Dealing on new equipment

[JOHNTHOMAS]

Financing at zero percent vs cash discount. Let's take an example close to my last large tractor purchase and use round numbers. $100,000 for 5 years at zero percent or $99,000 cash. After delivery I had $100,000 cash vs $1,000 is I paid cash. I invested the difference and, over the past 5 years, I have averaged 9% return on my investment. Not great, but conservative portfolio. S my money went up but I did need to make payments. So to simplify the math and work from the midway point, $50,000. $50,000 at 9% annually is $4,500, or over 5 years $22,500. So over 5 years I have earned $22,500 gain on investment vs $90 interest per year or simplified $450 interest on the cash back. I am over $22,500 ahead having financed. Simplified, although I actually came out further ahead than that because although I averaged 9% on investment over 5 years, I actually made 12% and %15% on the money the first 2 years when I was using more of Kubota's money. That's also without figuring in a tax break I received by spreading payments over 5 years instead of taking a lump sum $100,000 out of the bank. If you don't believe me, have an accountant figure it out for you.

I totally agree when the purchase price is that close regardless of payment method. This scenario is becoming more common.

To use a card game (Poker) term, the manufacturers have went "All In" holding a pair of twos. The rest of the table (Us) have folded.....

Using your thoughts on this. Explain to me how it improves their finances to let you invest your money and make that $22K rather than make it themselves?

I've bought almost 20 Kubotas in around 12 years. I always take the 0%. I was a former State Auditor so some financial back ground. Over the years Kubota has offered 0% that was truly 0% contrary to what some cash is king people believe. There was no cash rebate some years and some years there are cash rebates but the cash rebates have never been good enough to match taking the 0% and investing the cash over the term or paying any other debt one has first.
Kubota owns most of these new tractors which are sitting on franchise dealers lots. When a customer comes in and wants a price the dealer sits at their computer and finds out what special programs are being offered that day and how much dollars Kubota is selling the tractor for that day. All dealers pay the same, big or small in USA. The dealer then decides how much profit they want and then tell the customer the price less "incentives" plus dealers profit. The financing option thru Kubota is determined by Kubota and a "rebate" figure is given to subtract from bottom line if customer paying cash vs dividing the bottom line by 60 (60 months financing) for monthly payment at the 0%. (Some years in the past there was no difference cash or credit and speculation was that the Japanese government was paying the interest to increase sales of Japanese products in USA). Cash is king is mostly true at flea markets and individual to individual transactions.
Car/truck dealers often times prefer individuals to finance the vehicle because dealer gets part of the interest the off site lender charges so salesman and dealership manager/owner don't "always" prefer cash over financing but the customer is payting more and usually lots more for that financing but car dealerships and tractor dealerships vary greatly.
I some times use my homeowners policy for coverage (Ky Farm Bureau) and Kubota takes it as coverage and sometimes I take KTAC coverage and add te cost to the total financed at 0% and at that point it is a true 0% since the cost is added tot he total and then divided by 60 to determine monthly payment. KTAC is always better coverage for the cost but i don't always need the total coverage or don't want to pay the additional cost for the KTAC coverage. If I'm using the Kubota at different locations I always get KTAC coverage since my homeowners doesn't cover it. I checked on the Marine policy one time and it was more money for almost no coverage but it did cover at all locations of use. If one "blows up" the engine or hydraulics by not filling with fluids KTAC will fix but I don't think any other insurance will cover it unless one has the "stupid" rider added which would cost an incredible amount. Homeowners and riders offer basic loss coverage while KTAC covers almost any thing after deductible. I've never filed a claim against any policy I've had for my Kubotas. I would in a heartbeat against the KTAC policy but would be very hesitant to unless I had total lose against my homeowners knowing my policy premium would be raised to real premium cost or canceled after payment. My :2cents:

 

[Turbys_1700]

When I financed my tractor New Holland required insurance with the financing. Farm Credit didn't. I went with Farm Credit and insured separately through Farm Bureau. The total payout on the loan was actually less with the Farm Credit loan over the New Holland financed loan. The Farm Bureau coverage does not cover for mechanical issues as many here have stated where the Kubota insurance does. With the 5 year power train warranty I didn't think extra coverage was needed. I wonder if the New Holland insurance is similar in coverage to Kubota's, and I wonder why Farm Credit does not require insurance? Leads me to believe that very few farm insurance policies ever have claims placed against them. I know that we have never made a claim in over 50 years here on the farm and all of our tractors have been insured. Looks like to me tractor insurance is a good profit maker for Farm Bureau.

 

[ovrszd]

Good stuff guys. I appreciate everyone's input.

Now that all major manufacturers are playing the 0% finance game there is less incentive for us to buy a specific brand over another. To get a new "edge" they are gonna have to come up with a new "gimic". Curious to see what that is.

 

[JOHNTHOMAS]

When I bought my first tractor about 12 years ago the gimmick was: JD was $3000 more than Kubota and New Holland was $2500 more than Kubota so Kubota was the cost measuring stick. Bought around 20 Kubotas since I bought my first Kubota so I guess that speaks as to my satisfaction but a lot of that should be credited to my dealer Steve Barlow who makes the decision as to his sell price/profit margin.:thumbsup:

 

[Lilguy]

For the record, I just got off the phone with KTAC. They will only pay to repair a "blown" anything if its the result of accident damage. The below statement implies something a bit different. Their exclusion page specifically excludes mechanical or electrical breakdown.

"If one "blows up" the engine or hydraulics by not filling with fluids KTAC will fix but I don't think any other insurance will cover it unless one has the "stupid" rider added which would cost an incredible amount. Homeowners and riders offer basic loss coverage while KTAC covers almost any thing after deductible."

 

[JOHNTHOMAS]

For the record, I just got off the phone with KTAC. They will only pay to repair a "blown" anything if its the result of accident damage. The below statement implies something a bit different. Their exclusion page specifically excludes mechanical or electrical breakdown.

"If one "blows up" the engine or hydraulics by not filling with fluids KTAC will fix but I don't think any other insurance will cover it unless one has the "stupid" rider added which would cost an incredible amount. Homeowners and riders offer basic loss coverage while KTAC covers almost any thing after deductible."

It doesn't imply, it flat out says it which was my understanding. Thanks for finding out the true facts from the true source of information.

 

[ovrszd]

In studying any insurance policy, the exclusions should always be the primary focus.

For example, my homeowner policy has $95,000 coverage on contents of my house/shop. But it only covers a maximum of $500 on automotive parts/accesories stored there. Discovered that during a fire claim.

 

[Lilguy]

JT, didnt mean to step on toes. I wrenched for 35 years and had never worked a supplemental coverage policy that covered neglect. KTAC is also good for off site use. My home policy will not cover the tractor if I take it to my kids place.

 

[JOHNTHOMAS]

JT, didnt mean to step on toes. I wrenched for 35 years and had never worked a supplemental coverage policy that covered neglect. KTAC is also good for off site use. My home policy will not cover the tractor if I take it to my kids place.

I didn't take it as toe stepping. I appreciate you clearing it up with source of info.

 

[ovrszd]

JT, didnt mean to step on toes. I wrenched for 35 years and had never worked a supplemental coverage policy that covered neglect. KTAC is also good for off site use. My home policy will not cover the tractor if I take it to my kids place.

Yeah, the offsite thing is why I started using Inland Marine. Not pimping them in any way.