Seven-year car loans have increasingly become a thing in the age of America’s truck obsession, as dealers sell consumers on smaller monthly payments on vehicles with bigger and bigger price tags. The pandemic has fueled the trend, in addition to a bunch of incentives that people in the industry say are historic.
Incentives have been around for a few decades now, but really kicked into gear after 9/11, when GM’s Keep America Rolling campaign offered zero-percent financing across its lineup. That was something that really hadn’t been done before; since then incentives have become ever more pervasive and, amid the pandemic, bigger than ever.
“The speed at which the (automakers) stepped in to support the franchised dealer network as well as the retail consumer is historically significant,” auto retailer Lithia Motors’ Chief Executive Officer Bryan DeBoer told Reuters.
On a per vehicle basis, spending on discounts was at record levels for June at about $4,441 per unit, a significant 12% increase from $3,966 per unit for June 2019, according to automotive consultancy firm J.D. Power.
In April, a month after automakers halted production due to the coronavirus outbreak and a massive 40% decline in sales, per vehicle spending peaked at about $5,000 for the year, jumping about 40% from the same period a year earlier.
These numbers all exist, of course, in a weird gray area, because it’s the automakers who set the prices of the cars they sell. Instead of offering incentives worth $5,000, automakers could simply sell cars that are $5,000 cheaper. But there’s no fun in that and, in any case, once you’ve gone down the incentive path there isn’t any going back, as consumers’ expectations get reset.
Nearly two decades ago, for example, $2,002 off of a car was considered a huge incentive, but these days that wouldn’t be significant, even accounting for inflation. Also there do exist buyers out there like one Reuters caught up with:
In the midst of a raging pandemic, Belal Bilto, 26, a sales executive and a Manhattan resident bought a midsize pickup Jeep Gladiator this month for just over $48,000, lured by a discount of about $5,000 on the list price and a seven-year, no-interest loan.
For Bilto, who was laid off in March, and his fiancé Sabrina Moller, 28, a private chef, a car seemed a safer option to travel around during the virus outbreak. Most importantly the couple bought the truck to support a new boutique mobile catering venture.
Taking out a massive loan to buy a giant truck when you are unemployed and live in Manhattan and have an untested business idea I will chalk up to “being 26,” though I’m sure this guy has it worked out, or at least thinks he does.
Still, even with incentives, June sales are expected to be down about 25 percent year-over-year, which is bad but not as bad as May or April, when sales were down 32 percent and around 50 percent, respectively. We will get real numbers for June later this week.