The Carpocalypse has forced automakers to try and entice nervous buyers by offering to remove the burden of a car payment should consumers lose their jobs or worse. But which plan's the best?
All three plans on their own are pretty confusing. Combined, all three are just a mess of different offerings of help in case you lose your job. Each offers different results for different scenarios. So, in order to make this understandable, we've broken down each plan and their specific option sets to allow you an opportunity to determine which will work best for you.
For starters, all three programs offer some combination of two different types of help for people facing a personal economic crisis: negative equity coverage and payment assistance. Let's define some of these terms:
Equity: The amount of investment in an asset.
Negative Equity:This is when the amount owed on something is greater than the total value of the asset itself. In terms of cars, this means you owe more on the car than the car itself is actually worth. This is the opposite of positive equity. Positive equity would be when you have a car and you owe $2,000 but it is worth $9,000 on the used car market. In this case, you probably shouldn't try to turn it in. Instead, if you're smart, you'll just sell it.
Negative Equity Coverage: This is a form of coverage that depending on the level provided, allows you to be forgiven up to a certain amount of monies still remaining in payments on the car. Each plan is different, ranging from several thousand dollars to zero.
Payment Assistance: Assuming you lose your job, the automaker will either take over payment for a certain period of time or payback the lender.
Negative Equity Coverage
Hyundai Assurance Plus: Hyundai will cover the cost of your car should you trade it in for an amount up to $7,500 in negative equity. If you buy a Hyundai Accent and owe only $5,600 you can trade it back in and you don't have to make any more payments. If you buy a $24,000 Hyundai Genesis Coupe and owe $20,000 you'll only owe an additional $12,500 on the vehicle, at which point it would probably be better to try and sell it yourself.
GM Total Confidence: Unlike Hyundai, the GM plan only covers you on negative equity if you want to trade in your current GM car for a new GM product. For example, if you have a Cadillac Escalade and owe $35,000 but the car itself is only valued at $28,000 GM will make up $5,000 towards the difference if you plan to trade the car in for another GM product.
Ford Advantage: Ford offers no negative equity coverage. If you try to return your car to a Ford dealer they'll probably try to get you to trade it in or sell it back, but you're still on the hook for what you owe minus what they'll give you for it.
Advantage: Hyundai. They offer negative equity coverage with the greatest options to all customers as well as the highest level of coverage at $7,500.
GM Total Confidence: Within the first two years of ownership, GM will cover up to nine payments for up to $500 per month for a total of $4,500 if you lose your job.
Hyundai Assurance Plus: Hyundai doesn't put a number value on the total amount they'll pay, only saying they'll cover up to 90 days of loan repayment or lease payments. If you have a three-month loan on a Genesis coupe for $7,000 a month you'll be in great shape. Otherwise, your $250 a month lease on a Sonata will net you just $750. Additionally, this amount will be subtracted from negative equity coverage.
Ford Advantage: Ford's plan lives up to its name here. They'll cover up to 12 months of payments at any point in the repayment process for up to $700 per month, with a maximum pay out of $8,400. It's the largest amount but the number of people qualifying for a $700-per-month loan is probably small.
Advantage: Ford. The Advantage plan has the largest monthly payout and the largest term, and is available at any point.
GM Total Confidence: GM only offers this plan through April 2009 and only extends it to people within the first 24 months of financing/lease.
Hyundai Assurance Plus: Hyundai offers this plan through all of calendar year 2009.
Ford Advantage: Ford offers this plan until June 1, 2009.
GM Total Confidence: The negative equity protection doesn't appear to have limitations but the payment assistance seems only to extend only to those who are suddenly unemployed and begin to receive unemployment assistance from the government.
Hyundai Assurance Plus: Hyundai's equity plan extends to those who lose their license, lose their job, are transferred internationally, face bankruptcy, have a sudden physical disability, or are accidentally killed (no offing yourself to get out of paying for that Accent). Payment assistance is for those who are involuntarily unemployed or face physical disability.
Ford Advantage: Payment assistance applies only to those involuntarily unemployed.
Advantage: GM and Hyundai tie because the negative equity assistance applies to all persons under the GM plan but Hyundai extends payment assistance to those who face physical disability.
Overall Winner: Hyundai Assurance Plus
After reviewing the provisions, Hyundai is the only one offering negative equity coverage with real teeth and payment assistance.
These plans present a major conundrum because no one should be in the business of selling a car to someone who probably won't be able to pay for it. The ideal target for this is someone who isn't actually likely to lose their job but, out of fear, has avoided buying a new car they actually need.
In many cases, taking advantage of the negative equity coverage is really just a way to lose equity in your car. If you only owe $1,000 on your car and lose your job you shouldn't trade it in, you should sell it. With Hyundai's program, if the car is worth $5,000 on the used car market and you return it to erase your $1,000 debt you lose a car and lose the $4,000 in positive equity in the car.
The GM Total Confidence negative equity coverage is designed for someone who is going to return a car quickly and then buy something else from GM, theoretically at a lower price point. But this is only meaningful to someone who bought a rapidly depreciating vehicle, like a luxury SUV, and trades down to something with a much lower price point.
If you buy a $65,000 Cadillac Escalade and make payments for a year totaling $15,000. If the "clean trade in" retail value is $45,000, buy trading it in you get the other $5,000 you owe erased. Unfortunately, you've just lost the $15,000 you just invested in the car and are going to be forced to get a new vehicle from GM. What are the odds your trading down from an Escalade to an Aveo?
In the end, if you are fairly certain you're going to be losing your job soon you shouldn't buy a new car. You should look into keeping your car, buying used or using public transportation if that's a possibility.