According to Honda Motor Co.’s U.S sales chief, if carmakers didn’t turn to long-term auto loans that tend to hurt customers, in the long run, they would have sold approximately 1.5 million fewer cars than they did.
Honda Executive Vice President John Mendel said on Wednesday that carmakers who rely on fleet sales with massive discounts from governments and car-rental companies that are as low as 40 percent are undercutting resale values of cars that people are paying full price for.
At a conference in Detroit, while speaking to the Automotive News World Congress, Mendel brought up the fact that though there are profitable fleet sales, they are not beneficial for customers.
Deals during the holiday season were able to push sales to 17.55 million cars and light trucks in the U.S. during 2016, reaching records and a seventh straight annual gain. Though investors are usually concerned with whether or not deal-making might lower the car companies profits, Mendel told reporters that those buying vehicles with longer loan terms are taking a risk. Lengthier loan terms lower monthly payments, but trap consumers into extended contracts. That makes it difficult for them to see an end to their overall payments.
According to Mendel, approximately one-third of auto loans in the U.S. surpass 72 months. After interest, this leaves most consumers with little to no equity for future purchases.
Mendel said that as auto loans go past the 72-month mark, they significantly impact the business.
The Honda Exc. saluted GM’s Co. CEO Mary Barra for continuing with her promise to trim the company’s dependence on fleet sales. He opted out of naming carmakers he feels go overboard with fleet sales.
At the North American International Auto Show on Monday, Mendel introduced the newest version of the Honda Odyssey. The sales of the newly designed minivan are set to begin in the next couple of months.
The van can switch to infrared mode during the night too so it does not wake sleeping children. It’s also equipped with a dashboard cam so the driver can see those seated in the back of the vehicle. It also contains a microphone system so that the driver can talk to those who sit in the far back.