8 Year Auto Loans
By Lance Winslow
We are seeing longterm loans of up to 8 years
on new cars. Generally the Financing Department
of a Car Dealership makes as much money as
the sales department. After 0/0 deals have
come and gone, the new car sales markets are
looking for ways to continue the high sales.
By offering lower payments of $50-100.00 per
month less, car buyers who could not afford
the car they wanted will now be able to fit
it within their budgets since so many Americans
are underemployed, in other words working
at Home Depot even though they have two advanced
degrees.
The telecom job they may have had
at $60-88K per year has turned into a
$36K per year cash strapped job. These
consumers are still being targeted by
the dealerships even with these current
issues. The real problem comes down the
road similar to those which hurt the Leases
where the people were upside down in their
values upon the time when most turn in
their cars; average is three years.
GE Capital left the leasing game for
SUVs and cars and GMAC and FMC lost millions
in bad lease deals when the cars were
traded in, they could not be sold for
the agreed upon residual values. Many
times the trade ins before end of term
or open end leases meant the consumer
would have to bury those upside down numbers
into the financing of their new car. So
they might have traded in a Jaguar or
Cadillac and roll over the difference
and then have payments of $400.00 per
month on a Nissan Sentra or Ford “Fajita,”
I mean “Festiva” Turbo of course with
all options? This was a huge game in the
leasing days in the Early 90’s.
With 8-year loans, payments will be lower,
but that three-year itch to buy a new
car will not be fulfilled without taking
a huge hit. This of course would be bad
for future sales of cars. Or a worthy
temporary fix for now to sell more cars,
but would mean that the economy would
have to be rather wonderful in 8 years.
Unfortunately if people keep their cars
longer, then the auto parts stores will
do better in 3-5 years, due to the planned
obsolescence of the vehicles, which is
manufactured into the car in the first
place. Some industries like car washing,
which tracks the new car markets for about
3-4 years as people with newer cars tend
to spend more money on washing will be
hit after that time period. Who wins?
If this huge play for 8-year loans sells
many cars in 2003 Q3 and through 2004
up cycle Election Year, does well it will
help after market auto accessories as
people add-on to their car. People have
an emotional tie to their cars and just
like men buy Viagra and Women get augmentation
or breast enhancements, this same drive
of self, is what drives those to upgrade
or personalize their cars with new features
as they move to build upon this extension
of their personalities, our great American
love of the Automobile. Talk about “Apple
Pie” these are real trends. Anyway if
auto parts is up and car washing is down,
at least there will be more cars on the
road, so the expanded pie will take care
of the decreases. Occasionally there are
events, which trigger large sector rotation
or trigger small sub-sector changes, which
move markets. Eight year auto loans is
one strategy, which has been played before
with auto leases, but there is a long-term
problematic issue to be concerned with
in such a tactic for shorter term profits.
"Lance Winslow" - Online Think
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