I think the main benefit of paying upfront is to buy a used car.
In principle, you can pull out a checkbook and bargain back the hit you know they're willing to take on financing.
Some dealerships like GM, used to also have a bank. GMAC. Ford w/ FMC.
A car that's sold for 12-14K, has a general margin of 10-15%. Some as low as 5%, but still.
The 0/1% is also hard to obtain, needing to have good credit and possibly sizable downpayment, but don't worry they have options if you sign at the dotted line.
The fact that you think they make no money on 0/1%, is you falling for the marketing.
So in that case, I'll take my 2% external-bank-loan and drop off the check at the dealer all day long.
Cuts your sticker-price negotiation ability a bit since they lose another place to fiddle with the numbers and make money on the backend, but ultimately the end result will be about the same, and it's much less headache to have the financing lined up regardless of which dealer you choose.
It worked for me, took more time I will say, but I got a good deal on a brand new car that I'll drive for a very, very long time.
I just tried to figure out (via Google) whether it's common in eg Germany---but what I found what mostly only about negotiations for used cars.
It's just another choice. There are plenty of car dealers here that offer a "no-haggle" experience if that's what you want.
And that's before any kind of negotiation (unless you count asking nicely as negotiation). And I mean anything. I've done it in many places. Is there anywhere where that does not work?
Your local Apple Store in the USA.
You can try asking the next time you buy something big. The worst that can happen is them saying no, if you really asked nicely.
PS: I dented a rental car and got a huge bill. I called them up and basically said 'discount please?' They gave me a 20% discount, and that was without any kind of arguing or confrontational talk, just the question. So it's not just for stores.
Edit:. I meant to have an "also" in my first sentence.
So they're losing 26bp of yield for taking on (the albeit limited levels of and partially diversified away) the credit risk?
Now, it probably isn't as bad as it initially sounds. But, it is more complicated.
The proper analogy is this: treasuries vs. corporate bonds. Here is the current yield spread (difference in interest rate: corporate minus treasury): https://fred.stlouisfed.org/series/BAMLC0A0CM
The spread is always positive, because investors demand extra yield for taking on credit risk.
What, then, is your explanation for why they make these loans?
(I fully ack that just because I feel it, does not mean it is the case.)
Would be curious on numbers to know how successful that is.
Indeed, I mainly expect that is what they are. Convinces people to get in the market for a car, but then actually get something else.
So, my specific question here is what makes it closely related to loss leaders? A concept which actually makes a lot of sense for me. If that was meant in the broadest of terms, then I understand. But "closely" does not imply "broadly" to me.
The question at this point was much more narrowly scoped and around how this is "closely related" to loss leaders. On that, no math was presented.
And if you can finagle to get the subscription on a student discount, it's definitely worth it. Full-prince subscription is debatable.
If you went by profitability, for many years it was probably more correct to describe GM and Ford as banks that had a side business in automobile manufacture.
Less stress? You pay money, the car is yours, problem solved. One thing less to worry about.
Probably could have done better on a used car, but for once I wanted to be the one to run something into the ground. Still waiting on that.
Jurisdictions with good legislation require dealers to also show the effective APR, which takes the cash discount into account and is almost always a more reasonable rate.
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Apart from that there could be lots of special circumstances (making a quota, etc.) that could explain the discount if the offer was made to you personally as opposed to being advertised to the public.
Not every manufacturer does this, and not on every model.
I have a 0%, 60 month loan on my LEAF. Having such a loan requires me to carry collision insurance, so I treat the insurance company's profit on my insurance as the financing charge that I'm paying every month. (I otherwise wouldn't carry collision, but of course collision insurance is worth something, so I am only "really" paying the spread between that value and its cost.)
About halfway through the loan (when the imputed financing charge interest goes up because the loan balance went down), I'll probably pay it off and drop collision.
I turned down a 0% offer and took the cash. I then went to a Credit Union and got a loan at 2%. The interest paid over the life of the loan totaled less than the $750 upfront.
The finance person at the dealership wasn't too happy once he realized I can do math.
all car firms offer lower and lower loans rates to try to get you to buy their product, and eventually the rate reaches 0%