For those who need a new vehicle but fear losing their job, there is help. Two automakers and a dealership chain are offering programs that cover car payments if buyers get laid off, and one automaker will let you return a vehicle for a refund.
All these programs are free and, on paper, look fantastic. But experts stress the need for consumers to understand their nuances before signing on the dotted line. They also say that despite the extra reassurances such programs offer, people should still think hard about what kind of vehicle they buy right now.
From the automakers’ perspective, payment-protection programs are designed to build consumer confidence in the face of economic uncertainty. “We wanted to get to the heart of what is keeping people out of the showrooms,” says Ford spokesman Steve Kinkade, “and it’s quite simple: People are worried about losing their jobs.” People are so worried, in fact, that cash rebates and other traditional incentives haven’t been drawing buyers like they used to, he says.
For that reason, Ford is offering a payment-protection program that covers monthly car payments of $700 or less on new Ford, Lincoln and Mercury models for up to 12 months. The offer expires June 1.
General Motors also has a payment-protection plan available through May. It covers up to $500 a month for nine months. All of its vehicles, except for those from Cadillac, Hummer or Saab, qualify.
A Hyundai program that runs through the end of the year lets buyers who involuntarily lose their jobs return vehicles for a refund of up to $7,500.
Chrysler, Honda, Nissan, Toyota and Volkswagen are among the automakers that currently do not offer payment protection. Buyers interested in vehicles from these companies can take advantage of a program offered by AutoNation, a large car dealership group. It covers payments of up to $500 a month for six months on all makes and models of new and pre-owned vehicles sold by the dealer group. The program ends May 25, 2009.
Free Payments Aside, How Much Car Do You Need?
Each of the payment-protection programs has rules and requirements (covered in the chart below) that buyers need to understand before making a purchase, says Tracy Schneiter, vice president at the research firm IRN Inc. in Grand Rapids, Mich.
But even before digging into the details, she urges consumers to consider seriously whether they really do need a new vehicle. “For a long time, a lot of people have been buying more than what they probably could afford,” Schneiter says. Payment-protection programs should not be viewed as an excuse to go out and get a fancy new car in a down market, she cautions. Instead, buy what you can afford.
Program Similarities
The specifics may vary, but programs share a few key things. First, they don’t cost anything. In order to qualify for coverage, consumers must be employed for a month or two before buying their vehicle, and they must remain employed and/or make payments for a certain period of time after the purchase — in some cases up to 90 days, as with AutoNation’s program.
“You can’t know that you’re going to lose your job, get a car, drive the wheels off and then turn it back in,” says Joel Ewanick, vice president of marketing at Hyundai. Coverage can be denied in instances of “excessive abuse” of a vehicle, he says.
Another aspect the programs share is that owners who become unemployed and apply to receive payment protection must continue to make lease or loan payments until the coverage begins — it can take a couple of weeks to kick in once you’ve applied. Owners are also responsible for any cost beyond what is covered by the program. So if the monthly payment on your new Chevrolet Malibu is $600, you’d still have to come up with $100 a month after receiving GM’s payment protection.
To qualify for coverage, programs typically require some sort of documentation to prove that you’re unemployed, such as a letter of termination or an application for unemployment benefits. These are submitted to a representative, typically at the dealership, along with other paperwork. Owners must verify their unemployment status every month they wish to receive payment protection.
Sweetening the Deal
Besides payment protection, automakers are piling on other benefits in an effort to attract buyers.
General Motors touts a four-pronged strategy, which, besides payment protection, includes “Product Protection” in the form of a five-year/100,000-mile powertrain warranty with roadside assistance and courtesy-car service; “Family Protection” through the OnStar safety communication system; and “Vehicle Value Protection.”
This last component is designed to allay concerns over depreciation by offering reimbursements of up to $5,000 for trade-ins or $2,500 for private-party sales if an owner of a 2008, 2009 or 2010 GM vehicle owes more on the loan than the vehicle is worth when it comes time to trade or sell it. “That’s a unique feature of our program compared to any others,” says GM spokesman John M. McDonald. Owners must make half of the payments of their loan period before being able to qualify for Vehicle Value Protection.
Ford and others are offering zero-percent financing on certain models, but many buyers are having a hard time qualifying for any type of credit, let alone zero-percent deals, says Marc Cannon, senior vice president at AutoNation.
“Credit’s still the key,” explains Cannon. “We’ve got people coming in now who love the payment-protection program," but they still have a credit issue. “I think that if there was ample credit, the program would be a grand slam, versus a solid double.”
Marc Cannon, Senior Vice-President for AutoNation is often a Special Guest on Car Concerns.
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