Replies to This Discussion

Permalink Reply by David Ruggles on November 3, 2009 at 1:02pm

I'm sure lenders would love to see larger down payments, but competitive pressures will out! A lender who institutes a larger down payment requirement will probably see a dramatic drop off in applications.

Permalink Reply by JJ Hornblass on November 3, 2009 at 1:11pm

I would think this is the first step:

Edmunds.com estimated today that the average automotive manufacturer incentive in the U.S. was $2,468 per vehicle sold in October 2009, down $329, or 11.8 percent, from September 2009, and down $209, or 7.8 percent, from October 2008.

After the crutch of incentives are lifted, auto finance providers can think about a higher downpayment. (And if you think it is unrealistic to expect subvention to meaningfully change, you are right.)

Permalink Reply by Marcie Belles on November 3, 2009 at 1:14pm

I guess it would be interesting to track the relationship between lower interest rates and higher down payments. What's the breaking point? In other words, if you offer consumers a 25bps reduction in rate for every additional $500 of down payment (for example), at what point would they reach their limit?

Permalink Reply by Michael Buckingham on November 3, 2009 at 1:51pm

Marcie,

High downpayments are customary and a cultural norm as are terms of 36 months or less. Many customers in China pay cash and when they do it is in a bag or suitcase of Yuan, all dealers in China own a currency counting machine.

Permalink Reply by Marcie Belles on November 3, 2009 at 2:14pm

A suitcase of Yuan -- that's amazing. Thanks for the perspective, Mike.

This article about the Chinese auto finance market mentions that in 1998 some banks required car buyers to deposit the full purchase price of the car while paying off the loan. Looks like auto finance has evolved quite a bit since then.