Blog: Dave LeggettHyundai hope in the US data?

Dave Leggett | 4 February 2009

Where does the latest US sales data leave us? Well, it's pretty clear that things are not getting better. A SAAR under 10m units is a little bit worrying, to say the least. One of the few bright spots in the US market last month was Hyundai succeeding with a scheme that lets you give your car back and walkaway from the finance deal and any negative equity if you lose your job. Hold that thought.

As Ford economist Emily Kolinski Morris rightly put it, we still do not have stabilisation in the market. And that's what everyone is looking for, for starters. 

The first quarter of this year is expected to be a bad one in the US. The bad economic news is rolling in and unemployment is rising fast. But we should see bottoming and improvement thereafter.

Can the US light vehicle market SAAR go even lower than where it is now? It's a particularly uncomfortable question now due to its grim implication in the run up to February 17. Just what can the Big 3 live with?

Sure, replacement demand should be building, but it looks like our assumptions on when that flows in will have to be revised yet again. Better build quality these days, across the board, means lengthening vehicle replacement cycles has never been easier. 'Let's replace that truck when things are a little clearer, honey. Let's look at it again next year.'

The central problem remains: people don't feel confident right now and buying a new car isn't a priority for many, even if they could get their hands on loans. The ideal solution is obviously an economy that is in recovery mode, confidence returning. But that doesn't look like it's coming imminently and I wouldn't mind betting others are looking closely at Hyundai's scheme.

In return for having to cover the customer's potential loss on negative equity, the manufacturer gets a much-needed sale. The manufacturer absorbs the risk at both ends - the customer's and the finance provider's.

But in a recession we know this: people change their behaviours because of how they feel and the perceived dangers tend to be much bigger than the actual ones. In the vast majority of cases, people who are genuinely worried about employment security won't actually lose their jobs. If say 5% of those bouyant Hyundai sales end up claiming on walkaway, how does that neg equity cost look against all the extra volume secured (looking at the numbers they could be 3,000 units up in January on where they would have been without it)? That looks like a pretty good outcome for Hyundai.

However, we still have the logjam in credit markets to contend with. And the banks are still spooked by bad debt. But there again, if the manufacturer takes the risk on the finance, isn't that making it much more attractive for the finance provider?

To the manufacturers - maybe ask where Hyundai got the finance for this? To the banks - isn't it time to get back in to the market if the risks of doing so are covered with schemes like this? Couldn't this be profitable low-risk business for the loan provider? .

I realise I am probably being naive (maybe the banks are still in a more precarious state than what's public suggests), but I'd certainly welcome views on Hyundai's scheme and whether others could usefully adopt something like it.

US: Hyundai 'walkaway' programme attracts strong interest

US: China may be #1 auto market this year


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