We all know that just having a website, no matter how great, is not enough to make sales in the automotive industry. LEARN MORE
I just had a conversation with a friend of mine who works the desk at a Ford store. He was telling me how you could buy a F150 Lariat in the $24k range thanks to over $10k in factory rebates. It’s a killer deal and the public is all over it. He said truck sales rebounded a bit for them last month and they moved a bunch of these units, especially due to the fact that you could un-bury someone with a bunch of negative equity thanks to the rebate.
I’m stoked they were able to have a better month of sales. We all know the industry needs it, but aren’t we just digging ourselves deeper into a hole? What is that Lariat really worth: the $34k sticker price or the $24k selling price? Obviously it’s worth what the buyers are willing to pay, and that certainly isn’t $34k in today’s market.
Lest look at this realistic scenario: if the buyer had 9k in negative equity (very realistic considering how soft trades are) they just financed 33k, plus taxes and fees. As they left the lot they were approximately $14,000+ plus taxes and fees upside down. OUCH! Then you figure they took out a 72 month loan with a mid interest rate (we all know FMCC doesn’t provide the most aggressive rates) and their principle balance will not be paid down near the rate of depreciation. What’s all this equate to? One less buyer on the road for another 4-5 years because they will be so tanked in their new truck they have no hope of trading out without a significant down payment!
How many times did this happen across the country last month? Last year? How many buyers are out of the trade cycle because they are SOO far upside down that they are completely un-financeable? How long will this last before banks adjust lending guidelines and dealers are really hurt?
Can you blame the dealer? If they had sold the truck to the customer, someone else would have. Any sales manager worth his paycheck would gladly answer, "Roll it!" Their job is to put together deals, not police the nationwide market. However this doesn’t stop the fact that we are only hurting ourselves in the long run by reducing the number of financeable buyers in the market place.
So what’s the answer?
a) Continue… knowing that just like home mortgages the piper will come calling and once the banks get tougher we will deal with it then. (That will be a tough day)
b) Switch to leasing, since there is such strong support for leasing at the moment. (Ha-ha yea right, strong support for leasing?)
c) Play financial advisor for our customers and recommend shorter terms and larger downs risking that our competitor down the street will beat us by a mile on payment.
d) Not worry about it, at least they bought GAP?
Our options aren’t too good, but seriously this is a real problem.