If the bikes are for the summer, the car purchases are usually for the last four months of the year, where there is an abundance of offers from dealers wishing to reach the annual objectives. If you approach one of them at this time of year, it is quite possible that, regardless of the brand, you will come across something different from what happened years ago. Brands apply a significant discount on the price of the car as long as you finance with them.
It is possible that this may surprise more than one person, who seems to go against the usual logic, the one for which he seems to treat better those who contribute cash, who do not delay, who pay in cash. But it has very obvious reasons for many, and some not so obvious for those who are not used to thinking in financial/marketing terms. Let’s take a look at these approaches and find the causes that lead brands to this.
The OBEs of the automobile
For many years now, it has been difficult to understand the car brand business without a financial reference, either your own or agreed with a specialist in the sector. We are talking about the so-called EFCs, Financial Credit Establishments, lending companies, which in this case are either subsidiaries of the parent group of the brand or specialists in consumer credit who have reached an exclusive agreement or similar with the commercial network of dealers.
The idea is to facilitate sales by relying on such financial facilities. It is a question of making it very simple, avoiding that during the walk to the bank, the doubts or the problems of the person who has to approve the operation arise. This is the main business, without prejudice to the fact that it also seeks to obtain a profit from this financial business. White cat, black cat, the important thing is to end up billing for the brand if the financial company is a 100% subsidiary.
And there are different strategies for this.
The Gatopardo and finance
They said in the famous play that something has to change for everything to stay the same. And this is the case. Take a look back. Until very recently, dealers’ finance companies often offered loans at 0%, with no early cancellation fees (which is logical, since they paid off money for each month), or at very low rates, with very low margins. The financial business subsidized the industrial/commercial business.
Today you will find the reverse offer that we have already mentioned in many places. If you finance a minimum of X, the financier pays a discount, provided you do so for a minimum period of time (if you cancel earlier, in addition to the penalty of the loan you must repay the discount). Some will also require that this financing is based on a specific financing formula (the so-called multi-option or flexible financing, with a high final installment and the possibility of returning the vehicle).
Deep down, if we stop to think, they look very different but are similar in the background. In the first case, the financial company assumes the cost quota by quota. In the second one, he releases this “subsidy” of beginning, suddenly. But there is some substantial difference.
Discount is good business
Let’s think about a 100,000 euro discount for financing. Does it really cost the finance company money? Well, not as much as it seems, but rather it is an excellent investment that the client will pay for. The fact is that when it comes to financing, a series of revenues are unleashed. Let’s think about a financing of 18,000 euros for 5 years, with an associated discount of 1,000 euros, and a minimum permanence of 4 years (permanence, does that word sound familiar to anyone in other sectors?):
Opening commission of 3%, direct for the concessionaire (already 540 euros).
Single premium insurance for death, disability, payment protection, card withdrawal, mobility, etc….let’s say that the premiums are (and I’m not exaggerating) 2,500 euros. Well, 20% can easily be net income for the financier another 500 euros.
That is to say, he has managed to recover 100% of the money at the moment of signing the loan, and he has earned money on top of that. If we add to that that the loan can easily move over 10% or 11% in those 4 years it will obtain a greedy profit, very greedy. And costing, what they say cost has cost him nothing.
The key, as you can see, is the inclusion of insurance in the amount to be financed, a business that would surely be impossible to carry out if it were not camouflaged under the financing, as well as the cover-up of the opening commission that some concessionaires do not even talk about.
In contrast to the old strategy of 0% loans (which were also financed by insurance), they have earned money in the financial and automotive businesses and have not left the margins of the EFC shaken, helped by the scarce competition in the financial markets and the strong lack of awareness of the average consumer.