I wrote a blog about PCPs being the new PPI (“Payment Protection Insurance”) earlier this year, and I thought it would be ideal to revisit this ahead of the UK budget next week at the time of writing this.

PCP is set to be the new PPI

Diesel cars were promoted by previous UK Governments over petrol as a greener method of transport as they are much more economical with lower carbon dioxide emissions, and taxation was used as a lever to encourage consumers to buy diesel vehicles.  Fast forward a few years and we have had scandals involving VW and other manufacturers using devices to manipulate the emissions testing, and we now have the UK Government and local authorities back-tracking and demonising diesel users.

We are now set for punishing tax rises on new diesel vehicle purchases, diesel fuel, extra charges to enter cities, street parking permits and whatever else that can be dreamt up as a lazy way to raise revenues.

So, the end result we have now is a collapse in the residual values of diesel vehicles as it is clear where we are heading now.

Anyone driving a diesel vehicle is pretty much stuck with it now and this brings me on to Personal Contract Plans (“PCPs”), which represent 86% of all new car purchases in the UK.

To enter in to a PCP, you need to put down a deposit whether that’s cash or a car as a trade in.  You then drive away in a new car and pay a monthly charge which represents the depreciation of the asset, and that represents your deposit for the next car in 3 years time when you trade it in.  The Guaranteed Minimum Value at the end of the PCP plan to purchase the vehicle is based on the projected value when you enter in to the agreement, although this can often be more than the vehicle is eventually worth.

The issue many people have now and are only beginning to realise is that residual values of diesel cars have collapsed and they have in effect lost their deposit to continue with the PCP plan.

I doubt that this would have been explained by any car salesman as a risk you take when you enter in to a PCP, and this is now set to be the next mis-selling scandal of our time with claims lawyers having operations set up to get traction on this.

I reckon car dealerships will be taken to the cleaners over the next few years and this will run until the cows come home.

This will be an interesting one to watch.

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