There’s a gold rush on, and thousands of us are sitting on hidden treasure. In my case, it’s a medium-sized family car with a noticeable prang on the boot and not too many miles on the clock. It’s even got a CD player — remember those?
With global supply chains stretched to breaking point, this uncool set of wheels is hot property.
We bought our car in the summer of 2019, lured by chunky discounts and low-cost finance. I say bought, but like most British new car buyers, it was actually a personal contract purchase — or PCP. That’s essentially a lease with a pre-agreed price if you decide to buy the car outright three years down the line. In the meantime, you pay a deposit and a monthly fee, designed to work out roughly the same as the monthly depreciation in the car’s value.
When the contract comes to an end, the driver can choose to exercise the option to buy it outright at the pre-agreed price. If the car has lost value faster than expected, you can walk away. If it’s worth a bit more than forecast, you can roll that notional profit into a deposit for a brand-new car, continuing the cycle.
PCPs help car dealers churn through stock by getting new cars into the hands of people who can’t really afford them. For drivers, a £35,000 car is transformed into a £300 a month subscription. A win-win.
“For manufacturers, it’s great because they get you in and it’s very difficult to get out,” says Gerardo Montoya, head of automotive at credit checking agency Experian. “Ultimately they just want to sell you metal.”
In 2019, almost £50bn of new lending was used to finance vehicle purchases in the UK, according to the Finance and Leasing Association. In June that year, the month we bought our car, more than 223,000 new cars were registered in the UK, according to the Society of Motor Manufacturers and Traders.
The bulk of them would have been bought with a PCP, meaning that hundreds of thousands of people should find themselves in the same boat as us in the coming months.
Ordinarily, the system is pretty robust. But there are two potential surprises. A rapid fall in the value of used vehicles would leave car companies sitting on losses and unattractive stock, while consumers would have to find additional cash to trade into a new car.
Conversely, there is the impact of an unexpected surge in second-hand car prices. That’s what we are seeing in 2021, as the post-pandemic economy suffers from chronic shortages of everything from coal to cardboard to semiconductors.
Vehicles, which need more and more chips to power their increasingly smart systems, have been hit especially hard. “There are cars worth thousands just sitting there unfinished because they cannot get the chips,” says Montoya. Disruption at ports and a shortage of truck drivers have also hit automakers’ supply chains.
With dealerships unable to get new models, used cars have become a precious commodity. Meanwhile demand has increased as consumers deploy savings built up during the pandemic, or search for alternatives to public transport.
And so my family finds itself sitting on — or rather in — a little gold mine. Two and a bit years after driving off the forecourt, our humble ride is now worth almost exactly what we paid for it, and a lot more than the pre-agreed sale price.
All my monthly payments have, in effect, been turning into equity — so much so that we are now over the maximum amount that can be rolled over into a deposit for a new set of wheels. The dealer desperately wants our car back.
So we are being offered the leftover funds — enough for a family holiday — in cash. Yes, we’re being paid to swap our old car for a brand new one.
There is a catch — our new vehicle doesn’t actually exist. It’ll be months before our order can be filled by the Volkswagen plant over in Wolfsburg, assuming it can get hold of the parts. After all, the chipmakers that supply the car industry expect shortages to linger well into next year, while the disruption at ports is unlikely to be fixed this side of Christmas.
Until then we’ll just have to drive carefully. We don’t want a mishap in the Sainsbury’s car park to turn our golden carriage into a pumpkin.