The government recently proposed that schoolchildren be given lessons in personal finance. Can I ask that, alongside the Lower Fourth, room be made in the classes for the AA spokesman who recently said this: ‘People wanting to get high-aspiration vehicles at an affordable price will have been hit by the crash in [the cars’] value.’
Yes, this remark really is as stupid as it seems, but first a little context. He was talking about a form of hire purchase called ‘Personal Contract Purchase’, whereby a motorist pays a deposit, followed by two years of monthly payments. At the end of this period, the buyer has two options: he can either pay a lump sum to purchase the car outright, or he can return it to the finance company which organised the deal. The size of the final lump sum demanded by the finance company is fixed when the buyer takes out the deal, based on what the vehicle is expected to be worth in two years’ time. For example, a motorist who bought a Volvo XC90 in December 2006 was told that in January 2009 he would have an option to buy the car for £18,775.
As it turns out, the predicted value was wide of the mark: thanks to the recession, the value of a two-year-old Volvo XC90 has crashed to £12,600. Therefore, the motorist would be pretty foolish to pay £18,775 and keep the car. He would be far better off handing the car back to the finance com-pany, then buying an identical two-year-old car on the second-hand market for £6,000 less. In other words, in no sense has the motorist been hit. Far from it: he is thousands of pounds better off. What the AA man really means is that the finance companies involved have suffered.
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