Test Drive...?

[J_82]

Exactly how Andy said. Also you can do your financing before you go and buy a car. Your bank can give you a pre-approved letter just make sure the amount approved on the letter isn’t more than what you are willing to pay. Trust me dealers CAN discount the vehicles, they just choose to get as much money as they can from the consumers.

 

[dlcorbett]

Unless they are jerks and let you walk away without even trying to make a deal

 

[J_82]

Unless they are jerks and let you walk away without even trying to make a deal

They can and will do that and that’s fine you just go find another dealer.

 

[ExpeditionAndy]

Unless they are jerks and let you walk away without even trying to make a deal

Often if they do let you walk away they'll call you back and try to make the deal with you - then you offer them less.

 

[shane_th_ee]

The only caveat is that if your credit score is high enough (800+), the captive finance arms of the automakers will offer incentives to the dealer for you to take the financing. The low risk loans give them the ability to create tranches of CDOs with higher ratings. Aka, the more loans they make to people with perfect credit , the more loans they can make to people with bad credit scores without having to hold the loans (risk) themselves. If you've got an 800+ credit score, the auto maker isn't going to make money on your interest rate. They're going to use your low risk/low interest loan to make a bunch of money on somebody else's high risk/high interest loan. Given this, the automaker needs their dealers to capture as many low risk loans as possible. So they offer the dealer incentives make low risk loans.

This came as a surprise to me when we bought our minivan a couple years ago. We came in ready to pay cash and I made the mistake of letting the dealer check my credit score while we did a test drive. They were not going to let us leave without taking the 0.9% financing. After further negotiations in my favor, we took the loan figuring I'd just pay it off after the third payment. My financial advisor disabused me of that idea and proceeded to earn me a lot more than the 0.9% I was paying on the loan. I just wish I would've taken a longer term...

 

[ExpeditionAndy]

The only caveat is that if your credit score is high enough (800+), the captive finance arms of the automakers will offer incentives to the dealer for you to take the financing. The low risk loans give them the ability to create tranches of CDOs with higher ratings. Aka, the more loans they make to people with perfect credit , the more loans they can make to people with bad credit scores without having to hold the loans (risk) themselves. If you've got an 800+ credit score, the auto maker isn't going to make money on your interest rate. They're going to use your low risk/low interest loan to make a bunch of money on somebody else's high risk/high interest loan. Given this, the automaker needs their dealers to capture as many low risk loans as possible. So they offer the dealer incentives make low risk loans.

This came as a surprise to me when we bought our minivan a couple years ago. We came in ready to pay cash and I made the mistake of letting the dealer check my credit score while we did a test drive. They were not going to let us leave without taking the 0.9% financing. After further negotiations in my favor, we took the loan figuring I'd just pay it off after the third payment. My financial advisor disabused me of that idea and proceeded to earn me a lot more than the 0.9% I was paying on the loan. I just wish I would've taken a longer term...

That's interesting Shane.

I worked in the air conditioning industry for over 35 years and part of my job when I was brand manager was to develop the spring and fall incentive programs. Our dealers had to pay a portion of the interest and we paid a portion of the interest for the zero interest or 1 % or 2% interest plans We were only talking about loans up to about $20,000 but there was never any mention about high credit score loans so that is interesting.

 

[shane_th_ee]

That's interesting Shane.

I worked in the air conditioning industry for over 35 years and part of my job when I was brand manager was to develop the spring and fall incentive programs. Our dealers had to pay a portion of the interest and we paid a portion of the interest for the zero interest or 1 % or 2% interest plans We were only talking about loans up to about $20,000 but there was never any mention about high credit score loans so that is interesting.

That's because nobody was doing CDOs (collaterilzed debt obligations) back then and all the lenders were stuck holding the loans on their books. Now due to financial innovation, we've figured out how to take large quantities of loans, rack them and stack them and turn them into something that looks, smells, and trades a lot like a bond. So you take a bunch of money, loan it out, take the loans, put them together into CDOs, sell them off to investors (mutual funds). That moves the risk of default off your books and onto the books of the investors. And the proceeds of that sale gives you another pile of money to go lend out. Which means you can sell more cars because you have more money to lend to prospective buyers. The trick with this is, essentially, you're aggregating the risk of all the loans. You have to have enough good loans to mix in with the bad ones to make the overall risk pool low enough of a risk for an investor to want to buy it. And certain buyers (like pension funds) are only allowed to buy a CDO if the risk of default is low enough. But the whole thing hinges on being able to get enough buyers with perfect credit scores to take out loans. And people with perfect credit scores are the ones most likely to be able to pay with cash. The end result is the manufacturers end up paying people with perfect credit scores to take out loans because the manufacturers need them to take out a loan far more than they actually need to take out a loan.

 

[ExpeditionAndy]

That's because nobody was doing CDOs (collaterilzed debt obligations) back then and all the lenders were stuck holding the loans on their books. Now due to financial innovation, we've figured out how to take large quantities of loans, rack them and stack them and turn them into something that looks, smells, and trades a lot like a bond. So you take a bunch of money, loan it out, take the loans, put them together into CDOs, sell them off to investors (mutual funds). That moves the risk of default off your books and onto the books of the investors. And the proceeds of that sale gives you another pile of money to go lend out. Which means you can sell more cars because you have more money to lend to prospective buyers. The trick with this is, essentially, you're aggregating the risk of all the loans. You have to have enough good loans to mix in with the bad ones to make the overall risk pool low enough of a risk for an investor to want to buy it. And certain buyers (like pension funds) are only allowed to buy a CDO if the risk of default is low enough. But the whole thing hinges on being able to get enough buyers with perfect credit scores to take out loans. And people with perfect credit scores are the ones most likely to be able to pay with cash. The end result is the manufacturers end up paying people with perfect credit scores to take out loans because the manufacturers need them to take out a loan far more than they actually need to take out a loan.

Okay that makes a lot of sense because my experience goes back about 11 years when I had the brand manager position.

It interesting that the dealer didn't try to talk us into loans because we bought 3 vehicles (1 new and 2 used) within a week and paid cash for all of them.

 

[J_82]

I believe this started out in the realty industry and I’m just finding out now that’s also happening in the auto industry. You would think investors and banks learned a lesson from the 08-09 recession but sounds like they are still doing it.

 

[twernst]

So question for this group, I am an Expo newbie. First drove one ona trip last spring in Banff CA. It was awesome and converted me from my previous Chevy leanings, have owned 2007 Tahoe ordered from factory and 2012 Burban bought for wife. She hated it. I currently drive 2015 X5 another factory order. Love the car but too smal for our family of 5 and big dog, lots of travels to Memas house and eventually gonna get. Trailer for our 24’ Robalo. Long story I drove XLT nice but not for me, trying to decide between LTD and Platinum. Will most likely be Max. Options will be 4x4, max tow need for peace of mind for boat, headrest dvd.

Just can’t decide if seats, wood, noise cancel and extra HP worth $4,500 before negotiating? Drove platinum max today with All but dvd and it was slick. Really liked how is absorbed road and seats were cool. Not sure I like massaging here wife has in Her MB GL. Love it there. Need more seat time as both test drives really too short for my taste.

What are the thought of those that went Ltd over platinum and vice versatility?

Thanks for indulging in this long rambling question but $75-80k is a lot of cabbage.