Does this sound like the right time to be entering the subprime market? Ford thinks so. Bernard Simon reports in the Financial Times:
Ford will target consumers with an impaired credit history in a renewed drive to bring down swollen inventories of 2006 cars and trucks.
Ford said yesterday that “sub-prime” borrowers would be eligible for a new promotion offering interest-free financing for up to six years. “Our programme is going to be quite a bit more accessible,” Ford said, describing the scheme as “something customers will see as great value, and dealers will be able to rally around”.
Ford justified extending financing to buyers previously not considered creditworthy on the grounds that it was making its vehicles more affordable.
“It’s not that [the buyers] are not creditworthy, it’s that they don’t have quite as high a credit score,” it said. Bad debts will be treated as a marketing cost.
Okay, let me see if I’ve got this right. You already have problems covering your regular payments. And you’re being given incentives to buy cars that get poor gas mileage, at a time when gas is only going to get more expensive.
Ford is saying “Take these albatrosses from our necks and place them around your own, suckers.”
Related: this piece from the Freakanomics guys: Freakonomics at Work in Rental Cars:
I recently reserved an intermediate Hertz rental car in Tucson for a week. Intermediate is usually a Taurus or similar model.
When I got to the counter I was advised that I had been upgraded to a brand new Ford Explorer with free Sirius radio. I gladly took the upgrade. When I picked the car up there were a row of brand new Explorers being rented by Hertz.
Prior to returning the car, I filled up the tank for a charge of about $ 60. My gas mileage was about 10 miles to the gallon.
When I analyzed it, it all made sense using your reasoning approach.
Ford has a ton of Explorers that people will not buy because the mileage is so poor. Their response is to offer huge discounts to sell them.
Hertz rents the cars so they have no consequence of buying a car with poor mileage, since they do not have any gas costs. The gas costs are all picked up by the renter. Hertz reaps a great price advantage in purchasing discounted explorers without suffering the consequences of having to pay high gas usage expenses.
Most renters are probably business renters who are reimbursed for their car costs by their employer. They accept the luxury of a big rental car without having to worry about the gas prices being paid by them.
The only loser appears to be the employer whos reimbursement is based on high gas costs or an individual renter who pays his own car rental expenses.
Does that all seem to make sense?
(Via Daniel Gross.)