Over the last year at Pike + Bambridge (P+B), we've been frequently asked when is the 'best' time to commit to the renewal, or change, of your current car. There are clearly multiple factors to take into consideration, from making the switch to an electric vehicle (EV) to looking at used cars, on whether to change your car now or hold off on the decision for now.
In this article, we examine some of the costs and risks, as well as the current opportunity that exists in this world of rising prices.
The cost of out of warranty repairs
Looking at the evidence, the first factor to take into consideration is your current vehicles’ warranty. The average warranty provided by manufactures in the UK is 3 years or 80,000 miles. (https://www.thecarexpert.co.uk/top-ten-car-warranty-claims-and-what-they-cost). Pre-Covid, the typical mechanical claim in the UK averaged £574 per year. This number has reduced over the years down to the Covid-19 pandemic but is set to rise again with the nation transitioning back to normality. Inflation on components, and increasing labour costs (with an average of £60 per hour), mean this could face a potential risk to clients setting to extend their current lease.
The twin evils (for car purchases!) of inflation and interest rate rises
The BBC reported on 22nd August that one study has predicted inflation could go as high as 18% in 2023. Many analysts are suggesting true inflation may well be at, or above, this level already for many of our purchases (this correspondent has seen their Costa coffee increase from £3.35 to £3.85 since March 2022!).
The increased inflation means we are likely to see at least 18 months of interest rate rises, meaning car purchases are likely to be more expensive in terms of the asset and the finance, a toxic combination.
Price Protection continues (for now)
One positive piece of news is that many automotive manufacturers and finance companies are freezing their prices from point of order, meaning buyers can 'lock-in' pricing at present pricing, much as one might with a fixed mortgage for the next 3-4 years.
Manufacture delivery times across the UK are averaging 4-9 months from the point of order. What is more, savvy car providers (Pike+Bambridge being one) have 'pre-ordered' a large number of vehicles with price protection, meaning an order now may well be far cheaper than possible as you get closer to your renewal date.
The upside of inflation when considering a 4 year lease
As inflation increases, the true cost of that monthly figure actually decreases in real terms, so the car finance becomes comparatively cheaper, in real terms, over the course of the contract.
Your £350 per month now seem significantly more than your £300 per lease contract in 2019, but in reality, the £350 will perhaps seem comparatively much cheaper in 1-2 years time.
Extensions begin to be more expensive
Summer 2022 has begun to see this inflationary pressure spread to the extension you may be considering on your car lease. With a recent case, our client was under their contract mileage, but still received a quote for £30 more per month for a 3 year old car. That is £30 more per month than it cost new 3 years ago, despite having not even fulfilled the contract mileage. As finance companies begin to see the used car market soften, they're keen to get your car sold while its value is high, and therefore will now often price your extension prohibitively high. When factored in with the cost of out of warranty repairs, this represents poor value.
Kicking the can down the road?
It is natural that at times of significant uncertainty, many of us are examining our risks, and considering spending plans, whether that be through your personal or business purchasing.
The challenge with delaying your decision on your next car is that very few market indicators support it. Whether that be an inflated used car market, an over-priced extension market, or likely increases in car pricing, combined with higher cost of financing.
Unless you're looking to move to a different mode of transport in the next 2-3 years, 2022 really should be the time for you to make the decision on your next car, whoever your provider may be.
