It's no secret that customers with a lot of negative equity can present huge risks for lenders. But there are steps brands and dealers can take in some cases to ease the debt load and get consumers into a new vehicle, says Mark Abbasi, vice president of product development for Hyundai Capital America. The right combination of incentives and trade-in cash, he says, can quickly turn a negative-equity situation into a positive one.
Abbasi spoke with Staff Reporter Vince Bond Jr. about the perils of pushing consumers too deep into debt.
Q: Does Hyundai Capital have programs that target people with a lot of negative equity?
A: We don't necessarily look for customers with negative equity. It actually creates problems. There's a lot more risk. If you bring a customer back in with too much negative equity, you can actually send that customer back into default. We're pretty careful about that. We do have some customers in our pool who have negative equity, but we don't target that. It's dangerous to do that.
That's a safer route.
If you put somebody too much into the negative position, they could default. You're layering in more and more risk. It's easier for them to walk away. You put a lot of burden on them, so you need to be careful about that. I'm guessing other lenders are the same way. That's a pretty dangerous bucket to go after. Burying somebody deeper and deeper into debt is problematic.
You wouldn't reach out to someone with $10,000 in negative equity with no trade-in.
No. We look at it like, can we trade it in plus bring in the incentives? What we look at is payment. Can we get them into a better payment? You've got a brand-new car and you're paying less per month — that's a pretty good message to the customer.
Do people targeted via your equity program ever end up paying a higher monthly fee?
Usually, if you see that, it's because they got into a nicer vehicle. Maybe they had a lifestyle change, got a better job, so they upgraded from a midsize car or SUV. That's usually where we see that. We don't usually see that if they're going from a Kia Optima to a Kia Optima.
Do you see trends in negative equity?
Our equity position seems to be getting better. If you look at how many people are borrowing more than [the sticker price] or more than invoice, it is actually getting better because of the strength of the incentive offers in market. If you look at any of the brands, there's a lot more cash in the market. It's helping customers get into a new car and not stretching as much. It's a positive trend.