So what do the auto bailouts mean for average people? It’s more than just 0%!
GM, Ford and Chrysler now will live to fight another day, but a lot of people seem to be asking what the bailouts mean to average folk.
Well, for the economy in general, the bailouts are intended to strengthen the economy, but more importantly they are intended to strengthen consumer confidence in the economy — specifically with respect to lenders and the auto industry. Consumer confidence causes consumer spending which in turn boosts the economy in a bizarre snowball effect. But making the snowball roll uphill like that is tough.
In that respect, the snowball should gain some ground. According to this article from US News, GMAC immediately lowered the required credit score and issued 0% financing offers.
http://usnews.rankingsandreviews.com/cars-trucks/Auto-Bailout/
This story also stated, “Slow sales coupled with low financing and new incentives make a winning situation for many buyers.” So my previous comments hold true. It is still a really great time to buy.
However, in spite of 0% financing and great rebates, I still am not recommending that anyone purchase new domestic vehicles. In particular, Chrysler products have the most attractive incentives, but lose the most value as soon as they are driven off the lot. There are a few exceptions and I will be happy to one-off answers for specific vehicles. So please feel free to ask.
Here’s the secret behind 0%. Special financing offers are offered in lieu of rebates. So, for example, on a $15,000 car, interest over 5 years at 5% is about $2,000. So instead of a $2,000 rebate, the manufacturer offers 0%. Often buyers will be better off if they finance through their local bank and apply the rebates to the principal. Even better, buyers should find a low-mileage used vehicle such as a program vehicle that would qualify for new car financing. They can save thousands off of a new one even after rebates.
If someone wishes to purchase a Honda, Toyota or Nissan, I recommend doing some homework right now and looking at buying new. I do not recommend Hyundai and Kia for most buyers unless they live near a dealership where they can redeem the warranty. Even then, the Korean cars tend to be a better bargain used because they also have a high first year depreciation (but beware, the 100K warranties often are not transferrable).
None of the imports are much of a bargain even now. The bang for the buck is in the domestic product and contrary to popular belief, GM and Ford are comparable quality and get the same or better gas mileage. There is no substitute for homework. A little research on the web can save you from buyer’s remorse.
Be sure and check back next week. I will provide tips for used car buyers and I will explain what program cars are, why they are a good deal and why i think they will become rare in the near future.
-rocky
