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I am sure you have all seen the new car/truck ads offering 0% for 5 and now 6 years.
It really got me wondering why none of the boat companies have done this. I think it would be awesome to include it as a boat show incentive. Say 0% for the first 5 years and then add %1.5-%3 every year after that. I know it would get a few people I know into 2009 Moombas, myself included.
Does anyone have any thoughts on why this wouldn't work or why it hasn't been done?
On the local level, dealers of cars can afford to do it because they can leverage the volume of the amount of loans they can send towards the bank and the bank can hopefully captilize by insisting the customer must set up a checking account for automatic withdraw of the funds on a monthly basis.
As far as like a nationally advertised GM or Ford loan for zero down, those manufacturers own their own financing corporations and only offer it to well qualified buyers.
Car dealer = approx 100 units per month.
Inboard boat dealer = maybe 50 units per year.
Plus, boats are a luxury item.
Formula Boats has a deal with Key Bank to offer financing like this. Unfortunately Moomba does not offer direct to consumer financing, which means that typically each individual dealer will work with local banks to get their customers financed.
As stated above, boats are a luxory item and a depreciating asset, so finding someone to finance them at a reduced rate of interest (Prime -5?) is pretty unlikely, as the risk associated with the loans are rather high.
I agree with everything you both have already said and think it probably wouldn't ever happen but I like to think about it and run some numbers. Just a couple thoughts, I agree that boats are a depreciating luxury item. Aren't 40,000 suvs the same and they go at 0%? Boats seem to depreciate lots less than cars and slower. The problem is with S.C. being able to find someone to finance these deals for the company.
Take my situation, I "could" afford a new boat along with student loans and a car payment but could never pay the $10,000-20,000 in interest. In 5 years everything would be different since car, student loans would be gone but I don't want to wait. :D
I think that everyone would come out ahead with a deal like this. Like 0% with cars, you can't negotiate the price down nearly as much, it would be the same with boats. So I'll use a 50k boat for 10 years.
0% for 5 years then 10% for last 5 years
1st 5 - 50,000 @ 416.67/mo.
Last 5 - 25,000 @ 531.18/mo.
6,870.57 in total interest
0% for 5 years then 15% for last 5 years
1st 5 - 50,000 @ 416.67/mo
Last 5 - 25,000 @ 594.75/mo
10,684 in total interest
Negotiate that same boat down to 45,000
8% for 10 years
45,000 @ 545.97/mo
20,516 in total interest
S.C. and the dealers get more for each sale because people don't need to negotiate the price down so much. They also get more sales cause come on, who wouldn't take a second look at a Moomba/Supra over CC, MC, BU during boat shows with 0%. They would also get those people who want a new boat but don't do it because of the interest they would have to pay up front.
Sorry for using this board to clear my head, but I just get so excited every year I see the new S.C. boats. (imagine my disappointment every year I can't "afford" one.)
you may be on to something here, but most people don't look at total interest paid, they look at the monthly payment. For most Moomba buyers, I would say 130 to 150 a month would make a difference. If you compare that to CC,MC or BU payment with typical financing it would be 250-350 difference.
hmmmmmm
SC, might want to take a look at this....
I definitely agree with you that most people look at monthly payment, but I would have to say that is for being able to afford the loan right away. I think people plan to free up more money per month as their loan goes along i.e. paying off car loans, student loans, making more money, you name it. With something like this it would be perfect, you start with the lowest monthly payments and as you free up money, your monthly goes up a little and you keep the interest really low compared to a traditional.
Think of all the gas that the 15k in interest saved could get you!!
I doubt SC has the capital to subsidize loans at below the prevailing rates, the only reason GM and ford do it is to move inventory. BMW and audi rarely or never do this. look where gm and Ford are now because they have done this so many times. the interest makes sense to a consumer but not to a lender, especially and outside one.
my .02
It would be nice, but a boat is a luxury item. You would get into the same situation that we are in now with the housing market. People would buy a boat because it is 0% interest the first 5 years, expecting to make more money when the rate goes to 10% the last five years. But they never seem to make enough to take on that kind of payment increase. They end up not being able to make the payments, flooding the market with used boats. Not good for S.C. in the long run.
Somebody has to pay that interest that you save on a 0% deal. The bank and the dealer aren't going to eat it. The manufacturer is often willing to eat it since they're the ones that make the most off the sale (when looking @ variable cost of building the boat). I work for a manufacturer of depreciating luxury items, and I know that when we run subsidized interest programs, it costs us a fortune. It's worth it most of the time, but it's expensive. If there was a SC Financial Company (like GMAC) or if SC contracted w/ GE Money Bank, HSBC, Textron, etc.; they could offer these programs, but the money to cover the interest comes from somewhere.
Dealers may be hesitant, as they often get a kick-back from the financing source for directing the customer there. The opposite could be true, too. If a customer walked in and demanded a 5.9% interest rate, the dealer could buy the rate down w/ a bank, but they'd either tack it on the sales price or not allow as much price negotiating (basically the same thing). It's a big game, which is how dealers stay in business. If you look at the front-end profit of cars, RV's, motorcycles, and higher volume boats, you'd wonder why the dealer even bothers.
If SC gets into an excessive supply issue, teaming w/ a bank to offer a less-than-market interest rate could help them out. As I understand it, that's not a problem they have. Like jmvotto said, you don't see these offers from BMW or Audi (or Honda). Supply and demand - it all comes back to Econ 101.
I agree that the interest has to come from somewhere and in this case it sort of does. Take the example of a boat MSRP 50,000. Most everyone is going to negotiate a lower price; we'll say you only get it down to 45,000. With a 0% deal the buyer could afford to just pay the MSRP. Right there is 5,000 extra dollars to pay the financial company a cut or whatever. Referring to numbers from before...
0% for 5 years then 10% for last 5 years
- Mo. payments are 416.67 & 531.18(last 5yrs.) vs. the traditional 545.97 on a 45K
- Total interest is 6,870.57 vs. 20,516
We'll say SC decides to kick that extra 5K back to the financial company.
- SC would sell a larger volume of boats. (I would imagine) They also make the same $ per boat as they do now.
- Financial company essentially gets 11,870.57 in total interest (5K of that upfront) and they finance all of those 0% SC boats sold.
- The buyer, gets a NEW SC boat, has a much lower payment (-$130) and saves ~ $13,000 in interest.
Looks like a win, win and win all around to me.
Rollna01,
If you were the bank would you give up Total interest of (13,645.43) 6,870.57 vs. 20,516 over a 10 year period even if you got a $5,000 kick back. Think of the Present value of that 13,645.43 accross the number of boats sold
If SC could i hope they would not due to the fact it could Jeopardize their longeveity and the ability to produce quality boats if they subsidize their sales
a little company called Lucent Technologies subsidized a majority of sales in 1999 and 2000 with an line of credit (finance terms) pledge from its customers late 2001 and 2002 the product was not worth half of what they financed and they got the product back.
SC does not want the boats back, when they make it affordable to every Tom Dick and Harry ( no offense to anyone name TDH) or Joe smoe, and the economy burps and wallah. SC now has a bunch of moombas it doe not want.
Furniture comapnies doe this as well, 0% for 5 years, you miss a payment or not pay in full at 5years, the loan goes retroactive and reverts to 24% over the whole period. The people that can afford it get a good rate, the people that can't get screwed.
sorry off my soap box for now
jmvotto - well put.
The only reason a lender would want to get involved with this is cause they don't currently deal with a SC boat loans. A deal like this would give them a smaller margin but larger quantity.
SC wouldn't get the boats back if a third party lender was financing the boats, would they? Why would it be such a risk for SC if they weren't personally subsidizing the loan? Run this as a promotional deal for boat show season, sell more boats. Make the same margins per boat as before while kicking the extra back to the bank. Ultimately, they just want to sell more boats, don't they?
The reason why this isn't realistic is because the volume is way to low for it to make fiscal sense for the company and any financial institution. SC makes ~2,200 boats a year. Of those some people will pay cash, some people will finance through their own means, and some people won't be able to qualify for 0% deal. How many boats does that leave to take advantage of the offer?Quote:
Originally Posted by Rollna01
Offering 0% financing kills the resale of used boats because its much cheaper to obtain a new one, which means your trade-in value goes down, thus making it an even riskier loan for a bank to make.
Quality, not quantity. They want to sell more boats, but not because they are whoring them out. Ask an Econ professor why Chrysler eliminating lease programs was the smartest possible thing they could do for their product, long term.Quote:
Originally Posted by Rollna01
Whether Moomba gets the boat back in the event of a default is up to them. Generally, the manufacturer has some type of agreement w/ their primary lender to either buy the product back or subsidize their loss as a result of the wholesale after repo (outstanding balance is $25k, wholesale value is $20k for example). If they would want to make it at all affordable to buy the rate to 0%, they'd have to offer some type of help to the bank. If they ever wanted a relationship with the bank, their best bet would probably be to offer a 3.9% (or simalarly subsidized rate) program so that it's not too unaffordable for a customer to buy the rate to 0%. It would be like making a down payment but rather just prepaying the interest. If you ever see one car dealer offering 3.9% or some other low interest and another of the same mfg offering 0%, that's because the second one is buying the rate down instead of discounting the vehicle. It's all one big game...
The furniture store example is a little bit of an apples to oranges comparison. That's a revolving account (unsecured). The lending is different than an installment loan, which is what you get when you buy a boat or car (secured by collateral).
It's quite unlikely that a manufacturer that only makes 2200 units a year will start a relationship w/ a lender like this thread suggests. Master Craft used to do it w/ Harley-Davidson Financial, so I guess there's hope.
Why would you give something away that you already can't make enough of?
Ford and Chevy offer those incentives to move vehicles. They can't afford to have old inventory just sitting. SC doesn't have that problem. They give boat show incentives to keep their plants busy during the winter months, and so they don't get bombarded with orders in May and June.
They are manufacturers not bankers. Look where that has gotten the automakers.
Stick to what you are good at.
Dave