ecoslik
Silver Member
- Joined
- Apr 20, 2010
- Messages
- 132
- Location
- Texas on (hobby) horse ranch
- Tractor
- Kubota L5740 HST with LA854 loader and QA, top and tilt, 1 front and 3 rear remotes, foamed rear tires
0% for 7 years ......... there's either a **** of a lot of profit , or the
Company is trading in the red .
I have seen this comment many times and thought it deserved a little research ...
If you figure that typical interest would be compounded annually and the annual rate might be in the range of 7%-10% ... the comparable effect if they charged interest but lowered the price would be a price reduction of about 13%-16%. The volume of this promotional/financing activity represents less than 1% of Kubota's annual operating expenses. Unfortunately, the money that makes it possible to offer 0% comes from a different source than what it would take to make it possible to just lower the price at the dealership; besides, it is the specific goal of Japanese monetary policy to keep prices stable (not discounted).
Manufacturers of heavy equipment typically have 10%-30% (depending on competition and inflationary/deflationary pressures) margin on sales (operating "profit" that is pretax, pre-amortization, pre-interest). In looking at Kubota's financial filings for 2010 that analyze 2009, there was approximately 20% and 30% decline in demand for equipment under 40HP and over 40HP, respectively.
Kubota had approximately a 7.5% operating profit. This rate includes the cost of the "zero interest" promotion. In my judgment, there is neither high profit built into the tractor nor is there a relatively high cost of this promotion.
Disclaimers:
(1.) I only spent a few minutes looking over a 100 page report, so I may have made mistakes or not have been thorough.
(2.) Kubota shareholders are dominated by Japanese banks (at least 30% of total ownership), and the Japanese government still has large ownership stakes in these banks as a result of Japan's own bank failure and prolonged recovery of the 1990's. This promotional/financing activity is wholly owned activity of Kubota, but I suspect that the availability of such cheap debt is a pass-through of the nearly 0% interest that is and has been available to/from the shareholders/government for nearly 14 years of their economic recovery.