 12,000 milesSold for: £29,200Original price: £51,000Saving: £21,800
BMW M3 Convertible, 2006, 22,000 miles Sold for: £22,100Original price: £45,000Saving: £22,900
BMW M6, 2005, 38,000 milesSold for: £28,000 Original price: £83,000Saving: £55,000
Porsche 911 Turbo, 2001, 71,000 milesSold for: £24,600 Original price: £86,000Saving: £61,400
|The Annual Percentage Rate is a measurement of the total charge for credit that will be made by the lender over the whole term of the loan. It includes all charges that the borrower has to pay.|
|The part of a PCP (Personal Contract Purchase) agreement that is deferred until the end of the term. The size of the balloon is determined by the future estimated value of the car and the period over which the loan is being paid back. This results in lower monthly payments, but the overall cost will be higher than with HP as the balloon will still be subject to interest. It is currently one of the most popular methods of financing a car.|
|Subtract the amount of finance outstanding on the vehicle from the current market value and you have the equity figure. If the outstanding exceeds the value you are in a negative equity, which can cause problems if you try to part-exchange or if the car is written off in a crash. Which is where GAP insurance comes in…|
|Guaranteed Asset Protection covers the difference between an insurance company pay-out and the amount outstanding on a finance agreement.|
|Hire Purchase is the traditional method of car finance. A sum is repaid monthly over a set term and includes both capital and interest. Once all payments are made the title of the vehicle passes to the buyer.|
|Only used by VAT-registered companies and individuals where the VAT can be reclaimed. Similar in principle to the PCP, where an estimated future value is outstanding at the end of the lease term.|
|Minimum Guaranteed Future Value|
|Normally part of a PCP. It’s a balloon that is defined at the start of the loan and as long as the conditions are met (mileage limits, etc) then the valuation is guaranteed, preventing the buyer suffering negative equity at the end of the term.|
|Payment Protection Insurance|
|Ensures payments are always met in the event of accident, sickness, redundancy, etc.|
|With Personal Contract Purchase the car is effectively leased after the buyer pays an initial deposit. An agreed amount is deferred to the end of the term (the balloon), which then either has to paid or can be used as a deposit on another car, or alternatively the car can be returned.|