Not sure what you replied to me to warrant getting moderated. Let me just focus on the learning points here for others.Bastiat wrote: ↑Sat Aug 15, 2020 10:28 pmThis is bad advice. [OT comment removed by moderator oldcomputerguy]chrisam314 wrote: ↑Sat Aug 15, 2020 1:34 pm "I'm no expert on new car shopping but isn't 0% 0%, no matter who is providing it? Yes, I've had a number of dealers say that "Oh that price on the Internet, that's the finance price. You have cash? It's actually $2500 more."
That said, my hope/strategy is to get them to give me price, in writing (via email) for cash and THEN tell them I want the 0% financing."
No. It doesn't exist. Refer to my above post. Money isn't free and finance arms of manufacturers are not in the business of operating at a loss. In fact they are a major profit engine for them. What they are doing is a simple negotiating tactic with you to hold margin. You're response to that should be: I'm not interested in what the 'internet price' or 'finance price' or 'cash price'. I want to know if you want to sell me the car or not because I'm going to get the best price possible. Whether it's with you or not is really up to you. Then walk away, hang up, or offer to work with another sales rep at the dealer.
These people don't get paid unless they move cars. Don't ever feel like what they are telling you is in your best interest. Make them work for it.
You negotiate the OTD price. That’s all you should care about, and it’s pretty much all the dealer cares about.
The only difference between 0% and cash or getting a “3%” loan (this would be dumb when you have 0% available, obviously) is the manufacturer’s discount. The dealer is not the auto maker, even though the name is the same. The dealer has to buy the car just like you buy the car. You are buying from the dealer, not the auto maker.
[OT comment removed by moderator oldcomputerguy]
The original question posed by the OP is: Is there any reason NOT to do 0% financing.
The answer is yes and I think I pretty clearly explained why above. I used 3% as an example (no idea what market rates are and its not really relevant). The point is that 0% is not real. You might think it is, but its not.
For educational purposes, let me just make sure you (and anyone reading this) understand how this process actually works. I see more people on this forum believe that 0% financing = 0% financing and since I have worked in corporate finance for megacorps on the other side of this equation it pains me to hear that. Its akin to other people on this forum getting antsy about overpaying for mutual funds.
VP of car manufacturer X suggests running a 0% 'marketing' promotion for strategic reasons. This is loaded along with other initiatives into the annual operating plan that is presented to the board of directors in the form of an EPS target. The board of directors accepts the proposal and management rolls out the initiative. This plan has now been communicated to the financial markets.
The dealerships in this industry are part of what is called 'distribution costs' on an income statement. Part of the distribution costs associated with this promotion are incentives the manufacturer agrees to provide to dealers to drive margin (think of it as profit sharing based on volume or rate or ideally both) through this and other promotions. Another part of the distribution cost is getting a banking institution to underwrite the promotion - said another way a large bank (think Goldman, Chase, etc) will wholesale finance the actual loans for the auto company (GM financial, Toyota, whoever). The real interest rate is typically bench marked on an index, typically something like libor, treasury yields etc. And the car company pays a nice fee to Wall Street to originate these loans. The finance arm of the corporation will embed the price of the loan that they charge the customer into the price of the car. They will pocket the difference between what the wholesale rate is (offered by Wallstreet) and what they charged the consumer (the retail rate in the form of prepaid interest). If you can pocket that difference and convince consumers, like you, to buy into the promotion because it doesn't cost anything you have effectively created what is called arbitrage.
At the end of the month/qtr/year/other measurement date depending on the company, the dealers and corporation have a true-up mechanism that rewards dealers for meeting quotas based on a convoluted formula designed to incentive behavior within their distribution network. Let's say a dealership group really excelled in pushing cars through this promotion. They'll get a nice kick back after the fact to bring down their cost of goods sold on the back end.
This behavior, when combined with other initiatives, helps senior management hit the EPS target that was communicated to Wall Street. Senior management A) Keeps their job, B) hits bonus + stock option target and buys vacation home C) Keeps activist investors out of stock and lives happily ever after.
TL;DR? All I want you to understand is that anytime an entity with no fiduciary duty to you tells you there's just a great deal out there for you ask yourself who was the corporate finance person behind the curtain who modeled out the initiative value it will create for the company and its shareholders.
You don't have to like it, but its how it works. It's not even a conspiracy theory. It's just very lucrative and consumers don't realize how it actually works.
Feel free to take 0% financing deals. If it makes the transaction more painless or gives you a good feeling about it thats fine. That's what its designed to do. But you simply didn't get the best price. Its just one variable in the overall scope of a large capital transaction like this so don't lose too much sleep over it.