Even one of the credit union movement's lending gurus admits he was stymied at first when the auto manufacturers' captive finances companies unveiled "new and improved" 0% financing.
That is until he remembered one of the first rules of any competition: know thine enemy.
Rex Johnson, former CEO of Baxter CU and founder of the University of Lending and Lending Solutions, Inc., had come to believe there were some deals in the market that credit unions simply couldn't beat. But a chance meeting with a former dealership employee changed all that.
"I was talking with a loan officer from Gary Wallace's credit union, Commonwealth (Frankfort, Ky). She's a former F&I manager," Johnson told The Credit Union Journal. "And she told me, 'Rex, I can beat those deals every time.'"
The key is understanding why the manufacturers are offering these deals in the first place, she informed Johnson, because it's not simply a matter of the economy being bad-it'a a matter of needing to sell certain vehicles.
"It's the old supply-and-demand game. They offer those special deals on the cars they can't get rid of," he explained. "No one is going to do that on a high-demand vehicle. If you're looking at the new Volvo SUV, you're going to get sticker price. If you're looking at Porsche's new SUV, you're going to get sticker price plus. You're not going to get 0% financing on those."
The former F&I manager explained to Johnson that, for the most part, 0% financing is only being offered on cars for which there is very low demand-cars that tend to depreciate much faster than higher-demand cars.
"All you have to do is have the depreciation tables on hand to show the member the difference. You can have two cars that sell for $30,000, one that's being offered with the 0% financing and one that's not," Johnson said. "Then you can show them how they may save $2,000 on the financing by taking the 0% deal on the one car, but they'll lose about $10,000 in that first year in depreciation, and then suddenly you're in the hole, where the other car is holding its value better. At the end of the term, when it's time to get rid of the car, you've lost money because you went for that 0% deal and didn't think about what it meant for the residual value of the car."
Gary Fee, director of consumer lending at Boeing Employees CU, Seattle, agreed.
"Knowing how the captives work is the key. They can tell you what cars the manufacturer is trying to move," he commented. "And they're more about moving the car than about the financing. We try to educate members to show them that in some cases, they're going to be upside down in that vehicle. They're just not getting the equity in that vehicle."
BECU provides its members with worksheets that take them through the math to show them what they are-or aren't saving-when they take a 0% deal from one of the captives.
Of course, the trick is in catching members before they head to the dealership, which is why Johnson suggests pounding away at the 0% message at every chance.
"Publish it in your newsletter. You don't have to name the two cars, but put the depreciation tables for two cars that sell for the same price side by side and show what each will be worth after one year, two years, three years, four years, five years," he said. "Have your staff wear buttons that say you can beat 0%. Newsletters, pins and buttons, signs-just keep it in front of them all the time. When you talk with your members, ask them, 'Is anyone going to give you 0% if they can keep up with demand? The resale value is not going to be there.' Tell them that 0% financing may cause you to lose thousands of dollars."