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Car buyers are being urged to avoid taking expensive loan insurance sold by commission-driven forecourt salesmen.
Sales of guaranteed asset protection policies are soaring. These policies are also known as ‘gap’ or car depreciation insurance, and are sold when buyers take out car finance deals.
It provides cover for the car’s full purchase price, or total cost of a finance deal, if your car is written off before you have repaid the loan, and usually costs around 300 for three years’ cover.
'I WAS DELUGED BY INSURANCE ADD-ONS'
John Amandini, pictured with his wife Mary, who was deluged with insurance add-ons
John Amandini, 74, was deluged by insurance add-ons and extras when he bought his new Hyundai ix20 Active car from his local forecourt.‘It wasn’t just a new car they were trying to sell me,’ he says.
‘It was the gap insurance to packages for valeting and even diamond polishing.
‘Do I really need to insure against my insurance company? I didn’t think so.’
He turned them all down after becoming frustrated at being give the hard-sell.
The retired nursing teacher, pictured with his wife Mary at their home in Devon, says the car cost 12,000 but he got it for 7,000 after trading in his old vehicle.
Car salesmen pressurise customers to take out gap insurance because they typically pocket half the premiums as commission. But those who want cover can find it cheaper elsewhere.
When you buy a new car, its value will usually drop like a stone the moment you drive it away. Depending on the model, a car can lose as much as 10 per cent to 15 per cent of its value the minute you turn the ignition for the first time.
If it were written off, an insurer would only give you a like-for-like replacement, not a brand-new car — leaving you with a finance deal worth more than the value of the car.
The selling point of the gap insurance is that it would cover the difference. It can also be taken out for second-hand cars.
Two in every three of the 517,493 new cars sold last year were bought on a finance plan offered by a dealer. And a fifth of the 728,971 used cars purchased in the same period were also through forecourt finance. Almost half also bought gap cover.
But complaints about the insurance have shot up by 17 per cent in the past 12 months, says independent complaints investigator the Financial Ombudsman Service. And there are fears this number could rise further given the boom in forecourt finance deals in the past year.
A spokesman for the Ombudsman says: ‘Gap insurance can be useful for some consumers. But we increasingly see cases where sellers have failed to explain the limitations of the cover.’ If your new car is written off, most fully comprehensive car insurance policies offer to cover the cost of a new replacement vehicle during the first 12 months of ownership.
If your car is written off or stolen after this period, you will probably receive a payout worth the car’s current value.
This could be a lot less than you paid since some new cars lose as much as two-thirds of their value within three years, says consumer group Which?
For example, a 12,000 new hatchback bought on finance would typically have repayments totalling 15,000 including interest.
So if the car was written off 14 months later, the insurer would be likely to pay out only its current value of 9,000. The driver would still have the full loan to repay, leaving them 6,000 short. The gap cover would pay off this difference.
Money Mail has previously reported how the City regulator is understood to have concerns about the way some kinds of low-cost insurance were sold — typically those types of cover taken out alongside another product.
In a trend which echoes PPI — another type of cover sold alongside a loan or credit deal — the Ombudsman says it has seen cases during new car purchases where people did not even realise they had bought the cover.
This is often because it has been bundled up with various add-ons such as an extended warranty or breakdown cover.
The Ombudsman says many car buyers do not understand that:
- Gap policies do not cover additional purchases such as service plans;
- A policyholder may be left out of pocket if they paid more than the recommended retail price;
- Policies often last several years, but provide no refund if they are cancelled early.
If you do still want to take out gap insurance, consider using a comparison website to find the best deal.
Free money begins to gush - Sydney Morning Herald
Who said there's no such thing as free money?
The flight of capital in global markets has become so extreme that you actually have to pay to park your money in Switzerland, in Swiss sovereign bonds, that is.
While bonds around the world offer a yield, a return on investment, the picturesque tax haven in the middle of Europe now boasts a “negative yield” on its sovereign debt.
Putting this in perspective, the yield on a Greek bond is 30 per cent compared with sub-zero for Swiss bonds. And it still looks pricey.
The countdown is on for the Greek elections this Sunday. And as the world contemplates a possible Hellenic exit from the eurozone, or a “Grexit” as market parlance would have it, the region's bond markets have hit their tipping point once again.
Sharemarkets, having briefly and perversely rallied on news of the 100 billion-euro bailout of Spain's banks early this week - something which should have been bad news as Spain had been consistently denying its banks needed help - fell on Tuesday but recovered last night.
When the sharemarket and the bond market start telling you different things, though, it is usually the bond market which has it right. Equities are plodding along yet bonds are warning of danger ahead.
It may be that the strength in equities is precisely due to the fact that bond yields in what are deemed the safer countries are so low (around 1.65 per cent in both the US and the UK and 1.2 per cent in Germany).
And it may also be that investors are simply fed up with super-low yields. At least quality industrial shares carry a decent dividend yield, albeit with less security and greater exposure to economic downturn than bonds.
The third point in favour of shares is, as many see it, the inevitability of further radical central bank stimulus: money printing, QE3, LTRO, assorted programs to appease equity markets and “kick the can down the road”.
Diminishing kick
This latest pricing in credit markets indicates a law of diminishing returns, though, when it comes to stimulus, and kicking that old can.
Switzerland, which has retained its currency though the entire 20-year euro experiment, this week for the first time ever boasts a negative yield curve on its six-month to five-year paper.
No yield at all in other words - just the 'sleep-at-night' factor - that if things turned really pear-shaped in the impending contagion from a Greek exit and further wobbles in Spain, your money could be parked in Swiss francs until it's safe to bring it out.
The amusing paradox is that the Swiss franc protects an investor against a fall of euro, or a default in a southern European bond, but it also allows the Swiss to pay down their own sovereign debt by …. you guessed it … issuing more sovereign debt!
Peg catch
There is a catch. Last September as Europeans were fleeing the euro in the last holus bolus flight to safety, the Swiss National Bank was forced to peg its currency.
The franc was running so hot that it was threatening to demolish the country's high-quality export sector and its tourism.
After all, why go skiing in Switzerland when it's half price on the next slope in Italy, Austria or France?
The currency fix didn't entirely quell the tide of capital, though. Hence the negative yield. This week, two-year rates are costing investors 36 basis points.
Spanish, Italian pain
Meanwhile below the Pyrenees, Spain's ten-year debt shot to its lowest price, which means its highest yield, in 15 years at 6.83 per cent.
At that rate, it is too expensive for the embattled government in Madrid to issue bonds and refinance. The cost of Italy's debt, likewise, became prohibitive, hitting six-month highs above 6 per cent.
The spectre of contagion once again haunts Europe and there is still another $1 trillion to borrow and refinance this year.
Italy, the second-largest debtor in the euro zone, has more than 9 billion euro to raise in the next couple of days.
More, please
And as the calls go out from banks and markets for QE3, for another round of free money to prop up stock markets it is ever apparent that the benign effects of central bank stimulus diminishes with each program.
More and more people are questioning the Keynesian logic of splashing the cash around. The more compelling conclusion would be that splashing the cash about has failed. The result has merely been to pile debt upon debt.
Perhaps when they let Greece go, and it might take Spain and the rest of the periphery to be cleaned out too, nature and markets can take their course.
In the meantime, if there is another humungous stimulus, it will provide at least short-term relief for sharemarkets.
And for Australia it may be fleetingly positive, putting a floor under commodity prices as markets opt, however briefly, to park their money in hard assets.
German finance minister - bank union only after more EU integration - The Guardian
EU: movement of money, people can be limited - The Guardian
BRUSSELS (AP) — The European Commission has been providing legal advice to others who are considering possible scenarios should Greece leave the euro, a European Union spokesman said.
Olivier Bailly said Tuesday that, legally, limits could be imposed on movement of people and money across national borders within the EU if it's necessary to protect public order or public security — but not on economic grounds.
"Some people are working on scenarios," he said, but refused to confirm or identify which organizations and people were working on them.
Mexican drug cartel launders money through American horse racing - YAHOO!
On Tuesday, the Justice Department moved against Tremor Enterprises, a horse racing business funded by Miguel Ángel Treviño Morales, the second in command of Mexico’s Zetas drug cartel, reports The New York Times.
The company has operations in Oklahoma and New Mexico and is run by Treviño’s older brother José, a legal resident of the United States. The younger Treviño, Miguel, is one of the DEA’s most wanted fugitives, and there is a $5 million reward for information leading to his arrest. He has become the lead enforcer of the Zetas, who are known for mutilating his victims’ bodies while they are still alive.
The brothers’ horse breeding company won three of horseracing’s biggest races in the last three years, earning about $2.5 million in prize money. The operation was used to launder money from the drug cartel through legal enterprises in the United States.
The Justice Department sent helicopters and hundreds of agents to Tremor’s stables in New Mexico and its ranch in Oklahoma Tuesday morning.
The Zetas were originally a protection force for another but split off in 2010 to start their own operation, which is now one of the most influential in Mexico.
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Motor industry cries out for finance and engineers - BBC News
The staging of a car show in the heart of London's Canary Wharf is a potent symbol.
Not only does holding the Motorexpo in Docklands illustrate the dependence of the UK's motor industry on the world of finance; it also points to how the City has become one of its toughest rivals.
What car makers and component suppliers need to thrive are cash and talent.
Both these scarce resources can be found here.
But that is not to say it is easy for industry players to get hold of them.
Stimulating growthCash, or rather investment funding, is often hard to come by for companies in the motor industry, especially for parts suppliers or dealers that are often relatively small.
This is a challenge Paul Everitt, chief executive of motor-industry body SMMT, has been keen to tackle for some time.
"Improving access to finance and credit has the potential to stimulate growth in UK automotive's small and medium-sized companies, enabling them to develop facilities, tooling and machinery to take advantage of broader automotive growth," he says.
"By achieving competitive funding for UK businesses, the UK can take a larger share of the components market."
Talent, meanwhile, is also in short supply, not least because many of the best engineers in the UK are snapped up by City firms, according to Nick Pascoe, who runs Controlled Power Technologies, a relatively small technology company specialising in petrol-electric hybrid solutions for the motor industry.
"All of the motor industry is crying out for good-quality engineers," he says. "But many of them are only too happy to come to Canary Wharf and get into finance instead."
Mutual benefitsRichard Hill is among those who have chosen to work in banking rather than the motor industry.
Four years ago, at the height of the credit crunch when the car industry was in dire straits, he left the sector to join Royal Bank of Scotland.
But his departure was no desertion.
Rather, the task he was given was simple: help the bank understand the motor industry, to make it possible to provide finance for struggling dealers and component makers.
"The way the motor industry is structured and driven, it is a challenging environment to lend to," Mr Hill says, pointing to how the sector is capital intensive, generally offers low returns, and how debt levels are generally restricted by companies' balance sheets, which are often far from healthy.
But at the same time, there are plenty of opportunities for those in the know.
For instance, many suppliers or dealers say banks often take too long to make decisions, a particular difficulty for a sector as nimble as this, according to a report by The Smith Institute, published late last year.
"When you don't have an understanding of the business, those opportunities could be missed," says Mr Hill.
Similarly, the motor industry would benefit from a broader view of the finance options that are available.
"It's not just about traditional debt, such as overdrafts or loans," he says.
For example, structured finance products can be used to fund acquisitions or mergers, trade finance can help a component supplier expand internationally, while stock finance can help a dealer ensure there are enough cars in the showroom.
"Things have changed, or are changing, or could change if we work harder to understand each other," Mr Hill says.
"We need to bring the two worlds closer together."
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