In the auto business we all know that the product is 50% of the equation to create a customer. We should mention that in 2014 the product must not only be good (they are all inherently good) it must also be inspiring.
We have often wondered through the years what would happen if all manufacturers, or most of them fired on all cylinders in Canada.
What would happen to sales?
So far this year we have the answer...sales are through the roof.
Decades ago we discovered that a compelling financial package is a valuable asset to the product. Again this year we are seeing the dramatic impact of a strong financial package/incentive. In making a solid contribution to sales.
Most pundits are wondering how long can this keep up, we believe that it can keep on forever, its the new rule of auto retailing.
When money flows freely, and at low rates, the financial institutions making the credit decisions, be it humans, or sophisticated software. These folks always take into consideration the "risk factor" of their decisions.
We also constantly read that CMS (Citizen Main Street) in Canada is enduring a lofty credit limit, if not overextended, certainly close to the red line, perilously close.
Here is the deal:
The money is flowing freely, at low rates, but increasingly it has less places to go while remaining within acceptable risk parameters.
What do we mean:
CSM walks into a showroom, with a $10,000 trade in, with a balance of $13,500. owing on the trade, considering a $25,000 new vehicle, with a monthly payment close to the current payment (extending the loan term).
The credit rating of CSM is good, the current vehicle outstanding balance is $13,500. the monthly is the same or close, but now the outstanding balance jumps to $27,000. (this is a simple example, dealing with a deficiency and down payment)) which doubles the "risk factor".
Its the canary in the coal mine, its happening now; loans for a CSM with a good credit rating are not being approved due to the heightened risk factor.
What are your thoughts? Leave a comment.