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Want to buy a new car? Act fast before current stocks dry up

There are plenty of new cars in the system, stored at disused airfields throughout the UK and at dealers, but these will soon be gone and replacements will be slow to arrive - Jacob King/PA
There are plenty of new cars in the system, stored at disused airfields throughout the UK and at dealers, but these will soon be gone and replacements will be slow to arrive - Jacob King/PA

With the word ‘recession’ ringing in everyone’s ears, you’d be forgiven for thinking that visiting one of the car showrooms that are set to open on June 1 and plonking down a deposit on a brand new car is the last thing on many people’s minds.

But in fact, demand for new cars could be about to soar, as buyers who haven’t been able to swap out of their expiring Personal Contact Plans (PCP) finance deals in the last couple of months are finally able to do so.

The PCP trap

The issue is simple. The all-time record for new car registrations was set in March 2017. At the time, more than 80 per cent of all new car sales were on finance deals such as Personal Contract Purchase, or PCP – and a large proportion of those fixed-term deals will have lasted three years.

Which means they’ll have been coming to an end right around the time lockdown measures started to take effect in the UK at the end of March. Most of these cars won’t have been collected, therefore, but their drivers might not have been able to use them – and even if they have, finance companies losing money on depreciation each month will be wanting to get them back pronto.

That’s going to leave quite a few people without a car quite suddenly, and therefore in urgent need of a replacement. For many, the logical answer is going to be to take out a new PCP deal, and to do so as soon as they possibly can.

Can supply keep up with demand?

Then there are regular pre-lockdown public transport users who now want to use a car for their commute instead. Many will want to upgrade to something newer and more reliable, or perhaps something less polluting that circumvents emissions charges, in order to do so.

Commuters wait to board a train at Canning Town underground station - Victoria Jones/PA
Commuters wait to board a train at Canning Town underground station - Victoria Jones/PA

They too will be out perusing the showrooms once they’ve reopened. And because most of these consumers are still relatively liquid, receiving furlough payments and saving cash on regular expenses elsewhere, they might not feel the need to tighten belts just yet. So they may have few qualms about buying another new car on PCP.

Demand, therefore, is likely to be high. And in the short term at least, supply will meet it, with banks of brand new, unregistered cars that couldn’t be sold in March and April currently sitting waiting for buyers in compounds throughout the country. Dealers will want to make up for lost time and income, and will likely be offering decent discounts to get these cars shifted and build up their sales volumes once again.

A W-shaped recovery – and a crunch

However, there’s only a finite number of these cars – and when they run out, we might face an unusual situation in which demand for new cars outstrips supply.

That’s because most car factories in Europe, although having resumed production, have been on low-volume production for the past few weeks; some across the rest of the world still are. Even among those that are back in action, staff are socially distancing, production processes have had to be spaced out, and there are supply chain limitations, all of which mean production lines are running more slowly and factories are turning out cars at a lower rate than before.

A worker wearing a protective face mask secures a suspension unit to an automobile chassis on the production line at the BMW South Africa , May 29, 2020.
A worker wearing a protective face mask secures a suspension unit to an automobile chassis on the production line at the BMW South Africa , May 29, 2020.

As a result, many experts are predicting a ‘W-shaped’ recovery for the automotive sector, in which sales spike, fuelled by demand, then drop off again, as a result of a crunch in supply. When that happens, you can expect the discounts to fizzle out, and waiting lists to grow.

The situation may be prolonged, too, because each month, as more PCP deals come to an end, more buyers need to replace their cars, and more are therefore added to the backlog. If your PCP deal expires in the next few months, therefore, don’t be surprised if you find yourself stuck on a waiting list and unable to replace your previous car immediately, leaving you in the unenviable position of needing to rent or buy something short-term in the interim.

What’s to be done?

A word to the wise, then: if your finance deal has already come to an end, and you’ve decided you want to go for another one, don’t hang about – get your order in soon, and try to order “from stock” – i.e. a car that’s already been built, but not registered, and is ready to be delivered to the dealer. That way you won’t be subject to the vagaries of factories that are still grappling with new working practises.

You should, of course, only take this action if you feel confident your income is secure, and repayments aren’t going to pose you a problem if the current predictions of recession are borne out. Finding yourself unemployed with a freshly signed PCP contract is not a pleasant place to be.

row of pre-registered cars at auto delaership - Patrick Fallon/Bloomberg
row of pre-registered cars at auto delaership - Patrick Fallon/Bloomberg

Alternatively, you could cast around for a pre-registered car. These are cars that dealers have registered before sale, in order to boost their sales volumes before their manufacturer bonus deadlines. In short, it’s a good ploy for dealers to net a bit more cash from manufacturers, but it leaves them with a car that already has an owner to its name, which makes it worth less.

As a result, discounts are widely available on these cars, as they’ll be worth less when the time comes to sell them on, too – but they will at least be ready to drive away pretty much instantly.

Buying nearly-new could be the answer

One other option, if you want to reduce your financial liability further or you can’t get hold of the car you want, is to buy nearly-new.

The downside is that you won’t get your choice of colours and you’ll sacrifice a little off the warranty of a brand new car but, on the plus side, most used cars are now eligible for PCP schemes of their own, so if that’s still your preference, financing shouldn’t be an issue – and, of course, your monthly repayments should be lower as the difference between the cost of the car and its final value is far less.

Mazda3 69 registration (Sept 2029-Mar 2020)
Mazda3 69 registration (Sept 2029-Mar 2020)

There’s a caveat here too, however, which is that as new car stock dries up, many buyers who need new wheels will turn to the used market, either for their next car or just to fill the gap between cars. That will quicken used car turnover, creating a seller’s market in which values plateau and discounts are few and far between.

Make do and mend

Or you could just keep the car you’ve got at the moment on a PCP deal. Granted, you’ll have to pay a “balloon payment” – a big final lump sum, in other words – in order to enable you to do so, and this will be pretty hefty.

But you might be able to finance this using a personal loan – and that might be a more sensible option than ditching your current car in order to buy a different used car of a similar age on finance. Better the devil you know, and all that.

If that’s not for you, though, and you decide you do need to replace your current car soon, you’ll need to move fast – however you decide to do it.

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