The car industry has offered loans with increasing numbers of monthly of payments. At the higher end of that, some manufacturers have “special deals” for 72 months (six years) for 0% financing. Volkswagen has good reason to be aggressive with finance packages. Its U.S. sales fell 17.2% in May, and it holds only 1.9% of the American market.
The diesel scandal has caused a drop in sales that may not end for years. The German company has not settled with government authorities in the United States and several states. So far, VW has taken $18 billion in write-downs in anticipation of recalls and legal battles around the world. VW’s legal problems could drag on well past the end of this year and perhaps 2017. Car buyers have so many choices that they can avoid considering a VW at all.
One of VW’s most aggressive offers is 0.9% financing for 72 months. This is only for the CC model, though the company only sold 292 of these in May, down 48.9% from May of last year.
Beetle sales also have been crushed, down 56.1% from May of last year to 1,178. VW’s offer on the decades-old model is 0.9% for 60 months. Sales of its Golf family of cars, among its best selling, dropped 29.1% to 4,375. Financing for the Golf is as good as 0% financing over 60 months.
VW has taken a risk with its long-term financing, although it may not have any choice.
As the Chicago Tribune pointed out:
Potentially millions of consumers will owe more than their vehicle is worth for years and will still be making payments after the warranties run out. When they get the new-car itch again, they might have little or no equity in the vehicle they want to trade in.
Few within the auto or banking industries express concern about these trends, but others warn that loose credit that puts consumers in hock longer and for higher amounts could backfire in the future, especially if there is an economic downturn.
These are risks VW has to take, if its wants to stay viable in the U.S. market.
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