Fleet News

Trade suffering from negative equity trap

'THE negative equity trap is all too evident at the moment within the trade. Although this has been flagged up as a problem in the past, it does seem to be causing many problems just now. Many dealers are saying it is not unusual for there to be a £3,000 shortfall on the value of a car, compared with what is owed to the finance company.

This makes the chance of getting the customer out of the car and into a newer model virtually impossible. These problems always stem back to a time when buyers stretched themselves and took on too much debt over too long a period.

When values then fall, negative equity becomes a serious on-going problem. And solutions don't come easy. If you let the finance run to the end if its term, then you are faced with a car that is valueless, and offers no deposit so that the cycle simply begins again. It is a no-win situation, and furthermore takes a customer out of the market for some considerable time. And that means more unsold cars.

The trade affectionately call these people 'no-hopers' but in reality they have been stitched into the finance deal in the first place, with no way out. It is a timely reminder that pulling a deal out of the hat where there seemed no way forward is a story that may not always have a happy ending.

  • As each new model comes along, or gets a facelift, pressure mounts on the old model. This is almost universally true and we are currently seeing it with Renault Scenic.

    While it is enjoying much success in its latest guise, the 'old' model is now beginning to struggle and when comparing the two side-by-side, the pre-1999 facelift now looks decidedly old.

    Many say the twice-yearly plate change is to blame for ageing cars much more quickly. While this is true, the ever-increasing practice by manufacturers of shortening vehicle lifecycles is also ageing cars much more rapidly than in the past.

    The fact is that cars only retain their original bloom of youth for six months. Ford Focus is also suffering from 'facelift-itus'. The latest version is highly desired by both the trade and buying public but this is at the expense of demand for the previous model.

    Others that fall into the same category include the Renault Clio and Mitsubishi Carisma. This problem can only grow when the raft of all-new cars, launched this year, start hitting the used car market in numbers.'

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