0% Financing?

[Rollna01]

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?

[NAW]

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.

[ian ashton]

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.

[Rollna01]

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.

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.)

[bamaspiveys]

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....

[Rollna01]

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!!

[jmvotto]

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

[SC07LS]

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.

[dtlaine]

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.

[Rollna01]

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.