I read in the weekend press there are new fears about the volume and size of car loans or lease arrangements for new vehicles. There are concerns about “mis selling” and efforts to dampen down the current volume of these advances.
Of course people should not be pressured into taking out a loan that is too big for them and could end in tears. That is why there are cooling off periods, procedures to explain the terms, and a general duty on regulated personnel to sell responsibly.
There are two important risks in car loans that need managing. One is the risk that the person taking it out is unable to continue to meet the payments. Proper assessment of a person’s income and prospects should keep this risk down a small proportion of the total, occurring when someone unexpectedly loses their job, has a serious accident or some other life changing event. Were the authorities to induce a job destroying recession as in 2008-9 then there is more risk of this happening.
The second is the risk to the lending institution if the second hand value of the car handed back when someone can no longer meet the payments is below the amount of the debt outstanding. This can be managed by requiring a sensible level of initial payment or deposit and of subsequent payments, so the lending institution experiences little or no capital loss were the borrower to default.
It is difficult to see that there is a major systemic problem over car loans in the way some suggest, short of the authorities triggering a large general downturn which would hit second hand car prices and cost many people with car loans their jobs. As surely it is the purpose of monetary and fiscal policy to avoid such an eventuality attention should be more directed to that.
As I have forecast for some time, various policies have greatly slowed car sales and led to a big fall in especially in diesel sales. Given the high propensity of UK car buyers to import this is particularly a problem for the German car industry that has sold a lot of cars into the UK and is now in recession. It also has an impact on our domestic industry. Allowing people to renew their vehicles from time to time and choose cars they like is not some kind of crime, and does require a common sense approach to car lending.
I point out that I have no financial interests myself in car lending. I own just one car bought with savings out of income.
October 8, 2019
There are absurd red tape restriction on property lending (not really related to risk) that is restricting the industry. On top of the absurd Hammond taxes on “profits” that have not been made. The bank are expensive and tied up in red tape meaning many sensible projects are not being done. The threat of Corbyn (thanks to the 21 + “Conservative” blatant traitors) making matters far worse.
The switch by car makers. to effectively leasing vehicles. for two or three years is a way for the companies to try to constantly “sell” new vehicles. Often with large charges for minor scratches/damages or excess mileage when traded in. They seem to prefer leasing to selling the vehicles for cash making more on the finance than the car perhaps.
Second hand cars are cheap, have little depreciation, often (indeed usually) better than the new (over complex) ones, cheaper to run, cheaper to fix, finance and insure. Why buy a new one unless you feel the need to show off that you have more money than sense?
Other than as a second city car perhaps, electric cars (with current technology) make very little sense environmentally or economically (even after the government bribes and tax advantages). Best to sit on the fence and keep your old one until the technology gets far better than it currently is.
October 8, 2019
It is all part of the government’s plan to force us into buying useless electric cars.
I have just bought a new car and deliberately opted for the high powered sports model.
This will become the next miss selling scandal when buyers fined they have been conned.
October 8, 2019
Well, let’s remember that the Ultra Low Emissions Zone in London was Johnson’s proposal as mayor, and he did forecast the eventual elimination of fossil-fuelled vehicles from the city, so perhaps you are right.
For me, the whole thing is just another manifestation of lax credit generally, which is responsible for much that is wrong, notably the residential property bubble.
You have to go back to the Tories’ “Big Bang” of 1986 to get to the root of that, but that genie will not easily be rebottled.
October 8, 2019
In 1991 I bought a London house dirt cheap. 3x my blue collar income.
By 2000 I was completely priced out of the market despite promotions and pay rises. Something kicked off in 1997 to be more precise.
October 8, 2019
Oh. Did that – whatever it was – go into reverse between 2008 and 2011, when prices fell quite sharply for some reason then?
October 8, 2019
Martin
Oh how we laugh at your posts
Please explain how electronic trading on the stock exchange and the break up of stock jobbing cartels lead to a consumer boom of debt
October 8, 2019
Government encouraged (usually pissing tax payer’s money as bribes pissed) huge mis-selling scams:- Solar PV especially on roofs and up north, wind farms, worthless degrees costing £50K+ (plus 3 year loss of earnings too & at least half of them), the BBC licence tax (unfair competition), premature electric cars, bio fuel boilers, over the top building regulations, the help to buy subsidy schemes ……
October 8, 2019
Ian in reality there is no need to persuade the general public to buy electric cars, if the government was seriously interested in making this change happen they would start with themselves and mobility car allowed purchases, governmental cars, the cars that public sector workers can buy discounted through their union memberships. The lead could come from the big regular buyers and this would filter down within a couple of years into the second-hand market.
As for car loans younger generations are just getting a bit wiser and the generation that took on all these expensive car loan deals are now wanting to get on the property ladder, new drivers are realising they are buying seriously depreciating items and are looking again at second hand markets rather than buying new.
October 8, 2019
Hear hear ! And well done you.
October 8, 2019
William Hague in the telegraph today:-
“There is just one of those (simple solutions) available – to take Theresa May’s deal but add a time limit on the Irish backstop. That would involve a major climbdown by all three players, but could be implemented with a single sentence. Had such a provision been made before, the deal would have passed the Commons in March.”
No thank you! Thank goodness May’s appalling handcuff deal did not pass the Commons. Thanks to the (far too small) sensible wing of the Conservative Party. Brexit Party 30% 1st May’s Conservative 9% 5th – did Hague not notice this MEP election result? Doing as he suggests would give us Corbyn and destroy the Conservative Party.
October 8, 2019
May’s deal is Brexit. I’ve been telling you that for a year. Sure there will be a few tweaks but not enough to stem your outrage. Which is ironic because in 2016 you voted for it. Want to change your mind? Tough.
October 8, 2019
You have been telling us exactly that – and quite frankly it is as boring as hell. I am surprised that Sir John who has been threatening all sorts of moderation allows this brainless repetition, and from someone as out of touch as you.
October 8, 2019
There is an alternative to leaving the EU with May’s deal – so may we call this Brexit too ?
It’s a lot more like the Brexit I thought I was voting for. I took on board ALL of what was said in the referendum campaign and pitched the truth somewhere down the middle.
October 8, 2019
Umlike some others William Hague is not a fool and he must know that the EU would never agree to that, not unless and until the dominant member states decided that unlike the Irish they were not prepared to “play tough to the end over the border issue”:
http://johnredwoodsdiary.com/2019/08/23/the-irish-border-issue/#comment-1048110
“Mr Hogan, the EU’s agriculture commissioner, said Ireland would “play tough to the end” over the border issue, and said it was a “very simple fact” that “if the UK or Northern Ireland remained in the EU customs union, or better still the single market, there would be no border issue”.”
October 8, 2019
I had just sent a letter to the Irish Times about this, starting:
“It is really no good your Irish readers complaining about “Brexit fatigue” when the responsibility for the present unnecessary, purgatorial, delay rests primarily with the Irish politicians they elected.”
and ending:
“The UK government should have responded at that time by saying that it would be pointless even trying to negotiate a deal with a counterparty which had adopted such an absurd, extreme and intransigent position, but instead it will probably be saying that later this week.”
when I saw that it is already happening:
https://news.sky.com/story/angela-merkel-tells-pm-brexit-deal-overwhelmingly-unlikely-11830601
“Merkel said that the prime minister should tell Northern Ireland that it must stay in full alignment forever, but that even this would not eliminate customs issues.
“It was a very useful clarifying moment in all sorts of ways.
“If this represents a new established position, then it means a deal is essentially impossible not just now but ever.”
October 8, 2019
Hogan is correct. The obvious solution has been for the last two years that Northern Ireland (NI) should remain inside the EU; and, the EU frontier should move into the Irish/Celtic Sea. Stormont should be shut down (make a good Trump Golf Spa) and NI revert to being eleven District (semi-English Unitary) Councils, under the Secretary for NI.
Great Britain would leave the EU with a deal/no-deal on 31/10/19. Scotland should then be given its independence; providing it can remain in the EU and adopts the Euro currency. There would be a divorce settlement.
The “Leave” majority in England and Wales, then would simply gorge on the fruits of the ERG’s promised land.
October 9, 2019
Maybe the obvious solution for somebody who cares more about the eventual political unification of Ireland than the preservation of the United Kingdom including Northern Ireland.
October 9, 2019
Which bit would you be in acorn, making your huge contribution through trade and job creation of your highly successful trading businesses ?
October 8, 2019
It is not you who would be asked, but our MPs.
As Heidi Allen said just now, the Tory Party is already destroyed.
October 8, 2019
The Conservatives lead the polls, having recovered from the EP nadir and May’s ‘leadership’. The Lib Dems are doing OK, while Brexit remains an issue. But it looks like the Labour Party is the party being destroyed.
October 8, 2019
Let’s hope so
October 8, 2019
Marty
Would that be the Heidi Allen who has changed parties 4 times in the last 6 months and never once held a by election.
Would that be the Tory party that are ahead in EVERY poll
Wow you are top notch on political analysis
October 8, 2019
BBC favourite Amber Rudd yet again on the Today programme just now (her brother is on for too much too). What a daft, hopeless case she is. She signs up with the Boris agenda then totally contemptibly quits a few day later. What part of the EU election result did she not get? Brexit Party 30% 1st place, May’s pathetic fake Brexit “Conservatives” 9% support and 5th place.
In a battle of MPs verses the voters the daft MPs like Rudd will lose (and rightly so). The people are sovereign dear. Some Brexit/Real Conservatives accommodation is however needed and with this Labour/Libdims/SNP/Plaid will lose badly.
It is vital that non of the dire 21/22 fake “Conservative” traitors are returned to the party. Especially not tax to death Hammond, Gauke, Clark X2, Sandbatch …. as they would damage what is left of the Conservative brand even further. They would clearly undermine any future Conservative government too.
Post election the endless institutional bias of the BBC (for remaining in the EU, climate alarmism/encouragement for the climate zealots and the PC/lefty drivel, magic money tree economics) must surely be dealt with very firmly indeed.
October 8, 2019
Hague, Major and Blair in my opinion are working FOR the EU against the interests of the UK. Why would they do this?
October 8, 2019
Hague has been such a disappointment since that first, memorable speech to the Conservative Party conference all those years ago. I can still remember his jokes.
October 8, 2019
@lifelogic
I think your memory may be failing you there, since Jacob and Boris both voted for Mrs May’s deal.
It was mainly thanks to the opposition benches that the WA was rejected.
There’s an old saying, “Never trust a Tory.” Remember the IHT promise? Remember the lifetime allowance? They tripled tuition fees and splashed even more money on overseas aid with their 0.7% fiasco. They were always the party of more EU, that’s why they’ve been plotting to reverse Brexit since 2016. Mrs May’s govt barred one of the few genuine asylum seekers from entering Britain while allowing hordes of them to enter via Winchelsea Beach. They are not conservatives, that’s just a misleading label they attached to themselves, don’t fall for it.
October 8, 2019
Indeed a very small sensible wing, give that some otherwise sound ones actually voted for the putrid WA on the third occasion.
October 8, 2019
LL. in the Tory bubble they doubtless think the European elections were an aberration and that voters will come back to the fold in a general election. Dangerous thinking!
October 8, 2019
Talking of cars … I’ve been in central London early this morning and I can’t help but notice how wonderful it is with the roads all blocked by Extinction Rebellion. It is so peaceful – I can hear the birds and walk down the middle of the road. Wonderful.
I’ve long thought we should pedestrianise big chunks of central London. Now I am thinking we should pedestrianise all of it. Build a couple of new trams, add trolleybuses and hand the rest of our city over the walkers, cyclists and – increasingly – those on electric scooters.
What a wonderful statement it would be about how our country is going to embrace the future.
October 8, 2019
As you don’t live and work in Central London your views are irrelevant – we’re not interested what you want. Your usual ageist rants are very tedious – this time telling pensioners the only way they can travel around London is on electric scooters.
October 8, 2019
Roy Grainger
My (doctor) son and his (professor) wife live and work in central London. Like most professional people they wouldn’t dream of using their cars to go to work. They are more than happy with the capital’s generally very well organised and efficient transport system of bus and underground.
I would guess that most of the car users clogging up the system are bar and shop workers with the thousands of delivery drivers servicing people too lazy to walk or cycle. It is as always the educated classes who show the way forward.
As Andy says so wisely, pedestrianise the capital now and leave it to walkers, cyclists and old age pensioners on their scooters. It is bound to happen eventually when London gets snarled up for good.
Rather than accuse Andy of being agist
October 8, 2019
Good heavens, one really hopes your amazingly privileged children never have to encounter at close quarters any of the working class who actually keep a big city going – the plumbers, electricians, caterers, shopworkers, street and sewage cleaners, train and bus drivers etc.
Leave it to the ‘educated class’ to show the way forward? Dreams of Utopia shatter when faced with everyday realities.
October 8, 2019
sm
“your amazingly privileged children”
Not ‘amazingly privileged’ but extremely hard working and dedicated.
While many of their contemporaries were out enjoying themselves and partying, they stayed behind and studied for the countless exams necessary for the next step of their careers.
Spending years on nightshifts in hospitals and dedicating their lives to helping others.
Your sarcastic remark doesn’t do you any favours.
October 8, 2019
Many people need more tools than just a stethoscope or a laptop to do their job. Builders, scaffolders, fridge delivery men, boiler repair engineers …… perhaps they have to make many calls or deliveries each day and doing this by bus/train would take all day travelling. Perhaps they finish in the early hours after transport is often not running.
October 8, 2019
Don’t your (doctor) son and his (professor) wife ever buy anything that needs transporting to their central London home then margaret? Don’t they use local shops that need goods deliveries, preferably not at night so as not to wake them up when moving cages and trolleys around? Don’t they have their waste collected by vehicles? I wonder what angels they are that they never use taxis. The educated classes can buy or rent in central zones without having to add one hour and more each way journeys to their jobs and can afford the tube.
I can’t believe that you think bar and shop workers in central London drive into Central London and park for work!
October 8, 2019
margaret howard= I bety your son, daughter and you could not even pick my tool bag up, never mind carry it on a tram,
October 8, 2019
Have you thought through the consequences? That may be acceptable for personal transport for the able bodied, but how would that allow goods to be delivered? Businesses wouldn’t last long without their deliveries, but I suppose London would then be truly empty and peaceful.
October 8, 2019
You’re asking about details? Seriously. You’re a Brexiter. Details are not your thing.
Pedestrianise the lot. Put an electric buggy scheme in place for the disabled. Electric ambulances. Most deliveries in electric vans – but only in non-peak hours.
Wonderful.
October 8, 2019
Pedestrianise everything……yes lets dig up the countryside looking for material to pave over the towns, in fact why stop there. Build the walkways on a sort of conveyor belt to drive turbines which make electricity for the ambulances which we’ll need a lot of for all the pedestrians knocked over by racing cyclists, joggers, etc. In fact why not make the actual surfaces solar panels?
October 8, 2019
Perhaps you might also consider how many hospitals there are within Central London and what it would be like for staff – from cleaners to consultants – to access their work place under the conditions you describe? Not to mention the need for access for the seriously ill, who require either prompt surgical action or regular life-saving processes such as chemotherapy? As an example, it’s surprisingly difficult to either walk or cycle when you are suffering from an incurable lung disease and using an oxygen tank permanently.
October 8, 2019
sm
“what it would be like for staff – from cleaners to consultants – to access their work place under the conditions you describe?”
My daughter in law is a consultant in an inner London hospital and as I wrote above, she always uses public transport, never her car and manages very well.
Just imagine how well the emergency services would fare if the roads weren’t clogged with cars to slow them down.
October 8, 2019
mh, in your response above to Roy Grainger you indicated that they both have cars in central London, but why on earth would they do that and how do they manage to park or garage them?
Hiring a car for occasional use would make far more sense.
October 8, 2019
And not every member of a hospital’s staff can afford to live within walking distance of a central metropolitan hospital, Margaret.
Patients are often sent to such centres of excellence when they have rare or difficult major illnesses – getting to and from the suburbs and further outskirts of London by public transport is simply not an option; I speak from experience.
And I note your daughter-in-law appears to own a car which she presumably uses for social and domestic purposes?
October 8, 2019
I don’t disagree with all the others on this thread, but I would also love some pedestrianisation, if that were possible.
London is a lovely City, but it is being ruined by the amount of traffic. I used to work in London in the 60’s, and it was bad then, but nothing like it is today. I have very recently moved from Cheshire to St. Albans, and when I go into London, I wonder how much more London can take.
Call me naive, but I often recall the words of the poem ‘Upon Westminster Bridge’ by William Wordsworth.
Other cities are also going the same way, although the trams in Manchester seem to have alleviated the problem somewhat.
October 8, 2019
Mind the asteroid!
October 8, 2019
Don’t respond to Andy, it’s just a windup.
October 8, 2019
Definitely not with you on electric scooters. They are dangerous.
When I was in Israel, everyone was flying around on them and I nearly got hit multiple times.
I think there will need to be legislation on electric scooters. They are too fast for the pavement. Accident waiting to happen.
October 8, 2019
Oh really Andy? Well, I just hope you are not ill and infirm in your old age and have to go around on an electric scooter in the freezing cold and rain. As a nation we are supposed to be going forward, not backwards as people like yourself would like. There are many people in London going about important and often lifesaving jobs who find its being disrupted by what are quite frankly a load of xxxxxxxxx. It’s time to start dealing with the people more harshly. Just who the hell do they think they are?
October 8, 2019
Unstocked shops and restaurants. Like ER you will blame Brexit for this instead of these sixth form, Thunbergist ideas.
October 8, 2019
“I can hear the birds and walk down the middle of the road.”
I suggest instead that we build much needed housing down the middle of the road and you can walk down a newly created alley way.
No cars and lorries means no roads needed.
October 8, 2019
Let’s think of some other silly ideas. How about:-
– let’s have a currency union and fix FX rates for ever amongst 25 countries with divergent economies but not have any transfer mechanisms between them
– let’s put up a protectionist tariff wall around Europe to keep food and other prices high, impoverishing European consumers and Developing world producers
– let’s have all sorts of complicated regulations out of irrational fear of new technologies and a desire to have disguised protectionism, like bans on GM foods, fracking etc
October 8, 2019
Actually, this makes sense.
A well thought out policy for how Britain can reintroduce trams to pedestrianized city/town centers would be good, also how we can more efficiently move goods by rail or water (sea or canal) would only increase our prosperity.
The government should encourage work from home for many applications, that frees a lot of road space up too.
October 8, 2019
How do you rewire a house via your home computer?
How do you replace a hip or fix up a blood transfusion via your home computer?
How do you drive a train (or tram) via your home computer?
How do you run a restaurant, or clean an office or mend a leak under a roadway from your home computer?
October 8, 2019
Getting rid of our city trams was as damaging as the Beeching Axe was for our railways. (no doubt they both ended up in the house of lords)
October 8, 2019
How does stuff get to the shops?
October 8, 2019
I understand why you would choose to avoid contentious issues and focus on irrelevant issues such as car-loan mis-selling considering how much abuse Tory MPs must take in their daily routine
October 8, 2019
Rather unfair, the debatable value of personal car leasing, pressurised selling, add ons are real issues.
October 8, 2019
Sir John,
No comment on the big story of the day, that actually broke yesterday night?
I have been critical of BJ’s approach since the leadership campaign began, and continue to stand by my views. But it should be observed that the time is fast approaching when the opposition parties need to do their business or get off the potty. Whether we like it or not, the opposition forces, comprised of the majority of elected MPs, are the government in waiting. It’s time that they ceased operations through the courts, which has already taken a sledgehammer to our politics, and worked in their own sphere of Parliament, as is constitutionally proper. The people of this country at least deserve politics to be done transparently.
October 8, 2019
And before anyone asks, or assumes, I am no Remainer. My view – hardly original – is that our political system is inexorably failing. This process of failure must be completed, and the sooner the better. It is then for the people of this country to do some serious soul-searching about what kind of politics they want.
October 8, 2019
Simeon,
The basic situation is very transparent. There was a democratic decision to leave the EU over three years ago and any means to stop this have been used.
The soul searching on the type of politics (and economics) we want is irrelevant if the democratic referendum is not followed and sovereignty is not returned to the UK. The democratic referendum will not be followed, sovereignty will not be returned, the elite establishment will continue to rule (/serve certain interests). Soul-searching on the type of politics (and economics) is sadly wishful thinking. It is ‘only’ representation that has failed, those who have control and benefit will not see failure, they will see success. If the final outcome is that the majority continue to just exist and take whatever is dished out by the establishment then this will be success. It is shocking to think how passionately Letwin defended freedom in the Letwin-Blunkett debate in 2002, compared with more recent behaviour. The UK has fallen a long way. There will be no recovery from this.
October 8, 2019
Caterpillar,
I agree with much of what you say. I think an especially sad outcome of all of this would be if a proper Brexit were actually delivered, but the style of government we have endured for many decades now continued – as I’m sure it would with BJ as PM, or indeed any conceivable Conservative PM.
What we really need is a society-wide recognition that almost all of politics amounts to value judgements, and given the diversity of modern societies, a consensus of anything more than perhaps the most basic of values simply isn’t possible. In this context, the only sane conclusion to draw is that government needs to stop dictating the way in which people live. And this means there needs to be an end to the kind of democracy we have in the western world at the moment where a minority group with a minority view winds up imposing their agenda on everyone else simply because they won more votes than anyone else. In more homegenous societies in the past such a system could work tolerably well as far as most were concerned. But those days are past. Radical change is required.
October 8, 2019
Yes.
The search for ever more obscure and arcane laws and procedures…
If only the left/federalists would expend as much energy in understanding and sorting out why people voted Brexit/Trump than they do trying to impeach, obstruct and vilify voters.
They may stop Brexit, they may oust Boris, over the water they may oust Trump… but the underlying problems are still there and the only way the liberal establishment justifies ignoring them is by smearing the voters themselves with a loo brush.
October 8, 2019
It isn’t the political system which is failing but the education system. We now have people in Parliament without trained minds, let loose on a good, unwritten constitution and parliamentary democracy. As long as these people prevail, rewriting the constitution isn’t going to help us. Besides not having trained minds, they also lack a sense of national self preservation, being only too happy to give away what they have inherited from previous enlightened generations.
October 8, 2019
Dominic
A tad unfair, in my opinion mate.
It must be time consuming to have constituency and parliamentary duties, and, when you finally get home at this time of year with this miserable weather all you want to do is put your feet up, etc.
Also it’s a privately run site, and is not publicly or subscriber funded, so quite reasonably we don’t get to choose the topics.
You can’t please all the people all the time, as they say.
October 8, 2019
I’m always wary of car leasing. If you go over the allotted mileage the final payment can be quite punishing as it is based on a high cost per excess mile. Therefore people tend to play safe and overestimate their mileage (therefore paying more than they need) and there is no refund if the car is returned with a much lower mileage than that agreed, and therefore the leasing company benefits from an increased car value to that originally estimated. Also, I’ve heard too many horror stores of leasing companies demanding extra payments for standard wear and tear when the car is returned.
October 8, 2019
Give a govt 6 months and it can swing popular perception 360 degrees.
Stripped of family, society and religion by such means what else do people have but consumption?
It has to be plain wrong to boost sales by debt for short term political gain.
There is no govt help or support when the bailiffs come knocking.
October 8, 2019
Mis-selling of all sorts will continue apace until the real culprits are held accountable: the (usually unregulated) bosses who pressure their regulated sales staff to stuff their customers. Example: billions of pounds have been paid by major banks in compensation for mis-sold PPI, but how many of the banks’ bosses have been held personally accountable?
October 8, 2019
Sir John- I own just one car bought with savings out of income. You hit the nail on the head. If you cant afford to buy it, you cant afford it!
October 8, 2019
My policy too. I will keep it until the second-hand value is down to £1000, by which time cars powered by Graphene batteries will make sense.
October 8, 2019
A nice big fat tariff on German cars will sort the problem out, while we do FTA with another supplier (coupled with “build here” obligations), because it’ll buoy the 2ndhand market nicely.
October 8, 2019
While the media continuously bemoans an assumed UK dependence on foreign capital, a recap of the actual transactions involved reveals the reverse.
Let’s begin with the example of UK consumer buying a German car.
If the consumer pays cash for it, the consumer’s current account in a UK bank is debited and the German carmaker’s account is credited, thereby increasing foreign savings of UK financial assets. Total deposits in the UK banking system remain unchanged.
If the consumer borrows to buy the car, the bank makes a loan to the consumer, which results in a loan on the asset side of the bank’s balance sheet and a new deposit on the liability side (loans create deposits). After the car is paid for the German car company has the new bank deposit. Consumer borrowing increased total bank deposits and funded foreign savings of British pounds.
That’s what the finance behind the trade gap is all about – foreigners desire to net save UK financial assets and sell goods and services to the UK to obtain those assets.
Following the above transaction the foreign holder of UK bank deposits may instead desire to purchase UK gilts. At the time of purchase, the seller of the gilt becomes the new holder of the bank deposit, and the foreigner the new holder of the gilt. (If the foreigner buys gilts directly from the Treasury the result is the same.)
The UK government is now said to have foreign creditors, and the UK is said to be a debtor nation.
While this is true as defined, a look past the rhetoric at what the UK government actually owes the holder of the gilt is revealing. What the government promises is that at maturity the foreigner’s gilt account at the BOE will be debited, and his bank’s reserve account at the BOE will be credited for the balance due.
In other words, the UK government’s promise is only that a non-interest bearing reserve balance will be substituted for an interest bearing Treasury gilt. This is not a potential source of financial stress for the government.
It is the opposite Of QE. When they swapped gilts for a reserve balance. A 2 column excel spreadsheet operation at the BOE. With no tax payers or grandchildren in sight.
October 8, 2019
Loans for car finance should be discouraged. If people want a car they should save up the same as in my grandfather’s time. All this borrowing for something that depreciates in value so much and in such short spaces of time is false economy.
October 8, 2019
These lease arrangements look very attractive on the surface and can appeal to the person who likes to change their car every 2 or 3 years but to many of us they are completely the wrong deal. The sales pitch is wonderful with a very modest down payment and a manageable monthly cost making HP look expensive.
After the agreed period there are two choices. Pay a lump sum and the car is yours or hand it back and lose what you have paid. If you chose the latter you will have had to keep within the annual mileage limit and repair any scratches or rim scuffs. Exceeding the annual miles can be expensive and so can the cosmetic repaires. If you pay the lump sum you might as well get the car on HP at the outset.
As a TV car ad states ”you do the maths”.
We don’t need the government to further handicap the car industry. They and the EU have inflicted enough damage already.
October 8, 2019
George Brooks
“They and the EU have inflicted enough damage already.”
Without EU car companies from Germany, France, Italy etc investing and operating from the UK there would be no car manufacturing left in this country.
What is it with Brexiteers that they blame all our shortcomings on ‘foreigners’?
October 8, 2019
Maggs
What is it with idiot remainers who dont live in the present?
4 new car plants ( non EU ) have opened in the UK this year
The damage that George points at the EU is entirely accurate . The EU’s complete cock up over diesel cars has been the cause of major disruption to car makers ( including European ones) Its nothing to do with foreigners and everything to do with incompetent, ignorant bureaucrats
Stop virtue signalling , European people good, EU dictators bad
October 8, 2019
Errr….Toyota, Jaguar Land Rover, Ford and Vauxhall.
October 8, 2019
Whilst German and French manufacturers have invested and operated here (I don’t think “Italy etc” applies) so too have those from American, India and Japan, often rather more significantly.
The damage the EU has done arises from maladroit regulation, notably the huge penalties on manufacturers for CO2 emissions that has skewed product offerings and led to hydrid power units (more expensive and complicated than non-hybrid and too often to little true benefit) but also more trivially through insisting, for example, that the refrigerant used in air conditioning systems is now a flammable type that is more prone to leaking from systems and when it does the high cost of the gas makes a re-gas much more expensive.
October 8, 2019
Please not yet another scheme that falls into miss-selling territory eventually.
Far too many unknowns and far too costly for me to even think about it.
The condition of the car at the end of term, the cost/limitation on mileage completed, the commercial/return value at the end of the contract period, the fact that at the end of the period you are forced to get rid of the vehicle no matter what your personal circumstances at the time.
I shall continue to purchase 2-3 year old vehicles (cost half of new value) and run them until they stop, or are uneconomic to repair
Two vehicles in our family, one 12 years old, the other 19 years old, cost per year including depreciation and servicing £1,000 per year plus fuel and road tax.
The 19 year old vehicle due for replacement probably next year, and most probably with diesel.
October 8, 2019
Historically cheap finance easily available to retail consumers has saved the vehicle manufacturers in the aftermath of the 2008 financial crash through facilitating sales and permitting inflation-busting price increases but there is evidence of mis-selling and mis-buying, not least through inducing buyers to focus on cashflow rather than cost. Better to have foolish consumers bail-out the manufacturers than the taxpayer though.
Recently the Wall Street Journal reported in an article entitled “The Seven-Year Auto Loan: America’s Middle Class Can’t Afford Its Cars” that some third of buyers of new vehicles roll debt from prior vehicle loans into their new purchase loan, up from a quarter before the 2008 crash. UK regulators ought to be alert to the same trend here.
October 8, 2019
From a recent article in American Conservative:”Liquidating The Labor Force”:
“The United States now has the highest percentage of low-wage workers of any developed nation.George Carlin once mordantly quipped :”It’s called the American Dream because you have to be asleep to believe it.”Now that joke has become our waking reality.”
October 8, 2019
Mitchel
Not too sure thats true
Heres the official US labor stats
The percentage of hourly paid workers earning the prevailing federal minimum wage or less edged down from 2.3 percent in 2017 to 2.1 percent in 2018. This remains well below the percentage of 13.4 recorded in 1979
Meanwhile France ( which to be fair has a high minimum wage) has 4.3% on NMW
October 8, 2019
Sir John
How nice that a politician is also commenting on “everyday issues”. If you haven’t studied Brexit by now then you’re never going to! That’s why I like this blog.
Financial insight is apparent from the terms used, such as “inducing a recession”.
With a BOE Governor interested in ASSISTING rather than hindering the economy and ministers NOT telling people NOT to buy diesels, we would be flying (sorry Greta). That of course would never do!
October 8, 2019
Personally I just got rid of my car, and I know I am not alone.
I imagine as more people move away from cars, there will be greater pressure to provide bus services to rural communities. How this will work with a nationalised bus service I am not sure. Some form of public subsidy may be in order.
October 8, 2019
I’d love you to live full time in my town with no car and no money for taxis, with poor train services, no bus service to speak of and a public that doesn’t want to be reliant on what we can persuade government to offer instead of being self-directed.
October 8, 2019
Isn’t this something of a stocking filler when we are a mere 23 days from Brexit, but remain unclear as to the outcome. The lack of clarity comes from our government and the EU at a time when we mostly know what should happen, as articulated yesterday. How about a dissection of Extinction Rebellion for tomorrows piece.
Reply No, its an important issue about a major UK industry, where Remain have regularly sought to blame Brexit for a slowdown which is global and related to other factors.
October 8, 2019
Reply to reply.
Problems with the car industry in the UK can be laid at the mouth before brain utterances of members of May’s so called conservative government. Availability of money to buy or lease cars was rarely a problem. The problem was punitive taxation, an ill thought out reversal of policy on the diesel vehicle with little understanding of technology, and a totally inadequate alternative that had been prepared for or was even viable. By which I mean that we can barely generate sufficient electricity for current needs. The thought of a few million electric vehicles being serviced with it is ridiculous.
October 8, 2019
Agricola
A perfect explanation.
October 8, 2019
Well a number of the leasing companies are likely to go bust fairly quickly if there is a financial blip. Their lease payments are worked out very tightly, and viability depends on the cars returned at the end of their lease being worth what they predicted.
Any downturn in used values and a lot of these companies are toast.
But that for me is the market working the way it should.
October 8, 2019
Exactly ! The government should not get involved. Let people decide based on their own financial ability. We see the problem with government interference in the housing market with it various schemes.
October 8, 2019
A car dealer in Wokingham told me how the market in used cars is changing. “Customers only want to know the best car they can lease for the amount they can afford each month” he said “consequently, as they never own the car they don’t respect it and we find cars with low mileage that have been almost wrecked by bad driving.” He went on that finding decent used cars for resale is now so difficult that his stock was only half what it should be. So much for making things last, even cars are just throwaway items now!
O.T. Did anyone see the photo of a queue of Extinction Rebellion demonstrators at a London McDonalds yesterday?
October 8, 2019
I see little wrong with the idea of PCP-type car deals if a proper assessment was made of the income and expenditure of the customer during the negotiations. Put simply, affordability, together with job security is the key here.
It could be said that it is up to the customer to assess the risk, however, a young man or woman sitting in a showroom surrounded by lots of shiny new cars is not likely to think too much about it as the deals are so attractive. The car finance specialist should be required to complete and record an assessment but are not required to.
In February I went to an Audi showroom prepared to pay cash to buy my current car, a preregistered diesel A7 coupe with 30 miles on the clock. It was being offered at a substantial 30% discount on the RRP.
I was told that Audi finance was available but declined, only to be told that Audi would give me an additional £6,500 “deposit contribution” and two free services, worth £750 if I took the deal. Crucially, I could repay the entire sum after three months without penalty.
I rang Audi finance and they confirmed that I could repay the finance after only one month and that I would keep all the benefits. Naturally I did exactly that and the discount on my “new” car went up to 42.8%. Who would not take advantage of that ?
Statistics will recall that I was one of the millions of takers of car finance but in reality I was not.
October 8, 2019
CrisS
Indeed purchased our now 12 year old top of the range Toyota Corolla as a pre registered vehicle with 5 miles on the clock at a 35% discount at the time, plus some extra’s thrown into the mix as well. Thus depreciation less than £1,000 per year.
Vehicle still going strong and still looks very good, reckon another 5-8 years left at least before it requires replacement.
October 8, 2019
The problem with people finding they have no residual value in their cars today when they go to sell them is government policy over diesel and electric cars. Garage salesmen see it as a way of saying your diesel car is worthless and giving you a pittance for it when you come to get a new one. For many people an electric car is just not practical yet and far too expensive. Add to which we don’t know how long they will last before we have the expensive option of changing the batteries for new ones. This government must get real and not expect people to make this change too soon and definitely not price them out of the car market all the while public transport in the rural areas is so bad and in some places non existent. Our bus has been taken away now and we have to walk a good mile to catch one now.
October 8, 2019
Given historical progression it will be like moments before government proclaims electric cars are bad for the planet. We should all refuse electric cars and save ourselves a fortune for buying the next step in vehicles.
In anticipation I’ve just applied for a patent on legs. The person on the phone at the Patent Office asked “One leg or two legs Sir?” That’s the trouble with our country, too much facetiousness.
October 8, 2019
Sir John
It is not as if there is not a constantly growing ready made market for all the car manufacturers and their spin off operations, but as you quite rightly highlight government decisions have had horrendous consequences on the overall automobile industry.
If politicians had started from basic data which I should imagine the governmental departments should be able to source quite easily and actual identified the size of the industry, it might have changed their what can only be perceived as, knee jerk actions in light of the pressure being bought about by the green lobby.
How many vehicles are there in the UK? Millions. But has there been done a full evaluation on what we are trying to deal with, what is the easiest critical mass to concentrate on to get the most effective results? Proper investigation would show:-
Number of petrol cars, diesels cars, motor cycles, HGV 1, 2, 3, commercial vans and PSVs.
Each in their own way add to the overall problem. Sort by year and efficiency and target the most older more polluting vehicles and increase the Road Fund Licence and just as happened with smoking target them to be uneconomical and anti social. The removal of the older vehicle stock will assist the market demand. There could also be a add on in that newer cars are not only less polluting but they are safer in road accidents, therefore reducing the number of road accident victims.
By addressing the problem in a more controlled way will slow the lemming like charge to all electric vehicles would buy some time for the manufacturers to produce better products and allow an infrastructure to be properly rolled out to meet the demand.
If the manufacturers know that they are working on a slower controlled way to an all electric environment they can operate in a Business as Usual mode keeping the work force together and still being profitable to source the changeover programme. All these deadlines mean nothing if they are not achievable and it must be better to under promise and over deliver for both politicians and the motor industry.
Rethinking the high envy taxes on top of the range models and electric subsidies would focus the minds on the population that what they are proposing to want changed will come at a price, if they want it, it is them that will have to pay not just the perceived better off who already pay more than their fair share of both direct and indirect taxes.
October 8, 2019
It isn’t a slow down in sales of cars. It is a slow down in the acceleration of the sales of cars which was brought about by car loans.
Young people seem particularly vulnerable to them. “I bought mine for one six nine”
“What ?”
“One six nine a month”
“How much did your car cost ?”
“Err… Dunno. I just love the new car smell.”
These people are taking the drive-off-forecourt depreciation hit every three years. Gleaming cars in the work car park – except mine. This is financial illiteracy at work. It is also bad for the environment as it encourages people to buy things that they can’t really afford.
Note to Newmania and his recent analogy of the gear-crunching, white-haired old lady driving out into traffic and causing the Brexit car crash.
How I loved telling him that young people are by far the most expensive to insure (all the old people I know took themselves off the road at the first signs of problems) it seems they’re the easiest to scam into buying brand new cars too… and they love the EU (so we are told.)
October 8, 2019
Now something like 80% of car purchases are effectively hire I believe it would be a very good idea to improve lending criteria.
Having at least a 10% deposit would be healthy, improving it perhaps slowly to 20% over time, too many people are living without savings or any sort of protection for when things go wrong.
October 8, 2019
The risks you describe are normal day to day problems that we have managed well enough before the onslaught of nanny statism onto retail banking. More government is rarely the correct answer!
October 8, 2019
Less government means the working classes enslaved in ever increasing debt.
Proof?
How much debt did you have when you first married and had children? How much debt have your adult children got?
October 8, 2019
Car financing has been around for so long that it is difficult to put the issue in perspective. Simply put the banks want to lend and the cusomer wants to borrow. Both have taken their eye off the ball and both are about to suffer. Jutice I suppose.
October 8, 2019
ferdinand, in the US around 85% of cars are purchased on finance sometimes extending to 7 years. These deals have been parcelled up into CDO-type bonds which have been sold around the world. Plus ca change!
October 8, 2019
You own one car with savings bought from income. A shining beacon to us all. It is far less environmentally damaging to keep running an older car than to buy a new one on tick every two or three years. My 7 year old British built Toyota just sailed through its MOT. A large family estate, it has a petrol engine and does 40 to the gallon. It costs about £500 a year in servicing/MOT costs.
As a good citizen, concerned about the environment I am leaving fou future generations, I will run this car for as long as it is economically viable to do so.
I will not be borrowing money, or spending £299 a month on a lease, just to have 19 on my number plate.
October 8, 2019
The PPI issue didn’t address one of the main problems with insurance – the self-employed cannot be covered by that kind of insurance, especially those who are forced to work through Ltd Cos.
This is why it was deemed to be ‘mis-sold’ to such people – the insured can never claim successfully, because when they are not working they are still technically employees of their own Ltd Co, so they are not able to claim on the insurance since they are not technically ‘unemployed’.
So the PPI scandal caused a process of reversing the sale of such insurance but it did nothing to address the real issue – that those people who work in this way cannot buy insurance which would allow them to meet the repayments when they are not working.
This goes back to the recent discussion here on ‘ways of working’ – it is a nonsense that we have invented so many artificial ’employment statuses’.
October 8, 2019
We could aid British car production by putting a 30% tariff on finished vehicles. The EU could only apply the same tariff to the UK as the other third countries ie 10%. We buy seven times as many cars from the Germans as they buy from us. We export as many cars as we import. A quick zero tariff deal with the US, Australia would benefit the up market manufacturers like JLR and Aston Martin. German models could be made here for our roads. Japanese cars made in the UK would increase sales, being cheaper and reliable.
October 8, 2019
My car will be 3 years old in December and I looked around yesterday to try and assess the way to getting either a new car or a year old car. I asked outright the price of 2 new models and I simply could not get an answer. They wanted to barter with me there and then against my present car which I bought at the same place. Vauxhall are being taken over by Citroen later this year so the added choice was await the arrival of the new cars to see if the new style added a new dimension to driving . I had no intention of borrowing money as I save from my earnings as I have from the start of my independence . Immediately the selling techniques and the loan sharks started putting a shady slant on straight questions. I myself will decide how to further my car purchasing.
October 9, 2019
If I were you I would keep the old one (or buy second hand if you want a change or different type of car). So much cheaper and often rather better cars too. Cheaper to insure, little depreciations, little finance costs, less (often unreliable) complexity, cheaper to service and maintain often too. Then wait until the new technology gets better on range/recharging times/fuel consumption and similar.
Both my cars are over 10 years old now and seem just fine to me.
October 9, 2019
Not building a new car is probably greener too as so much energy is needed to make them. Especially new electric ones which only really make much sense as second city cars.
October 10, 2019
Do you REALLY need 2 cars?
We agreed I would sell my older BMW 3 series less than 2 years ago.
I kept my other car an older MX5 for another 6 months to ‘test the water’.
Both bought by grateful new owners of well kept older cars. My wife kept the low mileage 8/9 year old ‘Korean’ hatchback assembled in Czechia. No problems, enormous saving in ‘parking on the drive’ charges. Only once or twice has there been an issue. I walk a little more often, I use the railway a lot more, even a bus to RB Hosp. She uses park and ride more.
Whats not to like? Convenience is rather a fallacy. For convenience replace with plan and not be lazy.
October 8, 2019
In the same way individuals should not borrow too much to buy cars, neither should the nation .
Your WTO Brexit is predicted to result in borrowing likely to rise to £100 billion and total debt to rise to 90% of national income.
Reply Another forecast likely to be wide of the mark and too pessimistic
October 8, 2019
Sir John,
I think the problem is with the car sellers pushing the PCP model of purchasing and trying to pretend it is just a standard loan. A year ago a salesman offered me a big discount on a new car if I took out PCP and tried to persuade me that this was a better option than paying by cash! (I did not bite and looked into it). There are clearly big commissions to do these deals
There have been a few cases in the press where people have suddenly been presented with big balloon payment s at the end of the lease period. And as another has commented here for the drivers who have understood the arrangement they have no incentive to look after their car.
I have been listening carefully to the car adverts and the wording is not always clear. One does finish with “you will not own the car” but it is never clear that there may be a balloon payment at the end.
The lease model is fine for fleet purchase but IMHO is not appropriate for private sales. So I really do think this is another PPI in the making. (Both have two Ps). Big commissions always imply danger.
October 9, 2019
@Peter
We entered into such an agreement with JLR but it was always made clear from the start that at the end of the 3 year term there would be a balloon payment to keep the car, give it back, or lease another one and they also told us the minimum we could expect to receive back. All clearly explained.
October 9, 2019
Peter from Leeds
I no longer buy new cars ( I can afford to ) It is far more effective to personal contract hire . If you do the numbers , its a cheaper way of paying for a vehicle on a monthly basis that works out to be no worse than buying and then selling your own car without all the hassle that entails ( plus with the right deal you can get some maintenance and other extras thrown in )
Oh and you can get PCH finance from any supplier you do not have to use the dealers finance company
October 8, 2019
Off topic, why are MPs discussing an issue, namely the cost of customs compliance, this afternoon, when that should have been thrashed out long ago?
Here is a thread from July 2018, and I notice one of my own comments:
https://johnredwoodsdiary.com/2018/07/17/the-customs-and-trade-bills/#comment-948264
“Making importers bear compliance costs of £1.8 billion so HMRC can collect £3.4 billion of customs duties seems unreasonable and stupid, whether that is done on behalf of the EU as now or it is done on our own behalf in the future:
http://johnredwoodsdiary.com/2018/07/16/a-3-option-referendum-would-not-work/#comment-948036
Then going on to make businesses bear additional compliance costs of £17 billion to £20 billion to collect what could be similar additional revenue, maybe about £3 billion of duties on imports from the EU, seems utterly insane.”
If I did not already know the answer I might ask:
“Why has this not been sorted out long ago?”
And yet that woman still expects to keep her safe seat, no doubt to be followed by a cushy number in the House of Lords.
October 8, 2019
I see that reports say the deal is dead, shouldn’t BJ now write a letter saying the UK will be leaving the EU no later than the 13/10/2019.
October 8, 2019
It is quite interesting that it is the EU that has denied the death of the talks; the boot used to be on the other foot!
October 8, 2019
Ian
Deal dead ? Good !
Apparently, Ms Merkel has threatened to veto Northern Ireland leaving the customs union.
So at last the truth is coming out…..’if you want to leave then you have to surrender Northern Ireland’.
Boris should take brexit back to the people, but not with a second referendum. He should instead make a televised address to the nation and blow wide the ungrateful EU’s plan.
October 8, 2019
It sounds as if the lenders have been making exactly the same greedy personal commission play as with US and UK mortgages at the beginning of the century – i.e. sub-prime car loans, ostensibly to ‘help the poorer-off’ but actually just to make a killing out of extend-and-pretend.
Customers who have no money and lie about their income in order to take out unsustainable loans for goods they cannot actually afford are not going to be too financially or morally concerned about ‘default’. It’s the lenders we have to go after. And this time, no socialising of their losses.
October 8, 2019
Winner of the best Comment does not get anything at all as a prize in line with Remainer policy on referendums
October 8, 2019
I think you missed several other aspects of this failing market.
For one is the massive discounts available on new cars to the lease companies. Meaning that for many people, even if they can afford to buy outright, its simply cheaper to lease. I dont for a second believe there is a proper free market in new cars.
For another is the way the big lease companies can manipulate second hand values by the way they release their stock onto the second hand market.
In all the bigger lease companies are getting too dominant, and too much of the real buying power has been taken away from the individual consumer.
October 8, 2019
Yes I got rid of my car and moved to an apartment not far from a large shopping complex. The bus stops outside my door and there’s a train station down the road.
October 9, 2019
The Government has several problems to solve:
– How to ensure that there are sufficient public charge-up points for electric cars and plug in hybrids. I suggest that allowing providers to make a profit will hasten things. Their costs will include lending parking space to a vehicle for approximately two hours.
– What sort of vehicles to allow to drive in towns and cities and how long the transition period should be before bans come in to effect. I suggest that someone who has just bought a car legally should expect to get 10 years use of it.
– Produce a schedule for buses to clean up their act
October 10, 2019
yes – delivery vehicles, taxis (and uber cars) and courier used cars should have harsher pollution targets in towns and cities.
I also think the buyer of a new car should have to pay 3 years upfront road tax. However I’d rather have the taxation needed levied by adding to the litre cost. I’ve given up hope on that ever happening.
October 10, 2019
Re “sufficient public charge-up points for electric cars and plug in hybrids. I suggest that allowing providers to make a profit will hasten things.” the national grid is miles away from having the capacity to transmit the volumes of electricity from power stations throughout the country if mass adoption of electric cars was to take place. there will be several large hiccups if politicians try to force things in this direction when its simply not feasible to increase the transmission capacity quickly enough.
these harsh realities need facing. plus the extra costs on our economy, allowing countries running good old fashioned diesel cars to undercut us, may force things too.