Automaker captives and banks are reaching out to customers impacted by the coronavirus, offering payment deferral that could generate some otherwise lagging traffic at dealerships. Historically, financial assistance breeds consumer loyalty — but will it be enough to move metal?
Playing a long game that prizes loyalty over short-term losses could pay off for lenders and dealers — much like it did during the Great Recession.
General Motors is offering 0 percent interest on 84-month loans and 120-day deferred payments on new-vehicle purchases for customers in top credit tiers, a spokesman said, while Ford Credit, Nissan Motor Acceptance Corp. and Ally Financial are offering customers who buy a new vehicle the option to delay their first payment for 90 days.
Jessica Caldwell, Edmunds' executive director of insights, said in a statement Monday that goodwill gestures from brands will be extremely helpful for car owners facing financial hardship in the weeks ahead.
In addition to the Federal Reserve's rapid rate cut last weekend, which dropped the benchmark rate to 0 to 0.25 percent, the payment assistance "will help drive down interest rates and help keep sales in a healthier place once regular life resumes," Caldwell said. "We anticipate that more automakers will take the opportunity to incentivize sales once the worst of this pandemic is over."
Offering financial assistance in times of crisis has helped automakers and lenders retain customers and has inspired loyalty before. Hyundai Capital experienced that after launching its Assurance job loss protection program during the financial meltdown of 2008. The automaker said Friday it would resume the program.
Dealers are already taking note of the incentives, telling Automotive News that the programs help ease conversations with prospective customers concerned about their ability to pay for a vehicle in the coming months.
Liza Borches, CEO of Carter Myers Automotive in Charlottesville, Va., says automakers are stepping up to the plate for customers in a way not seen since 2008.
"There will be a period where people are at home, and they will be seeing these great offers. The auto industry is going to be one of the leaders in getting us back out in the world, from the banks to the manufacturers, to help customers while they are at home and after," Borches said.
Payment deferment will, hopefully, help dealerships manage the drop-off, but this is a temporary fix for a problem with no foreseeable end. As dealerships shutter stores and make decisions about potential layoffs, increasing digital and showroom traffic is essential. But depending on the severity of the economic impact of the virus, some of these customers counting on deferred payments may not be in a position to pay once the bills start coming in.