Pop goes the bal­loon pay­ment

Are bike buy­ers about to give up their new­found love af­fair with PCP?

Motorcycle News (UK) - - Buying & Selling -

I’m go­ing to talk about some­thing slightly dif­fer­ent this week: PCP deals. I re­cently read in the fi­nan­cial pages that, in the US, banks are sell­ing car fi­nance deals as bonds. Take 10,000 fi­nance con­tracts, bun­dle them to­gether, and sell them to in­vestors who will sup­pos­edly make their money on the in­ter­est paid by these bonds.

Only some­thing’s go­ing wrong. The de­fault rate is way higher than it should be – it’s about 35%, ac­tu­ally. That’s right – more than one buyer in three is hand­ing back the keys and the ve­hi­cle and walk­ing away. The in­ter­est rates payable on these bonds has been go­ing up. It’s now more than 8%. Why? Be­cause the in­ter­est rate re­flects the risk fac­tor.

Does this ring any bells? Per­haps if I used the term ‘sub-prime’, it might. Yup, this is ex­actly what hap­pened with mort­gage bonds, to trigger the 2008 fi­nan­cial crash.

I know I’m a Cas­san­dra, but I think this is se­ri­ous. As I warned a year or more ago, in­fla­tion is now ris­ing and in­ter­est rates are likely to fol­low. Wages are stag­nat­ing. A PCP deal is great value at (say) £130 a month for a su­per­bike, but you don’t own the thing. You’re only rent­ing it. At the end of the con­tract you must pay the large out­stand­ing pay­ment or – and this is what the in­dus­try likes – use the bike as the de­posit on the next PCP deal, and start again.

I re­ally doubt that many buy­ers salt away the ex­tra cash to meet the fi­nal pay­ment. Hu­mans don’t work that way. The money’s gone on a hol­i­day, new kitchen, what­ever.

I think there will be more peo­ple re­ject­ing fi­nal own­er­ship, and prob­a­bly also a new PCP deal, to buy a cheap used bike in­stead. And they will be cheap, be­cause if the wheels do come off PCP, there will be a glut of used bikes on the mar­ket.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.