Auto Loan Refinancing

Are you afraid you missed the boat on refinancing your auto loan, because interest rates are now on the rise?  Well, it's not too late to enjoy some savings, especially if you have a long (four-, five- or six-year) loan from an earlier, high-interest rate time.  But the clock is ticking, and the Fed could call for a boost in interest rates at any time.

Last year, we revealed the savings the average consumer could realize from a well-conceived automotive re-fi as interest rates edged lower.  Now, with the signals clearly indicating that higher interest rates are ahead, it might be your last chance to hop on this bandwagon.  Many consumers are still surprised to learn that they might find some money waiting for them if they take a few minutes to consider refinancing their vehicle loan.   

"Many people finance their auto loans directly through their dealer, which is convenient," says Brian Regan, chief consumer officer of LendingTree, Inc. an on-line lending exchange. "What consumers don't realize is that the dealer doesn't always give them the lowest rate they qualify for, and that could cost them more money over the life of their loan."

Consumers who financed a couple of years ago when lending interest rates were higher might also find that today's lower rates allow them to shorten their loan term with the same monthly payment.  Or they can lower their monthly payments by keeping the term the same.  Either way, they'll be saving money.

One of the reasons consumers might shy away from refinancing their vehicles is the fear of being fee'ed to death, because those who have been through a home mortgage re-fi know the endless stream of application fees, registration fees and closing costs that accompany the transaction. But if you find the right lender, refinancing your vehicle can often be accomplished with minimal fees and out-of-pocket costs. For example, in many states refinance applicants pay only a $15-$25 fee to transfer the lien.

There is one key factor to make certain of, however. Car owners contemplating a re-fi need to make certain that their existing loan has no prepayment penalties. Vehicle refinancing gives consumers the greatest benefit when a simple-interest loan with no prepayment penalties is refinanced into a simple-interest loan with a lower rate. Prepayment penalties can quickly eat up the savings that might otherwise be gained by getting a new, lower-interest loan.
 
To evaluate an auto refi loan, consider both your interest rate and term of your loan. To reduce the amount you pay overall, refinance your loan at a lower rate for the same, or reduced, length of time. If you reduce the term of the loan (let's say you have 28 months left on your 48-month loan and you knock it down to 24 months) it may slightly increase your monthly payment, but if you can afford it, you can pay your loan off quicker and save more money in interest.

If you're looking for a way to keep more money in your pocket now, you can drop your monthly payments by refinancing your loan at a lower rate and extending the term. Just remember that doing this may increase the total interest paid over the life of your loan.

How much can refinancing really save you? By refinancing a $28,000 auto loan from a 9.0 percent interest rate to a 5.75 percent rate, over 60 months, you could save $43 a month, which adds up to $518 a year or $2,590 saved over the life of the loan.

And while you're in the process of investigating a re-fi, don't just go to one loan source. By comparing a number of loan offers before you refinance, you can see quite clearly where the best deal lies.

Jack R. Nerad, managing editor of Driving Today, wrote about auto financing options extensively in his book The Complete Idiot's Guide to Buying or Leasing a Car. 

Seeking Dependability?

In a boyfriend, dependability seems like a boring characteristic, but in an automobile it is among the most desired.  For this reason car companies all over the world strive to score high on the J.D. Power and Associates' Vehicle Dependability Study (VDS), the industry's benchmark in this sought-after area.  A month ago the Korean brands, especially Hyundai, were crowing about their success in another important J.D. Power and Associates survey, the Initial Quality Study, but the recently released VDS report shows that the Koreans still have a long way to go to achieve class-leading dependability.  The surprise in this year's VDS was the major progress being made by American manufacturers.

In this year's study, the "Big Three" domestic manufacturers all recorded improvements over their results in 2003:  Buick, Lincoln and Cadillac ranked two, four and five in the brand-by-brand results, respectively.  Lexus topped the VDS list, while Nissan's Infiniti luxury brand was third. General Motors was the only domestic carmaker ranking above the industry average of 269 problems per 100 vehicles (PP100), but Ford Motor Company and DaimlerChrysler made significant headway, improving 12 (Ford) and nine (DaimlerChrysler) PP100.

"The domestics are putting their money where their mouths are in terms of consistent long-term quality improvement," says Joe Ivers, partner and executive director of quality/customer satisfaction at J.D. Power and Associates. "However, while the domestics continue to outpace the Europeans in long-term quality, the Japanese continue to dominate."

Mercury (at 224 PP100), Chevrolet (262), GMC (262), and Saturn (267) were American nameplates that ranked above industry average in dependability.  The most-improved domestic nameplates included Ford (improving 19 PP100), Lincoln (18), Mercury (16), Dodge (14), Cadillac (13), Plymouth (13), Chevrolet (10) and Chrysler (10).  At the bottom of the VDS list as the least-dependable vehicles were Land Rover (472 PP100), Kia (432), Daewoo (411), Isuzu (393), and Volkswagen (386).  The most improved brands over their 2003 results were Kia (77 PP100 improvement), Suzuki (38) and Audi (23), although all three were below the industry average.

When it comes to individual models, Toyota and its Lexus sister brand rule the roost in dependability.  Toyota Corolla, Toyota Avalon, Toyota MR2 Spyder, Lexus ES 300 and Lexus LS 430 each topped their individual car segments, while the Toyota 4Runner and Lexus RX 300 topped their SUV categories.  In high-sales segments, Honda Odyssey was the dependability champ among minivans, Honda CR-V in small SUVs, Ford F-150 in full-size pickups and Chevrolet Tahoe in the large SUV class.  

The Vehicle Dependability Study measures problem symptoms of three-year-old vehicles, primarily in categories representing malfunctions; noise, vibration and harshness; driveability; dependability; and safety. The VDS is one of three J.D. Power and Associates quality metrics, along with the Initial Quality Study (IQS), which measures quality after 90 days of ownership, and the Automotive, Performance, Execution and Layout (APEAL) Study, which measures customer perceptions on the design, content, layout and performance of their new vehicles.

Tom Ripley views the automotive scene and the human condition from his home in Villeperce, France. 

Getting the Right Car Loan

Recently car dealers have been getting a bad rap on some local and national news shows.  The latest complaint:  Dealers actually make a profit when they sell financing and arrange car loans for customers buying vehicles from them.  The audacity!  Next some news program is going to report that grocery stores make a profit selling milk and drug stores make a profit selling medicines.  Good lord, how can we let abuses like this happen in America?

A group calling itself the Consumer Federation of America suggests that car dealerships practice questionable business ethics when securing loans for their customers. According to the organization's study, "American car buyers are being charged at least hundreds of millions and as much as a billion dollars annually in undisclosed 'finance markup' charges." The study reports that a dealership may secure financing at a certain percentage rate and then add on additional percentage points to boost their profit in much the same way a grocery store might buy milk at one price and then charge consumers a higher price.  The additional points are then paid back to the dealership by the lending institution.   This is not exactly landmark material, but somehow it has "made news."

Luckily, our economic system has given us a way to take care of ourselves when it comes to auto financing issues.  The key procedure:  Shop around.  Securing your financing through the selling dealer may or may not be wise, and the best way to determine which it is comes from a little comparison shopping.

"Our customers frequently finance through the dealership and receive excellent finance rates," says Christopher Burdick, founder and president of AutoHeroes, a company that specializes in the car-buying process. "Consumers can easily take control of the financing process by researching finance rates and shopping around. By exploring loans available through outside institutions, a consumer can use those financing rates to negotiate a lower rate from a dealership."

There is no secret why dealers would like car-buyers to purchase their financing through them-it presents them with an honest profit opportunity.  Many consumers opt for dealer financing because it is convenient and, in these days of manufacturer-sponsored financing deals, also pretty cheap.  But as a car-buyer you are not obligated to obtain your financing through the dealership.  If you come to the dealer armed with knowledge of current interest rates and terms, which are easy to come by in this Internet Age, you can quickly determine if the dealer's financing offer is right for you. 

"Dealerships want consumers to finance through them because the dealer makes money on the financing," Burdick says. "When a consumer is ready to buy and tells the dealer that they have been approved for a certain percentage rate, say 4.9 percent, the dealer will offer 3.9 percent to get the customer to finance through the dealership. In the end, the most important factor for the consumer is getting the lowest financing rate. It really doesn't matter if they go through an outside source or through the dealership."

The important lesson to be learned here: Do your homework on financing before you walk into a dealership to buy a car.  Those minutes you spend researching finance costs could save you thousands of dollars.

Driving Today Managing Editor Jack R. Nerad is the author of The Complete Idiot's Guide to Buying or Leasing a Car.

The Quality Surprise

It wasn't too long ago that Korean-built vehicles were thought of as shoddy imitations of the Japanese.  After a series of big quality glitches in the early Nineties, Hyundai sales took a steeper plunge than a Magic Mountain roller coaster, and Kias were the butt of Jay Leno's jokes on The Tonight Show.  But this year's Initial Quality Study from California-based research firm J.D. Power and Associates indicates the worm is turning.  In this study, those once-derided Korean cars out-paced Domestic U.S. brands and, even more surprisingly, the aggregate of European brands.  And while the term "paradigm-shift" is perhaps the most-over-used term in the car industry, this turning of the quality tables is a landmark moment.  

Korean manufacturers, strongly driven by Hyundai's remarkable improvement, have aggressively cut initial quality problems by 57 percent in the past six years-dropping from 272 problems per 100 vehicles (PP100) in 1998 to just 117 PP100 in 2004. This is a dramatic improvement in the state of initial quality among the Korean-branded vehicles compared to 1998, when they trailed the industry-leading European-branded nameplates by an imposing 116 PP100. The Koreans now lead the Europeans by five PP100 and the Domestics by six PP100, and trail the Japanese by just six PP100.

"A decade ago, as Korean manufacturers struggled with a universally poor reputation for vehicle quality, no one would have predicted they could not only keep pace, but actually pass Domestics and other imports in terms of initial quality," says Joe Ivers, partner and executive director of quality/customer satisfaction at J.D. Power and Associates. "This demonstrates how vastly more competitive the market has become, which is good news for consumers, who will ultimately benefit."

Even as the Koreans were making historic improvements in quality, there were more widespread initial quality improvements in the automotive industry as well in 2004.  The study found initial quality problems dropping 11 percent from 2003. The industry average stands at 119 PP100-the fewest problems since the study was redesigned in 1998.

Although the Korean car makers have zipped past Domestic and Europeans when lumped together, there are still some American and European brands that out-point them in initial quality.  On a brand-by-brand basis, Cadillac, Buick and Mercury are U.S.-based brands that turned in better quality scores than Hyundai, even though the Korean carmaker did finish a surprising seventh in the overall brand rankings.  Jaguar was the lone European brand to outdo Hyundai in quality.  Meanwhile, the other Korean brand in the U.S. market - Kia - was well below the industry average.

A key takeaway from the 2004 IQS study is that it is no longer easy to single out high-quality cars by the national origin of their maker.  Several Japanese brands - including Subaru, Mitsubishi, Suzuki, Nissan, Mazda and Scion - scored well below the industry average of 119 problems per 100 vehicles in quality, while a number of domestic brands - including the above-mentioned Cadillac, Buick and Mercury plus Oldsmobile and Chevrolet were above industry average.

European brands were all over the board.  Mercedes-Benz, Audi, BMW and Volvo turned in above-average performances, but Saab, MINI, Land Rover, Porsche and Volkswagen were on the dreary side of the ledger. 

IQS measures a broad range of quality problems, heavily weighted toward defects and malfunctions, quality of workmanship, drivability, human factors in engineering (i.e. ease of use) and safety-related problems. The 2004 Initial Quality Study is based on responses from more than 51,000 purchasers and lessees of new 2004 model-year cars and trucks, who were surveyed after 90 days of ownership. This industry benchmark study for new-vehicle initial quality is now in its 18th year.

Driving Today Managing Editor Jack R. Nerad once served J.D. Power and Associates as Director of Publications. 

Daimler-Benz Gets...smart

Who needs capital letters when you are...smart?  That's what Mercedes Car Group is banking on as it prepares to unleash the global automotive brand -- called "smart" -- in 2006.  The groundbreaking car line will make its debut in the U.S. with a new sport utility specifically designed for the American consumer. Named the smart formore, (still no capital letters) the new smart utility vehicle will bring the brand's unique engineering, design, exuberant character and funny naming scheme to one of the American market's most popular segments.

The "entry-level premium car manufacturer," as it calls itself, debuted in 1998 and offers six models in 31 markets. Among the six models are the original smart, the city coupe, the cabrio, crossblade, roadster and roadster-coupe. The newest smart is also the brand's first four-door model, called the forfour, which began production early this year and went on sale in many foreign markets in April. New smart models are given names that have a direct connection to the uses of the vehicle, so one has to fear what a farm-oriented smart pick-up truck might be called (smart manurehauler?).

Currently, smart models are built in the smartville (isn't that Superman's hometown?) complex in Hambach, France, and at the NedCar facility in Born, Netherlands. Starting in 2006, the smart formore will be built in the Mercedes-Benz plant in Juiz de Fora, Brazil. The plant has a capacity of 60,000 cars per year, half of which will be sold in the U.S. if U.S. buyers respond to the vehicle as smart predicts.

The smart story began in April 1994 with the founding of a joint-venture company called Micro Compact Car AG by Mercedes-Benz AG and SMH, the maker of Swatch watches. After a somewhat rocky relationship, Daimler-Benz AG took over the Swatch Group's stake in November 1998, and the approximately 100 smart retail centers in Western Europe became part of the newly merged DaimlerChrysler organization the following year.

Even as Swatch was being eased out of the picture, the two-passenger smart fortwo was launched in October 1998, marking the debut of the new brand and the birth of a radical new vehicle concept as well. Only eight feet long, the smart fortwo helped to develop a previously non-existent market segment, the micro city car. It was specially designed for use in large, crowded urban areas -- two of these innovative vehicles will fit crosswise in one conventional parking space. The original city-coupe (now the fortwo) was available with a choice of two different gasoline engines. A CDI diesel was added for 2000, along with the open-top smart fortwo cabrio.

With the launch of the smart formore, the brand's first four-door model, sales are expected to increase well beyond 2003's 124,000 this year. Retail sales began with 100 distribution points, and now smart vehicles are available from more than 700 sales partners around the world, each with its own distinctive showroom.

One of the brand's unique claims to fame is its innovative manufacturing center. Based close to France's border with Germany, smartville is a unique operation that features 11 different plants, many operated by suppliers rather than by smart itself. To minimize transportation and storage, parts and pre-assembled sections are delivered less than 30 feet from the final assembly line. During assembly, each smart vehicle passes through 140 different stations in just 4 1/2 hours. There 2,000 employees (including supplier employees) build 120,000 fortwo coupes and cabrios a year.  Interestingly, the company headquarters is located across the Rhine River in Boblingen, Germany.  A division of Mercedes-Benz USA, smart USA, will be responsible for U.S. sales and marketing.

Driving Today Managing Editor Jack R. Nerad has followed the progress of smart cars since its inception.