First, banks thought they could enter into cosy deals with car dealers to rip off customers.
Second, car dealers willingly took part.
Third, customers were ripped off.
Fourth, captured regulators did not prevent this. Legal action was required.
Fifth, Rachel Reeves has waded in on the side of the banks.
Sixth, the courts have ruled against them, it having taken far too long for redress to happen.
What’s the political economy of all this? It’s simple. Oligopolistic power has been used to fleece people of their money. That’s it. One doesn’t need to go deeper into the analysis than that. The term ‘rip off’ was invented for situations like this, as was the term ‘collusion’, since no one bank did this in isolation, which cannot have been by chance, I suggest.
If you need evidence as to why and how neoliberal behaviour abuses us, this is it.
Akshully, the Supreme Court’s judgement was that a car salesman – and by implication, provider of finance – does not have a fiduciary duty to the customer. Which seems fairly sensible to me.
Car financing is like a Bismarckian sausage. The punter doesn’t need to know who gets what, it is way more complicated than you might think. The customer really needs to know his monthly payment and compare his options. Nobody else’s business.
And I thought everybody knew dealer finance is not usually your best deal.
OTOH I was recently missold a government. I didn’t vote for it but I’m sure I have a claim.
People know salesmen are paid commission. People know that car salesmen try to sell you both a car and a loan. If the salesman lies, that’s fraud. If he doesn’t, it’s up to you to make a decision and then live up to it, like a bloody adult.
Rip-off?
We bought the wife a new car years ago (new because the scrappage scheme was available).
A big % was on finance, and the dealer was certainly keen on that. No idea what his commission was, but we got a decent discount on the car as a result so have to assume it was good.
We got a good deal and a good car. What went on in the background is none of our concern, and good luck to them. Of more concern – yet again – is how much the legal profession is getting out of all this.
“Oligopolistic power has been used to fleece people of their money”.
Fuck me, he’s describing the government……
Every single person who took up these financing deals was informed clearly and honestly about the cost of finance. They could then compare this with alternative lenders and make an informed decision. No one was ripped off or cheated or swindled.
HSBC is currently offering personal loans at 6.4%. It does not tell you how much of the cost of finance is made up of staff commission or office rent or anything else. Because it is none of your business. Either accept the rate and terms or go elsewhere.
‘Second, car dealers willingly took part.’
Captain Renault called . . . he is shocked.
If you want to feel extremely unpopular, go to your local car dealer and tell them you want to pay cash for the vehicle you’re interested in buying. No free car mats for you!
Even better, Mr W, offer to pay with a credit card. “Oh no. we can’t accept that!”
Dearie
I did proffer my Amex card once. I knew they wouldn’t accept it (it would have cost them a fortune) but it gave me the opportunity to say that I was hoping to get lots of Avios. So the debit card had to do.
“If you need evidence as to why and how neoliberal behaviour abuses us, this is it.”
Looks like Buffoon The Neoliberal Slayer got another season.
Show the government something nobody cares about and they’re all over it. If we want it doing then it’s impossible.
As many others here have already pointed out the customer was offered a car and a payment schedule to go with it. They chose to accept both the car, its price and the method of paying for it. What’s the issue? They possibly even got an overvalued part exchange price for their old car as profit was being made elsewhere in the deal.
This is just the legal profession fleecing the finance system. As a side effect a large portion of the cash ends up in consumers hands as not even the legal system can expect to get 100% of everything.
About 8 years ago, found the make and model of car I was looking for, at a recommended dealer. Was told what the finance interest payments would be after the deposit, and said I’d think about it. Went online and the same finance company offered me a personal loan, for the same period, with payments just under 2/3 of those through the dealer. Ended up paying cash to the dealer for the car and even got a slight discount as well as the car mats. Still have the car which, by now, owes me nothing.
‘First, banks thought they could enter into cosy deals with car dealers to rip off customers.’
Gamecock sees the problem. Banks. Car dealers. People should get their Trabant through the government.
So I guess Richie Rich is now in trouble on his car loan…
“If you want to feel extremely unpopular, go to your local car dealer and tell them you want to pay cash for the vehicle you’re interested in buying. No free car mats for you!”
That happened to me a few years ago. Test drove the car, said I’d take it, here’s my debit card, take the money please. You might have thought I’d just demanded to shag the salesman’s wife as well. I got sent off to the managers office where he lectured me on the folly of paying for a car without credit. He suggested I could get more money in interest on my money than the loan would cost (this at the time when interest rates were close to zero). I said if he could manage that trick he was wasted as a car salesman, and should be a financier earning millions. Eventually they actually let me buy the car, but they were not happy.
The car dealer wanted to make a profit: how much was in the mark-up from the purchase price to the sale price and how much was in the commission from the finance house was secondary – except that there was 20% VAT to pay on the nominal mark-up and not on the finance company’s commission.
So HMRC has built in a bias towards over-charging customers for credit and “offerring a good deal” on the nominal price of the car. The salesman is 16.66% better off if he takes all his profit from the finance company’s commission and puts nil mark-up on the car than if he sells the car for cash
While I was still working as a Chartered Accountant one of my clients was a small motor dealership where the average margin on selling new vehicles was £75. It was all about the finance charges and servicing.
It wasn’t until three years later, when he had paid off the finance on the car, that he realised he still had almost the cash price of the car left to pay.
From yesterday’s bbc news.
In other news man with interest-only mortgage is shocked to learn that he also has to repay the capital.
If you want to feel extremely unpopular, go to your local car dealer and tell them you want to pay cash for the vehicle you’re interested in buying. No free car mats for you!
In my experience, cash is king. I pay cash for my s/h Audis, and I always negotiate free car mats, a full tank, etc. Near the end of the month the sales team needs to meet/maximise targets. And in December/January are often desperate. I bought a 3-year-old Q3 in late December – of which £1000 of the price was paid on Amex – and I got a 2-year service plan and scratch/dent repair insurance thrown in. The car is currently ‘worth’ more in a private sale than I paid the registered dealer…
I don’t know who all these mugs are buying cars on finance, but they only have themselves to blame.
My current large German diesel estate is ten years old, and cost me a whopping £2500. It feels and drives like it’s brand new. £1500 of the purchase was funded by the mini-cab firm who had written off my 15 year old large German diesel estate, which I had paid £500 for two years prior and also drove like it was brand new.
I mean, please keep it up everyone, if people understood the true cost of owning new cars there would be no cheap ten year old big diesel estates with most of their life left…
When I bought a new car about 7 years ago, the dealer was perfectly honest about the finance. There was a £4,500 “deposit contribution” from BMW’s finance arm, plus the dealer said that they’d receive another £500-or-so, which they knocked off the price provided I took the finance, in addition to the other discounts I’d wangled… it was the end of the quarter and they wanted to book the sale. The interest rate wasn’t horrendous (5.9%?) and the contract said they’d take back the incentives if I repaid it within 6 months. So 6 months + 1 day later it all got paid off and everyone was happy.
@theProle
Don’t worry, the government is busy ensuring that in 10 years’ time there will be no 10-year-old diesel estates. I think we’re down to Audi, Mercedes and Skoda offering them now.
“If you want to feel extremely unpopular, go to your local car dealer and tell them you want to pay cash for the vehicle you’re interested in buying”
Done that, and salesman was not thrilled, but a sale is a sale. We even got the floor mats.
A colleague of mine went better than that, he and his wife had picked a basic hatchback, didn’t care much about colour. He sent a fax – OK, this was a while ago – to every dealer in town saying here’s exactly what I want, best offer at the end of the day gets the sale. Now that got their attention.