It’s hardly a secret that the majority of new cars are sold on credit. According to the Finance and Leasing Association, 91% of private new car sales were funded by its members in the 12 months to April 2019, which illustrates what little role cash buyers now play.
Personal contract purchase (PCP) has long been the default form of car finance in the UK. Its cyclical nature – your first PCP is unlikely to be your last – has been a hit with retailers and customers alike, while the up-front carrot of a flexible end to the contract – roll onto a new one, hand the car back, or pay the balloon and keep it – is a comforting set of options.
PCP’s status as the dominant credit package is under threat, though. The UK’s teetering economy and uncertain future are causing many buyers to think twice about committing to any form of finance – you only have to look at last year’s 6.8% fall in new car sales and 2019’s 3.1% year-to-date drop to see that. Those in a position to buy new are therefore more likely to gravitate toward more affordable types of funding and potentially shorter leases.
Personal contract hire
Enter personal contract hire (PCH). Effectively long-term rental, it has traditionally played second fiddle to PCP but the lower deposits and monthly payments, along with typically shorter terms, represent a less daunting and more affordable commitment, and they’re tipped to take a larger slice of the new car market.
Historically, PCH’s biggest problem has been that UK buyers have wanted to own their cars rather than lease them. PCP gives them that opportunity, even if many of them never own the asset in full and are more likely to start a new contract at the end of the original term.
Times and attitudes have changed, though. Streaming, subscriptions and rental services now dominate consumers’ spending and, put simply, people are much more comfortable with the idea of paying for the use of a product or service than owning it outright. This paves the way for PCH as a viable way of accessing a car for consumers.
Manufacturers have already begun to react to what they expect to be a shift in the finance market. Suzuki, for example, announced in December 2018 that it was planning to launch an online sales channel with an increased focus on PCH to account for what it anticipated to be greater demand for the medium.
What it means for dealers
Quite simply, retailers need to be open to offering different forms of finance and willing to provide buyers with as broad a range of options as possible. Just because somebody has been in the PCP cycle for their last two cars doesn’t mean it’s third time lucky, because it may no longer be the best choice for them.
That’s not to say that PCH is automatically the answer, but it should at least be on the table. If a customer is concerned about the cost, length or circumstances of their outgoing arrangement, then PCH is a strong counter on the grounds that it’s almost guaranteed to be cheaper than an equivalent PCP and likely available for a shorter period of time.
Dealers that are sensitive to the wider economic state are poised to play well with customers in the long run. Understand that buyers may be tentative about signing up, especially for longer periods. Offer them a flexible range of packages and don’t pressure them into the same again.
That’s good customer service personified, and regardless of whether they walk away with a PCH, a PCP or a cash purchase, you’re likely to see them again if you’ve given them what they need.