James Broadhead, CEO of Close Brothers Motor Finance, discusses the need for used car dealers to take advantage of the growing PCP market, in a similar vein to their new car dealer counterparts
Although the use of personal contract purchase by customers is by no means a new trend within the motor finance space, over the past year it has established itself as one of the most popular products in the market. Indeed, the steady growth this year in new car sales in particular has largely been attributed to the popularity among consumers to purchase a vehicle with PCP finance.
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The popularity of PCP has largely been down to its ability to enable customers to become more aspirational when choosing and purchasing their vehicle, allowing them to secure a high-quality, high-value vehicle at an attractive price.
So popular is PCP in the new car market that, in some cases, new vehicles are being bought at a cheaper short-term cost than used vehicles – this is reflected by the fact that currently around 74% of new cars are being sold through PCP.
Indeed, purchasing a vehicle with PCP provides customers with a great degree of flexibility – as part of the PCP contract, once customers reach the end of their finance agreement, they will then decide whether to make a balloon payment and keep their vehicle, hand it back to their finance company, or part exchange it for a new vehicle.
Although we are seeing dealers in the new car space taking full advantage of this type of finance, the same cannot yet be said for the used car market.
From speaking to our dealers, it is clear that many are still unaware of the advantages PCP can bring, both for the consumer, and also for their business.
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By GlobalDataDealer benefit
Importantly, the benefits are not restricted to the consumer – for dealers, PCP not only plays a role in the increase of sales, but it also allows them to develop a loyal client base. On top of this, customers are incentivised to look after the exterior and mileage of the vehicle up until the end of their finance agreement, which means that all vehicles sold through PCP have a guaranteed future value.
Dealers therefore have the opportunity to ensure stock continues to be replenished, while at the same time continuing to sell more vehicles.
However, with PCP only making up around 40% of used car sales, there’s still work to be done to ensure both consumers and dealers fully understand the product.
For instance, when buying a car on PCP, consumers are signing on to keeping within the agreed mileage limits or costs rise. There are myriad advantages to PCP, but we must all work together to ensure that dealers feel comfortable explaining exactly what customers are taking on and that customers feel that their purchase is completely transparent.
It’s the industry’s role to make sure we are educating dealers across the spectrum, but particularly used car dealers, so that they are entirely comfortable and knowledgeable when they come to selling the product.
Ultimately, the used car market must begin to acclimatise to the rising popularity of PCP among consumers. Until it does, dealers face missing out on key sales, as well as the ability to grow their customer base by providing trusted and reliable finance options – a key factor in customer retention. <
