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"Mr Customer press firmly and sign here your payments are only $538 per month for 6 years, not bad considering we had to give up most of rebate to pay off your negative equity."
How many times have you heard these words in a dealership?
These types of transactions are not a solution for the customer or the dealer long term and it wont be long before lenders realize this is just bad business for all parties concerned and change their lending guidelines. A car or truck with a large rebate as a tool to move them and cover negative equity is soon to be part of the "good ole days".
It is these type of transactions that inflated home values and brought around the inevitable market correction and now is the time for the automotive industry to wake up to the fact that this is not financially sound for any party.
Large rebates on vehicles held by the manufacturer can cripple cash flow for a dealer and cause them to pay interest on their own money. Basically dealers are giving the manufactures loans and they are paying the interest for them, in their floor plan cost.
A customer who dumps a vehicle they are upside down in by using a large rebate has only gotten a shiny new ride with the same negative equity problem they had before thus removing them from the market for a longer protracted period of time.
The lender who makes a loan structured on invoice price before taking into account a rebate is way under collateralized and is making large personal loans disguised as secured loans.
Not a win for any of the participants. If the customers and the dealers will not put an end to the madness chances are the lenders will be the first ones to do so, especially now that the federal government is getting into the banking business.
Is this bad for the future of the car business? Not at all. It will cause a distress for the short term and stop the shell games and the industry will win when the dust settles.
I may be wrong and would love to hear your opinion.
These are my personal views and are not the opinion of www.drivingsales.com