Kubota - Does 0% financing mean they have high markup

[ecoslik]

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.

 

[nebraskasparks]

I shaved 4k off of the kubota website price by paying cash up front if that gives you some figures to work with when I got that 5740.
I'm not about to go into debt with an economy that is a hair away from becoming worthless.

 

[ecoslik]

Just guessing ... $4k would be about 13% off MSRP. Very cool.

We bought our 5740 used and realized the savings that goes with that territory.

I agree with you about personal debt; as Dave Ramsey says it .... FREEEEEEDOM!

 

[TripleR]

We considered financing our M8540, but got an additional $1000 by paying cash. We have no payments and really didn't want any.

There was a thread not long ago in which people who paid cash were essentially called foolish. At my age, I just hate to finance, not that there is anything wrong with it. I sure had to do it most of my life.

 

[Agrantina]

Well--- I owe on 2 things the house and my new Kubota L3240 with 0%. The price was 12% lower than the website MSRP price. I could have got it for$1000 cheaper if I would have paid cash. That equals to about 2.4% rate over 60 months. Not bad money.. I dont finance many things but at 42yrs old one has to keep a good credit rating and this doesnt hurt. 2 kids - one 10yr and 12yrs old means that I will have college to pay for so borrowing money will always be something that I will have to do. BUT I am a STRONG believer on keeping your finacing down to one or two things and nothing more. Simply done- paid the wifes car off last year- contiuned to put that payment in MY bank waiting on the day I need to replace it.

AndyG

 

[ITHINKICAN]

I did shop for a good deal - I did get a good deal. End of story.

If there is a mark up or not; issue is mute. The price and the method in which I obtained it; whether it be financed or paid cash; is also mute. At the end of the day (and hindsight is always 20/20) my tractor is so much fun and messing around on my land is so much fun - I just don't give much thought to anything else.

My father fought in WWII, went to college, got his masters and then his JD, then worked his life away 10-12 hour days, making conservative investments, eating chicken breast and catfish (while my mom ate surf & turf)... then he got Alzheimers, Dementia and faded away.

I'm not going out like that. I'm not. I got me a tractor... I got me some land... I'm gonna have me some fun! He taught me many lessons. One of which is - get passed the dollar signs - Enjoy Life.

Kubota - Does 0% financing mean they have high markup - It is simply none of my business. Plus I'm too content to think about it

 

[johnrex62]

I shaved 4k off of the kubota website price by paying cash up front if that gives you some figures to work with when I got that 5740.
I'm not about to go into debt with an economy that is a hair away from becoming worthless.

I saved a little over 4.5K off website price and financed at zero % with nothing down, free delivery and parts only 50 hour service on my L3700SU package.

I don't see that you actually saved anything by paying cash on your deal when compared to mine with no cash outlay at purchase.

 

[bp fick]

Interest rates as measured by Prime Rate, bank passbooks, go ahead, you name it, are in the sewer. .5%-1.5%. If Kubota or anyone else tried making 8% off new tractors, their sales would be laughable.
There simply is not BIG interest to be made by me or anyone else, including Kubota. Sure, there a 1% or 2% swing sometimes in price by financing versus paying cash, but again, not very dog gone much. On my recent deal the difference was $700.

OK, then for a 13K loan, paid back for 5 or 6 years, let's just say 700 bucks in interest. Whoop-de-doo. Chicken feed.

This issue is non starter. Do what you need to personally do. Enjoy life, indeed.

 

[doall]

I did shop for a good deal - I did get a good deal. End of story.

If there is a mark up or not; issue is mute. The price and the method in which I obtained it; whether it be financed or paid cash; is also mute. At the end of the day (and hindsight is always 20/20) my tractor is so much fun and messing around on my land is so much fun - I just don't give much thought to anything else.

My father fought in WWII, went to college, got his masters and then his JD, then worked his life away 10-12 hour days, making conservative investments, eating chicken breast and catfish (while my mom ate surf & turf)... then he got Alzheimers, Dementia and faded away.

I'm not going out like that. I'm not. I got me a tractor... I got me some land... I'm gonna have me some fun! He taught me many lessons. One of which is - get passed the dollar signs - Enjoy Life.

Kubota - Does 0% financing mean they have high markup - It is simply none of my business. Plus I'm too content to think about it

IthinkIcan; you are a wise man. If we wait till we can pay for everything, we will be too old to enjoy it. I am a firm believer in living within your means, but its easy for Dave Ramsey to say what he does(he's rich) If you work 50 hours a week and manage your money well why can't you have a tractor, truck, motorcycle, whatever. Live a little before you die.

 

[TripleR]

I did shop for a good deal - I did get a good deal. End of story.

If there is a mark up or not; issue is mute. The price and the method in which I obtained it; whether it be financed or paid cash; is also mute. At the end of the day (and hindsight is always 20/20) my tractor is so much fun and messing around on my land is so much fun - I just don't give much thought to anything else.

My father fought in WWII, went to college, got his masters and then his JD, then worked his life away 10-12 hour days, making conservative investments, eating chicken breast and catfish (while my mom ate surf & turf)... then he got Alzheimers, Dementia and faded away.

I'm not going out like that. I'm not. I got me a tractor... I got me some land... I'm gonna have me some fun! He taught me many lessons. One of which is - get passed the dollar signs - Enjoy Life.

Kubota - Does 0% financing mean they have high markup - It is simply none of my business. Plus I'm too content to think about it

The very same thing happened to my favorite uncle last year, he was more like my brother. He always wanted a motorcycle, ATV, tractor, but kept putting it off. Early onset Alzheimer's Disease got him.

You seem to have a balanced approach to life.