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Study on Auto Finance, Purchase Decisions

In July, Kelley Blue Book released the results of a consumer study showing that economic factors are influencing more car buyers to pay with cash. An excerpt is below, see to read the entire article.

How does this fit with your experience or plans, from either the buying or selling perspective?

"Twenty percent of new-car shoppers and 42 percent of used-car shoppers said they plan to pay the entire cost of their next vehicle in cash. Fifty-one percent of new-car shoppers said that incentive offers have no effect on the timing of their next vehicle purchase. Forty-eight percent of new-car shoppers said that the availability of incentives have no effect on their specific vehicle choice (make / model)."


  • Mr_ShiftrightMr_Shiftright CaliforniaPosts: 44,412
    Seems to me that a person refusing a 0% financing plan over 72 months would be somewhat foolish to pay cash, given that that same cash could be invested, even quite conservatively, to pay more than 0%.

    That "cash" sale immediately deteriorates due to depreciation when the "new" car is registered, and becomes "used".

    So it's like:

    $30000 cash deal becomes $27000 the day after you buy the car

    $30000 invested at 3% over 72 months becomes 35,821.57



  • andre1969andre1969 Posts: 21,849
    If given a scenario like that, I'd definitely take the 0% financing, for as long of a term as possible, and just let my money work for me. FWIW, even if you paid that $30K in cash for the car, but then took what would have been the monthly payment and invested it back into an account averaging 3%, at the end of 72 months you'd only end up with $32,825.

    A lot of people like having the peace-of-mind of a paid off car, but personally, I'd rather have the increased freedom of the cash, plus a low monthly payment. I could always pay it down quicker if I wanted to, but if money got tight, I can just make the regular payment, rather than getting locked into the higher payment of a shorter term.
  • lemkolemko Posts: 15,120
    That's kind of the approach I take. When I have more money I pay ahead. When times get tight, I just make the regularly scheduled payment. I'll take a car loan out for five years but try to pay it off in three or less.
  • kernickkernick Posts: 4,072

    I'd bet that if we looked at the way the questions were worded in the study and the answers given, we'd find the study was flawed. Why? Because it makes no sense to say that if the MSRP is $25K, and there is no incentives, that that vehicle would sell just as well as if it had a $5,000 rebate or if it offered 72 month 0% financing. There are not that many people out there buying a new vehicle who say a big rebate will not influence them to buy Brand A or Brand B if the cars are fairly equivalent.
  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,320
    Isn't there usually a significant lower price if the buyer elects to pay cash? Does not the 0% financing only apply to the MSRP?
  • Mr_ShiftrightMr_Shiftright CaliforniaPosts: 44,412
    I think it's all up for grabs, depending on the terms of the incentive. The only thing I can say with assurance is that *normally* a cash buy does not bring a better price, because the dealer is deprived of making money on financing---his little kickbacks from the lending institution. But no doubt he's getting holdback or something else even on 0% deals, so there has to be some give there I would think.

    But again, I'm not sure.

    Here's what Mazda says about it's 0% deal: (and other lease deals, etc). I'm not sure what the first sentence refers to exactly:

    "60 MONTHS PARTICIPATING LENDER FINANCING AT $16.67 PER MONTH PER $1,000 FINANCED. 0.0% APR ONLY FOR WELL QUALIFIED BUYERS. NOT ALL BUYERS WILL QUALIFY. AMOUNT OF DOWNPAYMENT AND OTHER FACTORS MAY AFFECT QUALIFICATION. Applicable customer cash to qualified buyers when financed through participating lender. Take new retail delivery from dealer stock by 9/30/2010. See dealer for complete details. Excludes MAZDASPEED3."


  • kernickkernick Posts: 4,072
    From personal experience, you certainly can negotiate whatever you can from MSRP, and then get the 0% financing. The usual thing is that the customer usually gets a choice between 0% financing or a rebate; though in this slow selling environment I've seen both offered + the dealer discount.

    Rule #1 in business (and life) - Everything is negotiable!
  • andre1969andre1969 Posts: 21,849
    Back when I bought my 2000 Intrepid, they were offering $1500 cash back or 0.9% financing. But that was off of the negotiated price, not MSRP. Back then, new car rates were running around 6.75-7%, so I figured the 0.9% financing was the better route.

    Now, fairly recently, I think some of the makers were offering some really fat incentives, such as "$8,000 off MSRP" or whatever. So maybe some of the extra-generous sounding ones were only for MSRP.
  • Mr_ShiftrightMr_Shiftright CaliforniaPosts: 44,412
    Probably these days the difference between MSRP and invoice is not nearly as big as in the past.


  • kernickkernick Posts: 4,072
    edited September 2010
    It depends on the car. You can go to many dealers' websites and they gladly showing you their discount, and then any additional rebates and/or financing.

    I like Corvettes, and a big dealer here on the East Coast is Kerbeck. Go there and you'll see multiple new Corvettes with 5-10% discounts off MSRP, then you have the choice of a $3,000 rebate or 0% financing for 72 (for qualified buyers - good credit score).

    And yes there is no 1 right answer as to what is the best way to buy a vehicle. That is because the demand for a particular vehicle, the overall demand for vehicles - the overall economy, bank rates, manufacturer's offers that particular month, what you can make on cash you have - are you a good investor, all play into what the right decision is for you on that day buying that particular car.

    In summary I advise - get money smart. Learn to figure it out yourself, rather than expecting that there's a Carbuying for Dummies book that can give you the answer. As the title of this forum suggest - Study. A course, or some home-schooling with an old textbook on "Managerial Finance" would help many people manage their $ better.
  • berriberri Posts: 4,141

    I agree. Incentives may not get someone to buy something they don't like or want, but only an idiot would ignore these matters and their impact on cost when purchasing a vehicle. I've decided on a vehicle from my list of finalists based on incentives whether discounts, rebates or 0% financing. However, I wouldn't pick something like a CR black dot Chrysler even if the incentive was largest.
  • Mr_ShiftrightMr_Shiftright CaliforniaPosts: 44,412
    edited September 2010
    Incentives might get someone who was already fully committed to buying a car, to upgrade a bit, don't you think?

    What I find surprising sometime is how people will fight over incentives, interest rates, and even balk at doc fees, but seem ready willing and able to roll negative equity into the next deal.

    It's almost as if shopping for a car is all about the monthly payments, and the actual cost is somehow lost in the clouds somewhere.


  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,320
    These same people house their negative equity cars in garages attached to a home in which they are also upside down expecting others via stimulus to bail them out. :mad:
  • Mr_ShiftrightMr_Shiftright CaliforniaPosts: 44,412
    Nothing wrong in principle with a stimulus to jumpstart a laggard economy but it's not going to help people buried in the real estate market if they haven't got enough income to generate on their own. I have more sympathy for a naive and greedy homeowner than for an outright Wall St. thief, but nonetheless, one has to bear the weight of their own decisions.


  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,320
    Nothing wrong in principle with a stimulus to jumpstart a laggard economy

    Stimulus dollars stem from taxes we've paid and/or are paying. Thus, I resent my money being used to jumpstart a laggard economy when, with patience & due suffering, Natural Economics should be applied.

    sympathy for a naive and greedy homeowner

    The greedy homeowner is not naive, but cunning for his own selfish purposes.
    The Wall Street Wolves weren't taking the locally approved loan applications. They were being "sold" by commissioned mortage brokers right here in Hometown, USA.

    "No Down = No Responsibility" = No sympathy at all for the undeserving loan applicant/homeowner.
  • Mr_ShiftrightMr_Shiftright CaliforniaPosts: 44,412
    Actually not enough money was spent on the stimulus by all accounts from economic experts. The complaint was HOW the money was allocated, monitored, etc. and those were justifiable grievances, I agree.

    Spending nothing during a catastrophic financial meltdown would be national collective mass suicide. I mean, even conservative economists do not take the view of non-intervention in such grave situations.

    But regardless, getting back to point here---just because consumers made bonehead moves does not give dealers, or investment bankers, the right to deceive them.


  • Can I pay the local taxes up front and not include them in the finance charge.
  • steverstever YooperlandPosts: 40,003
    Try the Vehicle Sales Tax Questions discussion.


  • berriberri Posts: 4,141
    Interest should just be charged against the net amount (selling price less down payment) you are financing. In most states the sales tax is based on the price you negotiated regardless of down payment made (some states let you deduct trade before calculating tax, but down payment still doesn't enter into it).
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