Undercover Investigation Exposes Deteriorating Auto Lending Standards In Europe; No Job, No Problem

Over the weekend we wrote a note about how the European auto lenders are becoming just about as ridiculously undisciplined as their counterparts in the United States.  Apparently an ever-growing reliance of European millennials on lease financing has auto ABS investors worried about a potential crash in used car prices at some point in the not so distant future...that sound familiar to anyone?

But a new undercover investigation by the Daily Mail exposes just how "undisciplined" the auto lending market has become in England.  Here are the headlines:

  • Reckless car loan salesmen exposed: How dealers are luring young drivers into massive debt by offering them new top-brand cars with NO cash up front
  • Salesman are offering customers cars worth up to £20,000 for no deposit
  • The deals make the customers pay back hundreds of pounds a month for years
  • The cars are being offered to those on low wages and with poor credit rating
  • Experts in the City fear the huge numbers could default and cause a crash
  • If drivers fall behind on payments the cars can be automatically repossessed

Of course, for American auto consumers nothing about the headlines above is all that shocking.  In fact, we recently noted how one dealership in Texas was literally marketing a $1,500 "Low Credit Score" discount to buyers on a $55,000 truckWe guess it never occurred to anyone that perhaps, just maybe, a person with a credit score under 620 shouldn't be shopping around for a $55,000 vehicle? 



But we digress...back to Europe.  As the Daily Mail points out, their undercover reporters visited a total of 22 dealerships and were repeatedly offered cars of various values with no money down and despite reporters admitting that they had no job and no source of income. 

Reporters visited 22 dealerships in England and Scotland, saying they were in their early twenties and either unemployed, on low incomes or trying to buy a car despite having poor credit ratings. Half of the dealerships – including ones selling Audis, Mazdas, Suzukis, Fords, Vauxhalls and Seats – told them they could have a brand new car without paying a penny up front.


In each case they were offered Personal Contract Purchase (PCP) deals – a type of car loan that now makes up nine out of ten car sales bought on finance in Britain.


These deals offer smaller monthly payments than traditional car loans.


A reporter who said he was working part-time on the minimum wage was offered a £15,000 Seat Ibiza without a deposit at a Seat dealership in Manchester.  Another reporter suggested that he had bad credit, but he was offered an £8,600 Vauxhall Corsa in Birmingham.


Kevin Barker, 71, found himself £3,500 in debt when he suffered a heart attack six months into a PCP deal. He said a ‘pushy’ Toyota salesman ‘pressured’ him into taking out a 36-month agreement in November 2014 and he was not told of the repercussions if he fell ill or lost his job.

Car Loans


Meanwhile, an Audi dealer in Edinburgh offered an out-of-work, 24-year-old a deal on a brand new £15,000 Audi A1 hatchback.

‘You’ve had credit before?’ he asks, leaning forwards. ‘You’ll be fine then.’


The salesman is trying to sell a £15,000 Audi A1 hatchback to a 24-year-old who has wandered in from the street.


The buyer – an undercover Daily Mail reporter – has said he is out of work. He is applying for jobs, he says, and hopes to find one soon – but he fears he won’t pass a credit check. Surely this means he cannot afford a brand new Audi?


The confident dealer appears to have no qualms about offering him the car. He declares that for monthly payments of £215 for just 48 months, the unemployed buyer can happily drive out of the Edinburgh showroom. And after the deal ends, all he needs is another £6,958 to own it outright.


The scenario seems unfathomable. How can such a high-value car loan be offered to someone in their early twenties who doesn’t have a job?


Yet an investigation by the Mail has found that similar conversations are happening in showrooms across the country.

Seems that our neighbors across the pond are learning how to maximize their GDP potential through an ill-advised, yet massive, expansion of consumer credit.