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By Graham Hill

I’ve already opened this week’s email with some of my views on the legal implications but aside from those PCH is definitely gaining traction. It took quite a while for consumers to get their heads around PCP with the idea of either handing their car back to the finance company, buying it or using it as a part exchange. With over 5 million live PCP contracts running it is clear that people are getting it.

 

However, of those who took out PCP’s on new cars, not willing to consider any other alternative because they still had the option to buy the car at the end of the lease if they wanted to, they then felt that they were misled by the dealer. They believed that there would be some equity in the car at the end of the agreement which could be used as part of the deposit on the replacement car. In many cases drivers have ended up giving back the car to the finance company because the car wasn’t worth the balloon payment let alone providing some equity.

 

In fact according to themoneysavingexpert.com 80% of those who take out a PCP hand the car back at the end of the agreement. So having had that experience they then realise that they could have saved a considerable amount of money by taking out PCH with no option to purchase. So whilst PCP looked great on paper it isn’t surprising that there has been a massive growth in PCH over the last 12 months whilst PCP has dropped for the first time ever.

 

I will be explaining much more over the coming weeks so watch this space as I reveal some of the closely held secrets of the industry. By Graham Hill

Before you think I’m getting all political – I’m not. I’m talking about one of the major successes of EU membership and that is safety systems on cars. Across the whole of the EU safety standards have been set to protect drivers, passengers and other road users – very successfully. But will this still be the case after Brexit when we take over the rules and regulations ourselves?

 

My hope is that we will continue to maintain the high standards that, like many EU laws, we were responsible for in the first place. If you drove around Spain or Italy in the 70’s and 80’s you would have taken yours and everyone else’s lives around you in your hands the moment you got behind the wheel.

 

But with the introduction of consistency throughout Europe when it comes to car safety you can feel relatively safe in every country you drive in. But will this apply moving forward? There have been times when the UK manufacturers have questioned some of the enforced safety features imposed upon us by the EU but will that mean that there will be two levels of safety applied when we build cars in the UK?

 

Safety costs money so if the car manufacturers can save money – will they do so, especially if the safety feature doesn’t count towards the global NCAP safety tests. If we export to Europe we will need to meet the EU standards but will they apply in the UK especially as we are more and more price driven? As an example take the Indian car market where above all else cost is the main factor followed by cost to run, mileage and performance.

 

Safety is way down the list of priorities so manufacturers manufacture to meet the needs. And that includes European manufacturers. In a recent case a VW Polo was reported to be given 0 stars on the global NCAP test without it affecting sales. I believe they improved the safety of the cars and as a result achieved a higher score but that was a good case of car manufacturers meeting demand. In the UK Polos achieve either 4 or 5 NCAP safety stars.

 

By removing ourselves from Europe I sincerely hope that we don’t remove ourselves from some of the good things they were responsible for. I wouldn’t like to think that it would be safer to drive a new car in Europe than in the UK. By Graham Hill

Then you probably need to read the findings of Warrantywise when they surveyed claims made on used cars revealing the most and least reliable cars.

 

Most & least claimed-against brands:

Most Reliable – Least Claims	Least Reliable – Most Claims
Honda	Land Rover
Toyota	Jaguar
Skoda	Volvo
Mazda	BMW
Fiat	Vauxhall

 

Most & least claimed car models

Least Claimed Models	Most Claimed Models
VW Polo	Range Rover Sport
Ford Fiesta	Vauxhall Zafira
Ford Focus	Vauxhall Insignia
Ford Transit	Peugeot 207
Audi A3	Vauxhall Astra
Audi A4	Mercedes C-Class
Vauxhall Corsa	Mini Cooper
BMW 3 Series	Seat Ibiza
Nissan Qashqai	Fiat 500
BMW 1 Series	Renault Clio

 

So if you’re thinking of buying a used car and you want one that is least likely to go wrong and potentially cost you money in repairs choose from the least claimed list. On the other hand you could take out a lease on a new car and benefit from a new car warranty. By Graham Hill

If you were told this by the manufacturer of your car and that he would fix the problem if you popped it into your nearest dealer for free, why wouldn’t you go? Or if you needed to check a website to see if your car was one that had the fault wouldn’t you check it?

 

Well in 2013 this problem was identified. Takata airbags were fitted to 66 global models and all could have the fault so a massive recall got underway. In the UK 2.9 million cars were affected but to date, 991,333 cars remain unrepaired – could yours be one of them?

 

You may recall in 2015 Vauxhall hit the headlines as a result of their Zafiras built between 2005 and 2014 possibly having faulty heating components fitted causing the cars to catch light. The affected cars were identified and recall notices were sent out to 234,000 drivers. 30,686 have still not been repaired so any of those could catch fire at any time. Might be a good idea to check your car out if you’re driving a Zafira.

 

As with the Zafira, BMW issued a recall in 2018 on their 3 series built between 2004 and 2011. Again faulty heater wiring could lead to a fire but of the 279,104 cars affected 197,352 remain unrepaired. According to the DVSA there are still 2.39 million cars subject to safety recalls that have still not been repaired, an estimated 1 in 13 cars.

 

According to Auto Express, Edmund King – AA President, said that ‘Generally the recall system in the UK works quite well…’ What? A third of cars that have a potential fault that could result in shrapnel being fired into the face of the driver or passengers doesn’t suggest to me that the system is working quite well!

 

As a result of this highly dangerous situation, the Driver and Vehicle Standards Agency (DVSA) is proposing to align two of their systems, the recall register and MOT test records. They propose that if a car is subject to a recall it is noted in the advisory section of the MOT certificate. If it appears the following year the car should fail the test.

 

Personally, I don’t feel this goes far enough, the recalls should be aligned with road fund licence and if the car hasn’t been repaired the driver can’t renew the tax – surely if the car is a danger to the driver, occupants and other road users they should not be allowed on the road. If we rely upon the MOT test the car will be 3 years old before the note is made on the certificate.

 

If you would like to check to see if your car has a recall go to: https://www.check-mot.service.gov.uk/   By Graham Hill

As a consumer, you are probably aware that you have a very strong position in law whenever you have disputes with a supplier whether or not finance is involved. When it comes to cars your position is stronger if you have taken out finance because you have even more Acts of Parliament to protect you.

 

But what if you are a sole trader, partnership or SME without the resources of a large corporate? Certainly not enough money to take on a large dealer group when you believe that the car isn’t fit for purpose or as described and the only course of action is to go to court.

 

What many small business owners are unaware of is that the Financial Ombudsman Service (FOS) is available not only to consumers but also small business owners. At one stage the facilities were available to sole traders and small partnerships only but this has been extended to limited companies provided they are what is termed in EU law as a Micro-Enterprise.

 

To qualify as a Micro-Enterprise you must have a turnover of less than 2 million Euros AND employ less than ten members of staff – even if you are a limited company. Now here’s the interesting thing. If you look through consumer credit legislation it pretty much excludes businesses. But the Ombudsman isn’t constrained by the law and will sometimes find in favour of a supplier or customer based simply on his sense of fairness.

 

The thing is that even if it doesn’t go your way you don’t have to accept the Ombudsman’s decision. You can still go to court if you have the money to do so, whilst on the other hand, if you are successful the other side must accept the decision of the Ombudsman if you choose to accept the ruling.

 

So in future don’t despair if you aren’t being treated fairly by a dealer or their finance provider. Register a complaint with the FOS. By Graham Hill

I’ve done this myself and got really angry in the worst town in the world for driver convictions (in my opinion) – Croydon. I was fairly close behind a bus travelling through the town and as we crossed over a crossroad into the same road without seeing any sign to show that the road opposite was simply a two-way bus lane. Of course by the time I saw that the road was simply a bus lane it was too late. A No Entry sign showing ‘Except buses, taxis and cycles’ underneath would have been handy.

 

So I wasn’t surprised to read that drivers were fined £42 million for driving in bus lanes last year. One road alone generated £1.48 million in fines. Last year there were 888,760 notices issued. In London the fines for driving in a bus lane reached £7.57 million with Ealing council responsible for more than 40% (£3.1 million) of London’s total.

 

In Glasgow drivers were fined £6.52 million whilst Cardiff drivers had to part with £5.59 million for driving in a bus lane. Confused.com were behind the figures collated after a Freedom of Information request. It also found out that 39% of drivers admitted driving in a bus lane whilst 48% said they had done so unwittingly. 41% said that they had done so because of unclear markings or signage – I know what they mean.

 

Confused.com’s motoring editor, Amanda Stretton, suggested that bus lanes present the most confusing challenge to motorists. She also suggested that the money raised should be used to improve signage and questioned the level of fines as motorists felt they were ‘unfair and excessive’. The High Street in Oxford was the road that generated the most revenue at £1.48 million. Potentially because only buses, taxis and cycles are permitted to enter sections of the street between 7.30am and 6.30pm.

 

You’ve been warned. By Graham Hill

I’m about to add the following to the downloadable report following a note from a PCP customer.

 

The Decreased Monthly Rental Scam

 

A consumer ordered a car on a fairly long lead time and was asked to pop into the dealership when he had a moment as they have found a way to decrease his monthly rental. He called into the dealer to be shown a new set of documents and the good news that his monthly rental had dropped by over £10 per month, all he needed to do was sign up the new documents. Great news you would think.

 

But upon closer inspection of the documents he found that the cost of the car had increased by £500 and the final balloon payment had also increased but by £1,000. On an APR of 4.9% he also noticed that he was paying an extra £100 in interest charges.

 

The argument here is that there has been a price increase since the original contract was signed and because the used car market is looking very buoyant the leasing company has decided to increase the resale value.

 

This is good for the dealer as he would have fixed the purchase price so the increase of £500 goes straight into his pocket and he still receives his commission for arranging the PCP. It also adds another £500 to his total amount funded which attracts a volume related bonus, based on the amount financed, at the end of each quarter or year. So we have a happy dealer.

 

Now the next part is a little harder to explain. The finance company is invariably the manufacturer’s own operation so there is a very tight relationship between the two. And this is where a lot of people get confused, and this includes, I believe, the Governor of The Bank of England. Let me explain. Let’s say you pop into Curry’s and buy a TV for £499. It obviously doesn’t cost Curry’s £499, if it did they would soon go out of business. It would have cost them say £300 making them nearly £200 profit.

 

So it makes a lot of sense that the finance company also makes a fairly good markup when it ‘sells’ a PCP agreement. I’ll quickly run through the process then I’ll sum up so that if you are faced with this conundrum you can make a value decision.

 

Example: Your original agreement stated:

Purchase price (After deposit etc.): £30,000

Balloon: £12,000

APR: 4.9%

Monthly Repayment: 36 x £587.67

Total Payable: £21,156.12  (Depn £18,000, Interest £3,156.12)

By the way I’ve used a standard PCP calculator to work out the interest charges.

Fairly simple so far and please bear with me as I’m simplifying what is a very complex set of calculations in the books of the lender. They will use expressions such as cost of funds, yield, interest spread – I’ve ignored that and am explaining as simply as I can.

 

In the books of the lender:

Purchase price: £30,000 – this is paid to the dealer for the car

Manufacturer’s subsidy, bonuses etc.: £3,000 (This is an amount paid by the manufacturer to the leasing company)

Net cost to the lender: £27,000

Balloon: £11,000 – This needs some explanation as even the Governor of The Bank of England may have this wrong. Let’s say that the car is expected to be worth £12,000 at the end of the agreement as shown on your contract. To stand the car in their books at £12,000 would be like Curry’s selling their TV’s for what they pay for them – commercial suicide.

They have to allow for the cost of collection, preparation, admin and selling costs. So this would require the lender to stand the car in their books at something less than the balloon on your agreement. I’ve suggested £11,000

Let’s say the cost of money (interest) is the equivalent to 1.9% APR

Having allowed for the £3,000 contribution from the manufacturer let’s look at income vs cost:

Interest Paid By You:                         £3,156.12

Cost To Lender:                                  £1,100.00

Net Income To Lender:                      £2,056.12

 

Depreciation Paid By You:                 £18,000

Depreciation Allowed By Lender      £16,000

Net Income To Lender:                      £  2,000

 

Lender’s Income From Disposal         £   1,000  (your balloon £12,000 – book value £11,000)

Total Net Income                                   £5,036.12

 

If you now recalculate the figures again (let me know if you would like all of the workings)

The dealer now receives £30,500 – an extra £500

With the balloon increasing to £13,000 you now pay £17,500 depreciation (£30,500 – £13,000)

With the change in figures you now pay £3,264.44 in interest charges.

The lender leaves the balloon at £11,000 in his books so as a result of the increase in cost of the car (£500) now has to pay £1,114.80 in interest charges, up from £1,100.

So let’s look at the effect on the books of the lender again if you sign the new contract:

Having allowed for the £3,000 contribution from the manufacturer let’s look at income vs cost:

Interest Paid By You:                         £3,264.44

Cost To Lender:                                   £1,114.80

Net Income To Lender:                      £2,149.64

 

Depreciation Paid By You:                 £17,500

Depreciation Allowed By Lender      £16,500

Net Income To Lender:                      £  1,000

 

Lender’s Income From Disposal         £   2,000  (your balloon £13,000 – book value £11,000)

Total Net Income                                £5,149.64

 

To Summarise

Sorry if you felt the need to work your way through the figures but this is the complexity of a PCP. I guess the first thing to take away from this, as mentioned elsewhere in the report, is that the calculations that appear in the books of the lender are different to those on the agreement.

Next is your decision:

First of all, if you have signed a regulated agreement with another party who has also signed, then following the legal period of grace it is ‘executed’ so you can refuse to sign a new agreement.

 

But should you sign a new agreement? You pay the same deposit followed by 36 payments that are about £10 per month less than the original agreement so money in your pocket which is fine if you simply hand the car back at the end of the agreement.

 

However, if you want to own the car at the end of the agreement you will now have to stump up another £1,000. The car may well be worth it with a trade value about the same as the final balloon but you still have to find the extra money. So whilst you may have saved 36 x £10 = £360 you now have to pay an extra £1,000 making the net loss £640.

 

As you can see PCP calculations can be very complex and it is easy to manipulate them to make it look like you are getting a better deal than you thought you were. If it was me I’d sign the new agreement and hand the car back at the end of the agreement unless there was still some equity between the balloon and the car value – which I would still take.

 

Note to the Bank of England: If you ever had fears about the stability of the motor credit industry take a squint on page 40 of the Ford Credit Europe (FCE Bank) accounts 2017. They show total interest income of £647 million less expenses of £181 million leaving a nice little profit of £466 million or 72% of income. So unless I’ve missed something I wouldn’t worry too much. By Graham Hill

I’ve warned about this before but since the tightening of Data Protection rules with GDPR it’s worth mentioning again. It all started a few years ago when the wife of a well-known football player part exchanged her car for a new one. When she sold the car she didn’t think of clearing down the information stored in her in-car telephone book.

 

The dealer who bought the car as a part exchange realised that he could access the telephone numbers and seeing that there were many mobile numbers of A-list celebrities he offered them to a National newspaper. When it came to light what had happened, after journalists were contacting the celebrities, a court case ensued. The dealer argued that as he bought the car he also bought the data stored in the car. The onus was on the previous owner to remove anything that wasn’t included as she would have done with any personal effects.

 

Data protection rules were not so tough at the time but even so the dealer was seen to be breaking data protection regulations and was fined. Since then, of course, the amount of data stored on your car has increased. Addresses, places you have visited along with telephone numbers and in some cases driving style. You may think that most of this information is pretty benign but it may not be.

 

If you own company cars or you are a company car driver there is an onus on the employer to ensure that they protect driver’s personal data. There is a now a company that will cleanse ex-fleet cars and remove all data but they only deal with company cars. If you are concerned about your data stored in your car you can always remove it yourself or ask your local dealer to remove it for you before you return it at the end of your lease or PCP or part exchange it.

 

If the car is part exchanged the dealer is responsible for ensuring that the data is removed before selling it on. With fines of up to 2% of global annual turnover this could end up having a major effect on employers and/or dealers. By Graham Hill

Citizens Advice have warned about unreasonable behaviour by bailiffs. According to CAB 850,000 consumers have had a bad experience with a bailiff, from forced entry to near illegal threatening behaviour. Charities have called on the Government to take action and regulate the industry.

 

When it comes to cars, some lenders will use bailiffs to recover cars that are still on a finance agreement. Far too often ‘Innocent Buyers’ are forced into handing over keys when in fact they legally own the car. If you buy a car from someone and it turns out to be on HP, provided you’ve asked if the car is on finance and the owner has told you that it isn’t then you are the legal owner of the car (doesn’t apply to contract hire).

 

You don’t have to check that the car is on HPI because there is no legal obligation on lenders to record their finance agreements on there in the first place. Some bailiffs will turn up with a copy of the agreement showing that the finance company that has appointed them still owns the car. They will explain that you should contact the seller of the car and sue him to recover what you paid as he was not entitled to sell the car in the first place.

 

They will often have a form that they will ask you to sign that effectively passes the car over to the Bailiffs ‘innocently and without pressure’ and ‘voluntarily’. Once you have signed the form and handed over the car keys it is virtually impossible to get your car back.

 

Whatever the circumstances unless bailiffs turn up with a court order tell them you want to verify what they are saying, leave their card and give you 24 hours. Then phone Citizens Advice or if you have legal cover on your contents or car insurance phone their helpline for advice.

 

If you are visited by a bailiff who is acting unreasonably call the police and if you are unsure of your rights and you don’t have access to a legal helpline call the company that the bailiffs work for. Yet more examples of the law being toothless. It’s a disgrace! By Graham Hill