Kubota - Does 0% financing mean they have high markup

[rjkobbeman]

There is no such thing as 0% financing.

Sure there is. 0% financing means you don't pay any interest on the loan. If the cash price and the financing price are the same, you are not paying more for 0% financing... which mean there is such a thing.

There is a guy on this site that has the "there is no such thing as 0%..." in his signature. I guess he doesn't get it either.

 

[JOHNTHOMAS]

Sure there is. 0% financing means you don't pay any interest on the loan. If the cash price and the financing price are the same, you are not paying more for 0% financing... which mean there is such a thing.

There is a guy on this site that has the "there is no such thing as 0%..." in his signature. I guess he doesn't get it either.

You're right. There is 0% financing. The earlier poster was skirting economic theories but he missed the simplicity of buying an item for so many dollars to be paid back with monthly payments for a period of time with no additional charges for interest over the period of time. It's that simple which is 0% interest for a stated period of time.
Kubota is now giving a small discount for cash but that is a recent policy. Before it was the same for cash or financed.

 

[timswi]

There is no such thing as 0% financing. Money has value over time, and a dollar now is worth more (at todays rate about 1.03) in a year, and with compounding it does begin to add up. The Present Worth (cash option price) for 20000 in 5 years @ 3% interest is about 17,250. Kubota knows what the present worth value is when they sell it, and they just compute the price based upon intest factors and term.
For me, it didn't matter. I didn't have 17k to offer in cash. But in fairness, I accepted the cost to have the machine. Everybody in the manufacturing chain has to make money for the system to work. My salesman was an old friend. I make enough money to afford the tractor. Even though I could have negotiated hard, I would have been reducing his (and the dealer's) return on investment. I bought it locally because I want that relationship to be healthy, and I know that at some time, I will need their help and business. Supporting local business is important, and the bottom line was that I was satisfied with the deal and the overall experience.

I agree with the premise, but given that Kubota has it's own captive finance company, they can finance at 0% while still making a nice profit on the equipment. If they were doing this via a 3rd party finance company, they'd have to bury the expense somewhere.

Move the iron. Without these financing deals there would be alot of tractors sitting around, and some hurting dealers.

 

[jim442]

If you return to pricing basics, you sell for as much as you can. So, if you can get say 20 grand for your product with your market research that's what you sell for. If the sales slow down because of competition or market you discount-including financing is one way, rebate etc. I.E. if you could afford to "jack up" the price by 1000 dollars and say you were including financing you should have been getting the 1000 in the first place.
Also, when you look at margins on equipment remember in many cases there is an "economy of scale" the more you build your raw material costs go down.
The financing costs could be made up in this economy of scale-keeping the plant running at high capacity.

 

[montelatici]

It is not that complicated. In Japan, money costs almost zero, so Kubota takes that almost zero cost money and offers it to American consumers and takes whatever profit on the machines they can get.

 

[jim442]

so they have a "yen" for our dollars?

 

[timswi]

It is not that complicated. In Japan, money costs almost zero, so Kubota takes that almost zero cost money and offers it to American consumers and takes whatever profit on the machines they can get.

Money costs almost 0% in the US as well. They make enough on the product and insurance that they can eat the minimal money costs. I bought my BX when rates for other brands were 9% and up...Kubota was 2.9%. When I bought the RTV1100, it was 0%. Polaris and others were north of 7%.

As long as the product keeps moving, volume makes up for the basis points that they are paying/losing on the finacing dollars.

 

[jim442]

Money costs almost zero to the BANKS, who are holding on to it because of the new regulations about to take effect. Kubota is investing their money where they can get the most return. They can also retain (higher) earnings which equates to a huge tax savings and boosts their return on capital. Don't even think for a minute these guys give anything away. The accountants run our corporations today-that's why everything falls apart in 10 years

 

[timswi]

Money costs almost zero to the BANKS, who are holding on to it because of the new regulations about to take effect. Kubota is investing their money where they can get the most return. They can also retain (higher) earnings which equates to a huge tax savings and boosts their return on capital. Don't even think for a minute these guys give anything away. The accountants run our corporations today-that's why everything falls apart in 10 years

In that respect, if the BANKS are cheating the consumer, why can you get a normal 3.75% fixed rate 30 year mortgage in a very risky market. Contract law has been thrown overboard and you can still get these. This is a long term commitment by the BANKS.

Futures markets, not regulation or the banks have anything to do with interest rates. The government can say whatever they want, but rates are a market condition. Right now the Fed which is mostly independent of political influence, is buying down long term rates to goose the economy. Without them doing this, the rates would still be low, but not quite as low as they are. The Fed only has direct control on overnight rates that banks charge each other. That's what you hear after the quarterly Fed meetings. Right now they are buying and selling treasuries and other things in bulk to try to balance the market.

I never said Kubota is giving anything away. If you make enough on the product, your can take a small hit elsewhere. Right now, money is the best place to make a small, if any, sacrifice.

0% finacing will get many buyers off the fence. This is more marketing than anything. Would you rather $1200 off of the tractor and pay 9.99% or negotiate a resonable price and pay 0%. Given what I do for a living, I know my answer and I have nothing to do with Kubota except buying some of their stuff.

 

[rjkobbeman]

I agree with the premise, but given that Kubota has it's own captive finance company, they can finance at 0% while still making a nice profit on the equipment. If they were doing this via a 3rd party finance company, they'd have to bury the expense somewhere.

Move the iron. Without these financing deals there would be alot of tractors sitting around, and some hurting dealers.

Absolutely true...

Even if Kubota was losing money because of their financing -- and I'm not saying they are -- the 0% helps them weather the storm. Keeping their company going is what it is all about. You can't just ramp-down a world-wide company on a dime when times are tough and then ramp-back-up easily when times get better. And even if you could, it is much more costly that to just take some losses in your financing arm. Low financing is a mechanism to keep businesses going. The automotive industry started this years ago.

The consumers are the big winners here.

The tough part is jacking rates back up when times get better. Consumers have been used to free or nearly-free financing for a long time.