Frugal Motoring – Bangernomics

A return to the Frugal Motoring series, and a window into one of my side hobbies, Bangernomics. I could write a whole separate blog on Bangernomics, many do, but mainly I confine myself to esoteric forums tucked away in little niches of the internet. The term Bangernomics was first coined in 1989 by James Ruppert, the chief and foreman of the subsequent Bangernomics cult/ movement/ belief (1, 2). A motoring journalist, James found himself returning to the UK for a few days and at a loss for transport (2). After adding up potential public transport costs, he worked out it would be cheaper to buy a banger and run it (2). The subsequent press feature, titled “Better than walking” caught the eye of the public, and the movement ran from there (2).

The general premise of Bangernomics is this:

  • Target a cheap banger car for <£1000 or <£500 (depending on the source of your opinion)
  • Do your research, read up on common problems with the car and which models/ engines to avoid or go for
  • Find a car to buy, originally and potentially through car auctions, but often these days through eBay/ Gumtree/ other online platforms
  • Inspect the car very carefully before buying
  • Look after the car with strict basic maintenance. Servicing and basic work is relatively cheap, cheaper if you DIY
  • When the car reaches a point of a potential uneconomic repair (clutch, gearbox etc) scrap it, sell on or break for parts

James Ruppert’s mantra here is “beware of the dog” (3). Avoiding hopeless sheds and going for the well-loved family cars at the bottom of their depreciation curve and with the curb appeal of steaming dog droppings. You have to be prepared to own and drive something which will make your friends’ and neighbours’ toes curl. Which is where I think the frugal, financial independence-minded community Venn diagram transects with Bangernomics. Many FIRE bloggers couldn’t give a flying monkey about keeping up with Jones’ in other respects, so why do they continue to with cars on PCP?

But I know nothing about cars, what can I do?

Happily, the Bangernomics community are really helpful in this regard. When I first started I adopted the opinion that I am of at least average intelligence, and therefore I should be able to learn how to fix and maintain a car. These are all useful skills.

James Ruppert publishes a book on how to subscribe to Bangernomics (1, 3). He also maintains a series of free buying guides, a buying checklist, and a blog for advice (1, 3). For make and model specific guidance, other Bangernomics blogs have published their own buying guides, and people share their knowledge on the Bangernomics forum, as well as the more popular Pistonheads and RetroRides (4, 5, 6, 7). YouTube is an invaluable source, as many thousands of amateurs publish how-to guides.

Not sure what to buy? There’s plenty of column inches and forum posts detailing peoples failures and successes. Some highlight their own experiences, listing successes and tips, others offer guidance on good target vehicles (2, 8, 9, 10, 11). My own experience has been tempered by a job requirement to appear respectable and not fail to turn up to work, so people don’t die. I’ve never spent more than £2k on a car, and average 12p/mile in cost over the life of my daily car for purchase price and maintenance. One memorable snotter was bought for £1k and survived 8 years and 80,000 miles of abuse. I also abuse Bangernomics a little by purchasing classics at the bottom of their depreciation curve, before they begin to appreciate as an investment.

Bangernomics, the financially independent motoring choice

A little whistle stop, but hopefully a jump-off point for many. DIY car maintenance should not be a scary thing, and by avoiding it people miss an opportunity to save. Bangernomics offers the opportunity to learn some skills, save some money and tell some good stories, as long as you can put up with some graft, the odd breakdown and minimal social respect for your new whip.

Have a great week,

The Shrink

 

Next time on Frugal Motoring – Should I buy a petrol car?

References:

  1. https://www.bangernomics.com/
  2. https://www.autocar.co.uk/car-news/used-car-buying-guides/25-years-bangernomics-how-buy-and-run-used-car-cheaply
  3. https://www.jamesruppert.com/bangernomics-bible.html
  4. http://bangernomics.tripod.com/intro.htm
  5. http://bangernomics.editboard.com/
  6. https://www.pistonheads.com/gassing/topic.asp?h=0&f=23&t=1671991
  7. http://forum.retro-rides.org/
  8. http://www.autoexpress.co.uk/car-news/98907/cheap-as-chips-how-to-buy-a-banger-and-run-it-for-peanuts
  9. http://cardealermagazine.co.uk/forum/topic/4772-bangernomics/
  10. https://forums.moneysavingexpert.com/showthread.php?t=3803929
  11. https://www.driving.co.uk/car-clinic/buying-guide-six-brilliant-used-cars-for-just-1000/
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Frugal Motoring – The PCP black hole

Sadly not an angel dust-fuelled night club.

Once upon a time you walked into greasy Tony’s car dealership, slapped down your hard saved cash, and walked out with a creaky Lada/ British Leyland motor with build quality as questionable as Katie Hopkins.

Now we walk into a car megamart warehouse to be met by bright young things in shiny suits and pleather brogues. If we feel we are worth it we walk into glass prisms of monochrome and steel to be fed posh coffee by bright young things in shiny suits and pleather brogues who tell us we are definitely worth it, sir.

The world of buying a car has changed a lot, and numerous products now cater to whim and desire to self-indulge. The current petrol on the bonfire of consumer car culture is PCP, or Personal Contract Purchase, sometimes confused with Personal Contract Leasinging which is a more traditional rental option.

What is PCP?

A very clever tool to sell cars.

PCP is essentially a loan on the depreciation on a car you ‘buy’. You don’t really own the car despite assurances to the contrary (although this is a whole other thorny area). You pay a deposit, then a monthly payment on the loan that finances the value the car loses in your use, then hand it back to the finance company at the end or buy it off them. Money Saving Expert says it better than I can (1):

It’s one of the more complex financial products available to help you buy a car, but it can be broken down into three main parts:

The deposit (usually around 10% of the car’s price).Dealers offering PCP finance will typically want around 10% of the car as a deposit. Some car manufacturers’ finance arms offer valuable ‘deposit contributions’ of £500-£2,000 or more if you’re buying a new car but only if you take their finance – eg, VW Finance offers £1,000. The larger the deposit, the less you’ll have to borrow.

The amount you borrow. The amount you’ll have to borrow is based on how much the finance company predicts the car will lose in value over the term of the deal (usually 24 or 36 months) minus the deposit you’ve put down. You’ll pay this amount off during the deal, plus interest. So you’re not paying off the full value of the car. Typical APRs are 4%-7%.

The balloon payment (a balancing payment you pay IF you want to own the car). Also often referred to as the Guaranteed Minimum Future Value (GMFV), this is how much the dealer expects your car to be worth after your finance deal ends. It’s agreed at the start of your deal. You don’t have to pay this, as you get a choice of what to do at the end of the deal. But it is the sum you’ll pay if you want to keep the car.

So far so clever, the difference to a more standard agreement such as Hire Purchase being that you are not paying for the whole of the vehicle, just the depreciation. Therefore the monthly payments are much lower. This, combined with various incentives such as the ‘scrappage scheme’ (hack-spit) have meant that new cars are available to people previously unable to afford them. Often with these contributions and incentives the cost of a new car is lower than a used car for monthly payments. A worked example from Carbuyer (2):

– A new car costs £25,000
– The GMFV after three years is £15,000
– Over three years, you need to cover £10,000
– Subtract the a deposit of £1,000
– You’ll pay the remaining £9,000 over 36 monthly payments of £250

And some from national car retailers:

As Graham Hill, director at the National Association of Commercial Finance Brokers, says (3):

“Drivers who might have been looking at hire purchase on a second-hand Ford Focus can find themselves paying less on PCP for a brand new BMW 1 Series or a Mercedes A-Class”

Which is where some of the warnings begin.

The cautions

PCP is a complex product often used to sell high value items to people who may not be as financially savvy. As a complex financial product, there are often T&C’s to be aware of. A recent survey by the CarGurus found 9 out of 10 people didn’t understand the small print of their PCP contract (4). Though there are many online guides to PCP, that same survey found although 91% of people thought they had a good grasp of car finance, only 47% knew what PCP meant (4, 5).

Two big stings are the condition the car is returned in, and the agreed mileage limit. The condition is a standard agreement that the car will be returned in good condition ready for sale at the end of the term. This is usually assessed by the finance company, and repairs charged at in-house rates. That parking ding can quickly becomes £hundreds to repair, with limited ability to contest. If you happen to crash the car, or it is seriously damaged, you have to buy out of the deal, usually with a penalty. For servicing, some PCP deals require you use the manufacturer/ sellers in house servicing department, placing you over a barrel.

The agreed mileage limit is another bit of small print worth looking at. In seeking a good GMFV most finance companies set low average mileage limits (5-10k common). Go over that and every additional mile can be charged, typically at 5-10p a mile (5). So that 5k extra a year costs you £500 at 10p/mile, but with some bombsite backstreet dealers charging 30-50p/mile (6). Going back to that CarGurus study, more than half of those surveyed didn’t know what the penalty charges were on their contract (4).

The Canary

Warning sounds are beginning to be made about PCP for two reasons. The first is a flashback to 2008’s grim figure, sub-prime lending. It is unclear how many loans made for PCP in the UK were sub-prime, that is to people who will probably default. The car finance industry states it to be around 3% (7), but given the demographic PCP is aimed at this seems low. Outside of those selling PCP, economists at the BOE have privately expressed concern (8). The sale of sub-prime auto loans in the US is already becoming big business (9).

The BOE’s concerns touch on some of my own. PCP leaves the lenders exposed in many ways. An economic downturn could mean a default on that PCP loan (10). The same economic downturn could knock value of second hand car values and residuals, therefore devaluing the asset. The value is highly dependent on the GFMV.

PCP is often sold as ‘this is the minimum it will be worth at the end, but if it’s worth more then the equity can be used on another car’. The issue I have with this is that values are estimated years in advance, while on the ground prices change with fashion, numbers sold and all the other factors that effect car residuals. If most cars are being bought on PCP, as the people who used to buy the cheap secondhand car now buy a new one on PCP, the demand and value drops off in the second handmarket. We’re already seeing that at the bottom end of the market, with a bumper crop of cheap serviceable vehicles. Additionally a car manufacturer may be the focus of a scandle (say relating to falsified emissions results), which knocks consumer trust and desire for the brand and knocks prices. Ultimately someone will be left holding the difference between the predicted value and the actual value; an overexposed lender or a broke consumer. We are beginning to see this, but the train is still coming down the tracks. Rant over.

The final caution is on the reason people buy PCP deals. Some argue they will save on tax or help the environment compared to their old car (false economies for the most part, and a sad endictment of our broken car tax system). Others want a reliable car that’s in warranty that functions as a white good and can just be used. Here the disconnect is new=reliable, which is a cognitive bias that’s not always the case. More on that another time.

TL:DR

PCP is good if:

  • You read the small print
  • Maintain the car impeccably
  • Do less than the mileage limit
  • Don’t mind an unfashionable, unflashy car
  • You can afford to buy out of the PCP if something untoward happens.

PCP is not as good if:

  • You don’t read the T&C’s
  • You do big mileages and work the car hard
  • You want a flashy fashionable car
  • You can only just about afford it

As with any purchase, a car on PCP is a personal choice. There are risks, but with discipline and sense it can work. Just not my cup of tea.

Next time on Frugal Motoring- Bangernomics

Have a great week,

The Fire Shrink

N.B. If you are thinking of getting a car on PCP, check out Ling’s Cars, if only for the WTF.

References:

  1. https://www.moneysavingexpert.com/car-finance/personal-contract-purchase
  2. http://www.carbuyer.co.uk/tips-and-advice/152049/pcp-deals-explained-what-is-pcp-finance
  3. https://www.google.co.uk/url?sa=t&source=web&rct=j&url=https://amp.ft.com/content/8bd9da60-0a5d-11e7-ac5a-903b21361b43&ved=2ahUKEwiJ_8Sa6rnbAhXJNcAKHYeaB9kQFjAIegQIARAB&usg=AOvVaw36J7T_jfEnveDLZBnGirde&ampcf=1
  4. http://www.thisismoney.co.uk/money/cars/article-5380867/Britons-oblivious-costs-risks-car-finance-deals.html
  5. https://www.thecarexpert.co.uk/how-to-understand-a-pcp-car-finance-quote/
  6. http://www.thisismoney.co.uk/money/cars/article-5388333/Avoid-mileage-penalties-car-finance-deal.html
  7. https://www.theguardian.com/money/2017/jul/02/car-leasers-publish-sub-prime-lending-figures-mps-charities
  8. https://bankunderground.co.uk/2016/08/05/car-finance-is-the-industry-speeding/
  9. http://www.ifre.com/sub-prime-auto-puts-more-junk-in-trunk/21343681.fullarticle
  10. https://www.theguardian.com/business/2017/jun/10/car-loans-personal-contract-plans-vehicle-financial-crisis-pcp

Frugal Motoring – Should I buy a diesel?

Well, no, obv… Except yes?

What started as a rant post, I shall turn into a mini-series.

In Frugal Motoring I will discuss how to cheaply purchase cars, the pros and cons for various purchasing methods (straight up cash, loan, PCP, lease), ongoing political/ government motoring related machinations and how to keep your car running.
This week I will discuss why and when you should purchase a diesel instead of a petrol.

Diesel’s bad rep

As discussed in the last Frugal Motoring post, diesels have a bad rep. Audi continues to push the slide into mediocrity with the recent news that even new build A6/A7 cars are affected.

http://www.bbc.co.uk/news/business-44037673

But this does not extend to all manufacturers. Many (Mazda/ Merc/ Ford/ Kia) continue to produce diesel vehicles with low emissions and good MPG. The diesel brush tars them unfairly, suggesting all manufacturers have ignored the NOx as particulate emissions problems. If we take a look at AutoExpresses list of best ‘green’ cars for 2018, there slap bang in the middle is a diesel Astra.

http://www.autoexpress.co.uk/vauxhall/astra/86341/vauxhall-astra-16-cdti-ecoflex-best-low-emissions-green-cars

While if we look at the website Next Green Car, there’s a huge raft of diesels with low emissions. It’s important to note as well that most of these are general family cars, not flash executive motors sporting the latest tech. The technology for low emissions has trickled down to the mainstream. http://www.nextgreencar.com/emissions/low-emission-cars/diesel/

Changes, changes

Taxation is being increased on new cars, and some of the new rules will only affect future vehicles. Additionally, depending on emissions the extra taxation could be as little as £20/year, but are more likely to be around an extra £100-200/year for new low emissions models. Residuals for diesels remain strong but are expected to drop in the future with increased taxation. Governments decreasing taxation on diesels seems unlikely.

http://www.autoexpress.co.uk/car-news/102928/new-diesel-car-tax-rules-april-2018-changes-explained

Recent technology advances by Bosch also claim to mean lower emissions in the future, with a new tech targeting the pesky problem particulates and NOx:

http://www.autoexpress.co.uk/car-news/103331/new-bosch-tech-drastically-cuts-diesel-nox-emissions

https://www.driving.co.uk/news/new-nox-emissions-tech-bosch-save-diesel-engine/

When is diesel a good thing?

Diesel engines continue to offer generally better MPG when running at moderate RPM for long periods. So if you’re doing lots of long distance journeys diesel is probably best.

Diesel also offers better torque at low RPM. This means if you are regularly making long journeys or towing then diesel is a better fuel choice.

Which? offers an excellent calculator to work out how much you could save with efficiencies of a diesel engine:

https://www.which.co.uk/reviews/new-and-used-cars/article/driver-calculators-and-tools/petrol-vs-diesel-calculator

But it’s worth remembering most of these efficiencies rely upon turbos being spooled up, engines being warm and DPFs operating properly. Short journeys will kill Diesel Particulate Filters, and by nature most diesel engines will struggle to get up operating temperatures doing stop-start work in traffic. Around town this will also mean more invisible pollution for local pedestrians and residents.

Diesels also generally continue to cost more to purchase. This means that unless you’re doing starship mileage you may not save on fuel cost what you initially paid out extra in engine choice. Most buyers will only see a diesel recouping it’s cost after 6-7 years. The new taxation system is set to worsen this.

https://www.which.co.uk/reviews/new-and-used-cars/article/petrol-vs-diesel-cars-which-is-better

Summary

Broadly, diesels are better for:

  • Towing
  • Long distance commutes or frequent long distance journeys
  • Heavier vehicles
  • Multi-stop journeys

If you think this fits you, consider that new diesels will be cheaper to tax and more efficient, but will have a payback time calculation to make. Second hand with have less of this payback due to depreciation, but will be taxed more. Both may see a future drop in residuals. As with all big purchases think carefully about your requirements before buying.

Have a great week,

The FIRE Shrink

Further reading:

https://www.rac.co.uk/drive/advice/buying-and-selling-guides/should-i-buy-a-diesel-car/

https://www.moneyadviceservice.org.uk/en/articles/choosing-between-petrol-and-diesel-power

http://www.autoexpress.co.uk/car-news/103111/should-i-buy-a-new-diesel-car?amp

Frugal Motoring – Diesel Curse

The adage goes that you should write about what you know. While I continue to learn about investing I’ll blog about frugal motoring.

In the last few months there’s been lots in the news about diesel cars. Since ‘diesel-gate’ (what will it take for lazy journalists to stop adding -gate to things? Door-gate? Gates-gate?) their social popularity stock has been in free fall. Suddenly they’re very out of fashion, and the Daily Mail warns us that many nuns and kittens will die if you buy a diesel. Should you be concerned?

Motoring fashion

The rise of diesel cars as a proportion of total sold really took off in the ’90s and early ’00s. Prior to this diesel engines were the preserve of commercial vehicles; loud, clattery, generally large displacement and utilised for their torque curve. In the late 1980s and early 90s manufacturers began to make smaller displacement, less tractor-ish, engines. This was largely possible due to a spread of direct injection and common rail technology, bringing more refined efficient running. These found their way into a wider variety of cars including corporate, higher end models. Engines like the Peugeot XUD, VAG 1z/ AHU/ AAZ/ PD and Mercedes OM60x series spread the word. Reps doing mega-mileage sang the praises of the fuel efficiencies and reliability of these donks.

Diesel had it’s golden age. Emissions concerns in the 00s pushed manufacturers to reduce harmful large particulate output (the old diesel smokers) while at the same time increasing efficiencies. Turbos, diesel particulate filters (DPF) and exhaust gas recirculation (EGR) were born. Diesel engines spread across consumer car ranges and people were seduced by their quoted MPG figures (leading to low tax brackets).

Emissions controls

The combination of emission controls and the spread across consumer car ranges lead to people using diesel cars who previously wouldn’t. Cars got heavier due to increased safety features all while tax incentives towards high efficiency vehicles continued this push. It was now people doing 5,000 miles/year as well as those doing 50,000, and so issues began. Engines were built for higher combustion pressure using tighter tolerances. Diesel engines are more efficient when up to temperature, and EGR/ DPF function best with long duration moderate RPM runs. The short distance, short duration journeys of those moving from little petrol cars to little diesel cars couldn’t produce the sustained RPMs required. Oil barely had time to warm up and lubricate the tight tolerances. People began to complain that their cars were not as efficient as expected, or not as reliable, or were doing DPF regen too frequently. Clouds gathered on the horizon.

Diesel-gate

It became difficult to develop engines that could meet the power/ weight/ efficiency/ emissions demands of the population and government with current technology. Some manufacturers built engines with tight tolerances that met standards at the expense of reliability (see Renault/ Nissan’s DCI). Others reduced displacement, upped boost pressure or used AdBlue (urea injected into the exhaust system, made from pig urine). VAG clocked that international emissions testing systems were always run a certain way, and therefore developed a programme in the cars ECU to detect when the car was being tested and tune for emissions at the detriment of performance. They were found out, and how the hysterical tabloids shrieked with indignation. Imagine that, a large corporation finding a way round government law and not telling the public!

At the same time scientists began to measure and report the elevated toxic levels of NOx and very fine particles that the new diesel engines chucked out. Those new diesels weren’t so clean after all, they had just changed from visible smoke to tiny invisible particles. A tipping point was reached.

Double standards

That brings us to now. The government, ever the one to follow the will of the people (shriek of The Sun/ Mail), has started to roll out new rules. Among these include that any Engine Management Light on, removal of Diesel Particulate Filter or Exhaust Gas Recirculation will be a fail come MOT time. This affects all car owners, but particularly diesel owners, where second hand owners replace or remove DPFs/ EGRs in pursuit of better reliability/ fuel economy.

https://www.theguardian.com/money/2018/apr/14/mot-changes-strict-tests-diesel-cars-fail

At the same time, the recognition of the other harmful exhaust gases has caused taxs and ultra low emissions zones to target diesel drivers.

https://www.bbc.co.uk/news/amp/business-43655703

I applaud the manufacturers who have managed to meet required standards. The technology (in it’s infancy 10 years ago) has matured and it is possible to have highly efficient diesels that haven’t bent the rules. Diesel is an excellent fuel for efficiency and torque.

Why does this matter to us?

Three points here. First the obvious. It will cost more to own a diesel car as tax classes change in the future. You may get stung with a hefty bill when you go for an MOT and find out that secondhand BMW 116d is missing it’s DPF. Manufacturers are also changing engines to make them meet new emissions standards, but in some cases this is worsening performance or MPG. Many new diesels aren’t meeting advertised MPGs in real world environments as the listed MPG figure is from a rosy scenario.

Additionally, you may have received a letter from the manufacturer asking you to bring your car in for a ‘fix’. VAG are the big name for this. I would think very carefully before getting the ‘fix’. Pistonheads (the car forum for powerfully built company directors driving shiny cars in shiny suits) is full of very interesting threads about documenting experiences with their ‘fixed’ cars.

https://www.pistonheads.com/gassing/topic.asp?h=0&f=86&t=1589780

Second, broader, point is about the knock on effect on the UK economy. We may no longer be the British Leyland industrial powerhouse nation, but many thousands of jobs across the UK rely upon the motor industry. The UK retains a reputation for high-tech manufacturing. Many of the manufacturers who have done well out of the rise of diesels produce the cars and engines in the UK.

https://amp.theguardian.com/business/2018/mar/05/diesel-uk-car-sales-fall-petrol-electric

The fall in demand has resulted in a fall in production volume, and jobs are being lost.

End doubts over diesel’s future, says Ford boss – http://www.bbc.co.uk/news/business-43885516

Nissan to cut hundreds of UK jobs – http://www.bbc.co.uk/news/business-43841922

Jaguar Land Rover to shed 1,000 contract staff – http://www.bbc.co.uk/news/business-43756202

It remains to be seen what will happen, but it’s unsettling to note the government not supporting manufacturers producing alternatives.

Third and final point and the one I see less writing about; diesel residuals. For the past 5-10 years people have been buying diesels, lots on PCP or finance deals, expecting when they come to sell or hand back the car will be worth a certain amount. That amount may no longer be what was expected. For the owner it’s a painful lump to swallow. For finance companies with hundreds of diesel cars on file, it’s a much bigger financial black hole. More on this another day.

I have a diesel, what should I do?

You’ve just bought your Vauxhall Insignia CDTI using a bank loan. You do 20k a year chugging around motorways, and find the car comfortable.

Probably nothing.

Check where you stand for MOT changes then drive your nice car.

Diesels remain an excellent engine choice if you’re doing high mileage where the torque and MPG show. Soporific sensationalist journalism doesn’t change it’s utility.

I continue to drive a 25 year old diesel. It’s loud, smelly, noisy and chucks out clouds of clag. It costs very little to service, very little to tax and can theoretically run on vegetable oils for maximum environmental offset.

Car purchases will be the biggest lump sum spend after a property, so always analyse engine choices pre-purchase. Don’t be swayed by government incentives which may change with the government’s mood.

Next time on Frugal Motoring: The PCP Black Hole

Yours,

The FIRE Shrink