Vince's Verdict on ... The Dispatches Programme 'Secrets of Your New Car'
The news surrounding mis-selling of car finance products continues to rumble on. The latest story in the media comes courtesy of Channel 4’s Dispatches programme ‘Secrets of Your New Car’.
This programme focused on car dealerships who appeared to be selling Personal Contract Purchase (PCP) to customers in favour of Personal Contract Hire (PCH) or any other product which would best be suited to them. As viewers watching secret filming, we saw the ‘customer’ request PCH only to be told it wasn’t available, or not even be offered the choice of Personal Contract Hire to begin with.
This month our Chief Operating Officer, Vince has been exploring the reasons why customers may not be given all the information they need to make the right choice of car finance product for their needs …
Is Personal Contract Purchase a Terrible Product?
As I watched this Dispatches programme, the idea that Personal Contract Purchase is a terrible product was continually reinforced. I strongly disagree with this. PCP is a good product if it is matched to a customer for the right reason. The main reason anyone would choose PCP over PCH would be to have the option to own the vehicle at the end of the contract. If you have no interest in owning the vehicle you are leasing, and would prefer to upgrade to a new model at the end of your contract, then it is likely PCH is the better option for you.
PCP is not a terrible product, it was seen being sold in a terrible way.
Why Did it Appear Salespeople were Pushing PCP Over PCH?
The secret filming which took place was in car dealerships, this is an important point to remember. The deals offered within the dealership were then compared to the car finance deals a leasing broker could offer. A car dealership and a leasing broker will operate in slightly different ways as you will see in the following points.
In the Dispatches programme, we never saw the salesperson in the car dealership, discussing with the customer whether they would like the option to own the vehicle or not, and even when the customer asked for PCH it was denied. Why was PCH not given as an option?
There are two reasons I can think of;
- The first is a lack of knowledge.
The training a salesperson in a car dealership receives and a salesperson at the leasing company receives in my experience differ greatly. In a car dealership, the focus is mainly on the vehicle the salesperson will be selling. Every feature, every engine choice, every colour available and all the optional extras will probably be known off by heart. In a leasing company, the intricate differences between car finance products will form the core of training.
It is possible the salesman shown in the programme may not have had sufficient knowledge to distinguish between PCP and PCH and so were unable to confidently offer the customer this choice.
- The second reason reflects the darker side of car sales.
Generally, in a car dealership, sales of PCP and sales of PCH are treated differently by the manufacturer. If you are a PCP customer the vehicle you enter into a car finance contract with will be registered to you. This makes you a ‘retail registration’. This type of registration is usually seen as much more valuable to manufacturers so the dealership is likely to get paid bonuses based on the number of retail registrations it records.
If you are a PCH customer at a main dealership, the car is registered to the finance company which is not seen as nearly as valuable as a retail registration. The dealership will receive a sum of money in the form of a ‘handling fee’ from the sale which is likely to be a much lower amount than the ‘retail registration’ bonus.
As a salesperson or a dealership manager, you can see how selling more PCP products makes more money than selling PCH with the smaller handling fee. Could it be the desire to make more money outweighs the desire to offer the right product to the right person?
For a leasing broker, all customers hold the same value whether they are looking for a PCP or PCH, as we work independently of manufacturers so are not bound by any targets in the same way as a car dealership. This means we use our extensive training on car finance products to make sure our customers get the right products for them, free of any other outside influence. Leasing brokers were shown in a positive light in the Dispatches programme, this is the first time I think I’ve ever seen this happen! For years leasing brokers have been seen as part of the seedy world of car sales and now it feels like we are becoming respected members of the car sales world and, in my biased opinion, deservedly so.
Here at Rivervale, I have just looked at a month's worth of leasing deals. I can see 95% of the personal leasing deals we have done are PCH. This means PCP was only the right product for a small 5% of our personal leasing customers.
There are many reasons PCH is more popular. One benefit of PCH shown in the Dispatches programme was in the lower prices PCH deals can offer through leasing brokers. This is in part because with PCH you get ‘fleet discount terms’. These terms mean as a single customer, you can get access to the discount a person ordering 20 vehicles would. This is possible as the finance company with whom you enter into a lease, has already purchased many of the vehicle you want in bulk. This is not always the case for PCP and this is reflected in the price differences.
"Personal Contract Hire is a really useful way of cutting your bills further than PCP in many cases. You pay the upfront initial rental, you pay a series of monthly rentals to run the car and then you hand it back. I think we are likely to see an increase in the popularity of leasing. However, we are still getting used to it as a concept."
Christofer Lloyd, Parkers.co.uk on Dispatches: Secrets of Your New Car
There are benefits other than the price which makes PCH a more popular product. People are becoming much more environmentally aware, the idea of updating their vehicle every 2-5 years with the newest model means access to the cleanest and most efficient engines. Updating a vehicle regularly also reduces the risk of breakdowns, reducing the need for expenditure on MOTs and means you have the most up to date safety features as well.
How to ensure you have the right car finance product?
Regardless of whether the salespeople involved have insufficient knowledge of car leasing products, or whether there is an ulterior motive for selling PCP within car dealerships, it is clear that giving the customer all the information they require is vital to ensuring car finance is never mis-sold.
What we would also like to do is go one step further and provide the customer with a car finance checklist. This checklist is explained below and a PDF version is available for you to print out/download and have with you to make sure you fully understand all the details of your car finance product before you sign the contract.
This information we are providing is not specific to Rivervale as a car leasing company – it is for all car finance products regardless of whether you are dealing with a leasing broker or car dealership.
Car Finance Checklist
#1 Have you chosen the right vehicle for you?
I have included this with diesel particulate filters in mind. All new diesel cars will be fitted with these to comply with Euro 6 emissions standards. If you make short, low speed journeys only it may mean your filter is more likely to become blocked and petrol may be a better fuel choice for you.
Also, it’s important to consider whether the vehicle you have chosen will be right for you in a few years’ time. For instance, would it be wise to order a 2-seater sports car if you plan to start a family in the next year? Do you want to try a hybrid or electric vehicle?
#2 Research the company.
If you have decided upon a vehicle and want to enter into a finance contract make sure you research the company you may be entering into a contract with.
Most of us would never order something off Amazon or book a holiday without reading reviews first, so do a little research using an independent review site, such as Trustpilot to make sure you are choosing the right company.
Check also that your chosen company is regulated by the Financial Conduct Authority (FCA). These companies will be rigorously regulated to ensure they are not mis-selling finance products. A further check would be to see whether the company has a valid complaints procedure – if not, why not?
#3 Do you want to own your car at the end of the contract?
This is a vital question. It will help decide whether you choose PCP where you will have the option to own your car or PCH where you will not.
#4 How many miles will you travel in a year?
It is important to try and make sure your estimate is as accurate as possible. If you are in a PCH or PCP contract and decide to hand the car back rather than own it at the end of the contract your end mileage will be asked for. If you have travelled more miles than your original contract estimate, you will be charged an ‘excess mileage fee’. This charge will vary depending on the make of vehicle and the finance company used. It is important to ask your salesperson what these charges will be.
"Research has found that people don't necessarily compare the different deals available. The don't look into all the details, the contract details of what they're signing up for. If you know you want to hand the car back, it would be wise for many people to look at the leasing options and see - if it is better value for me on the car I want, to go for leasing, or to go for PCP?"
Christofer Lloyd, Parkers.co.uk on Dispatches: Secrets of Your New Car
#5 Contract length/affordability.
How long would you like to keep this car for? If you have entered into a contract for 4 years can you make the necessary payments for this period of time?
You must consider whether there will be any unnecessary financial hardship caused by entering into your car finance agreement and also whether you can foresee any changes to your financial situation over the period of your contract. If your circumstances change and you need to exit your car finance contract there will normally be a termination fee, you should check the details of this.
#6 Do you understand the ‘Payment Profile’?
Most car finance products will have an initial outlay, a monthly rental and if you are buying your vehicle at the end of a PCP contract a final balloon payment as well. Make sure you know the value of all of these figures.
No matter which contract you are entering into the initial amount is a payment, not a deposit that will be returned to you, and is likely to be higher than the monthly rentals payable.
Maintenance agreements are designed to cover the cost of servicing and replacement of wear and tear items on your vehicle for the length of your contract.
A maintenance agreement will add to the cost of your monthly rentals and contracts can vary. Be sure you understand what would be included and how the cost of the maintenance agreement would compare to the cost of a servicing if you paid for services independently before you decide if a maintenance agreement is right for you.
#8 Know your rights – Cooling off period
By law, all regulated contracts have a cooling off period. This period of time can vary but is usually around 14 days. This means if you sign your car finance contract and then believe you have made a mistake, you have a period of time in which you can cancel your contract.
Terms and conditions will apply so make sure you have asked and understood the cooling off period that applies to you just in case you need to use it.
#9 Are there any ‘hidden fees’?
Will there be any additional fees you will need to pay? Make sure you check whether a delivery fee will be charged or an admin fee. Some companies charge these as extras some do not.
#10 Know about the BVLRA guidelines for fair wear and tear.
At the end of your PCH and your PCP if you are handing your vehicle back it will be inspected. The British Vehicle Rental and Leasing Association (BVLRA) provide the guidelines for all companies to use on what is considered fair wear and tear to a vehicle. If there is any damage which falls outside of these guidelines you will be charged.
I believe any salesperson should be focused on providing the right product to an individual, but as the Dispatches programme showed, this may not always be the case. By giving customers the above information, gives them the power to guard themselves against mis-selling whatever the motivation or reason behind it.