In order to stimulate the auto retail market, OEMs and their captive lenders recently began offering 0% financing for 72 – 84 months. Many factions have heralded this as a great move for the car business. The question is, is this a positive benefit for dealers – or is it a pending disaster? Well, probably a little of each.

While it is pretty much impossible to find anything wrong with free money, especially if it creates interest and moves inventory, there is plenty to be concerned about when tying up (“burying”) your customers for six or seven years. “Yet 38% of new-car buyers in the first quarter of 2019 took out loans of 61 to 72 months, according to Experian. More alarmingly, Experian’s data shows 32% of car shoppers are signing loans for between 73 and 84 months. Used-car financing is following a similar pattern, with potentially worse results. Experian reveals that 42.1% of used-car shoppers are taking 61- to 72-month loans while 20% go even longer, financing between 73 and 84 months.”*

This year, the lowest volume year in decades, dealers are pushing 75% of their customers out five years or longer. The ability to put that consumer into another car before end of term will be very challenging. What could go wrong?

Study after study have shown that buyers grow tired of their cars after three years. The problem is that, three years in, they are invariably in a huge negative equity position, often to the tune of several thousand dollars. Guess whom they blame for that?

Another issue is how a typical consumer takes care of the vehicle once it is out of factory warranty – even if it was sold with an extended service policy. Yes, your service department may see them after the warranty period for an occasional repair covered under the ESP (don’t they love that deductible!), but you will likely never see them for more lucrative maintenance work.

Finally, in 4 or 5 years when the consumer does reach an equity position (or a lesser negative equity position) and is potentially able to trade, will you really want that higher-mileage, questionable-condition trade? I suspect not. So, other than moving a unit today, is tying your customer up for 5-7 years really good for your business – or are you shooting yourself in the foot?

Zero percent longer-term financing was introduced as a survival tactic – and, perhaps, more for the OEMs than for dealers. Nevertheless, as a marketing ploy, it has helped bring consumers back into the marketplace – and that is a very good thing. The true cost to your dealership for this basic survival tactic should concern you, however.

Wouldn’t you rather THRIVE than simply Survive?

Allow me to suggest that there is a much better solution than 0% long-term financing; a solution that generates at least as much gross, benefits every other dealership department – and keeps consumers happy and financially protected during every moment of their ownership. Most importantly, it actually increases the overall value of your dealership, often significantly.

This may take a minor rethink of the way you have been doing business, but only minor. You have a unique (perhaps once in a career) opportunity to easily implement meaningful change in your store’s front-end structure and culture because of the sweeping changes wrought by the COVID pandemic.

Position your store to truly Thrive! In my next blog post, I will delve into the specifics. If you can’t wait to hear about how Market Scan’s solutions can help identify some of the specific alternatives to locking your consumers into 72 – 84 months’ finance contracts, feel free to reach out to me directly at 805.823.4256 or

Additionally, Rusty West, Market Scan’s Co-Founder and President, will participate in tomorrow’s Digital Dealer Keynote panel, which will discuss ‘Modern Retailing’. Please sign up with Digital Dealer to hear some great minds offer their expert opinions on key challenges facing retailers in today’s market.

Best Regards,

Steve Smythe Signature

Stephen Smythe, Chief Executive Officer at Market Scan Information Systems

Steve joined Market Scan as its CEO in 2009 after 30 years in the retail automobile business, bringing extensive knowledge of the industry and what it takes to sell and lease automobiles. In his career, he spent 20 years as a Dealer Principal/Owner, operating multiple dealerships in major U.S. metro markets including Los Angeles and Washington, D.C. Among the brands his dealerships represented were Mercedes Benz, Toyota, Volvo, Bentley, Rolls-Royce and Acura. Today, the University of South Florida alumnus leads all non-technical aspects of Market Scan’s business.

Market Scan combines science, technology and data to provide industry leading solutions that enable OEMs and lenders to maximize their market penetration through analytics, and empower dealers to achieve digital retailing supremacy. Market Scan solutions help companies optimize their competitiveness and profitability, as well as deliver an enhanced consumer experience.

* Nerdwallet, 8/21/20: Philip Reed: “5 reasons to say no to 72- and 84-month auto loans”

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