New Tesla loan program designed to assure skeptics

Paul A. Eisenstein , The Detroit Bureau – 4 days

Hoping to improve the affordability of the company’s new battery-electric vehicle while also addressing skeptics, Tesla has announced a “revolutionary” new financing program that is designed to cut costs while also giving customers an out if they’re not happy with their new Model S sedans.

Working with Bank of America, the program combines a low-interest rate, minimal down-payment – and the ability to return a Model S after three years and receive a guaranteed residual – essentially a trade-in price – pegged to the value of a Mercedes-Benz S-Class. But unlike a traditional car lease, Tesla buyers who like their vehicles will simply be able to keep them and pay off the rest of their loans.

The goal of the program was to “combine the best of ownership and leasing,” said Tesla founder and CEO Elon Musk during a conference call with reporters. “There has to be a better way,” he stressed, noting that he expects “a majority” of future Model S buyers will participate in the unusual loan program.

What may put the news into the “revolutionary” category was Musk’s declaration that “No matter what happens to Tesla … I will stand by the residual value if Tesla cannot with all the assets at my disposal.” Forbes magazine recently pegged the entrepreneur’s personal wealth at $11 billion – although Musk suggested that figure was “a little high.”

The finance program announcement came barely a day after Musk signaled that Tesla exceeded its sales goals during the first quarter of 2013, ending a string of losses with what is expected to be the California start-up’s first profit when it formally closes the books on the January – March quarter.

Musk also hinted that Tesla plans “a new announcement every week or two from here on out.”

The new finance program, which carries a 2.95-percent interest rate from Wells Fargo, will allow Model S buyers to apply the various federal, state and local tax credits they might qualify for. That could bring the monthly payment on a mid-range version of the Model S, around $70,000 with typical options, Musk estimated, to between $500 and $600 a month.

The cost of buying a battery vehicle, especially one with the size of the battery pack in a typical Tesla vehicle, is generally considered one of the biggest concerns among potential buyers and clearly an issue the program is aiming to resolve. Musk stressed that beyond the basic monthly loan, buyers should consider the lower cost of energy and maintenance when compared to a conventional gasoline-powered vehicle.

The Model S is a pricey vehicle, with a well-equipped, top-line model nudging over the $100,000 mark. In fact, buyers have almost exclusively been opting for the mid- and higher-range versions and on Monday, Tesla said it would stop production of a base model that was accounting for just 4 percent of initial demand.

Even with the new program, Musk admitted that, “I’d like to broaden the affordability of our products,” something he has said since founding the company. He almost apologized for starting out with a product like the Model S – but that is something most makers have had to do when entering the alternative propulsion world to help absorb the hefty cost of first-generation technology.

Longer-term, Musk suggested, “It will take at least three iterations,” or generations of products to bring costs down on battery power to something closer to conventional gas-powered vehicles.

Copyright © 2009-2013, The Detroit Bureau

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Chevy introduces buy-back guarantee program

By Paul A. Eisenstein, The Detroit Bureau
Hoping to maintain its momentum as key Japanese competitors recover from last year’s production cuts, General Motors’ largest brand has announced its new Chevy Confidence program which includes a “Love it or Return it” vehicle buy-back guarantee on all 2012 and 2013 models.

The maker is also launching a “Total Confidence Pricing” discount program aimed at clearing out inventories of leftover 2012 models. Most GM plants take a mid-summer break this month to convert production to the 2013 line-up.

“We have transformed the Chevrolet lineup, so there is no better time than now to reach out to new customers with the love it or return it guarantee and very attractive, bottom line pricing,” said Chris Perry, Chevrolet global vice president of marketing.

GM has used buy-back programs before, notably to prop up the Chevy Volt in the months after reports of battery fires threatened to unplug demand for the plug-in hybrid last year. But the breadth of the new program is significant, covering all 2012 and ’13 models.

To qualify, vehicles must be returned within 30 to 60 days, have less than 4,000 miles on the odometer and experience no damage.

The launch of the new Chevy Confidence program comes less than a week after June auto sales were announced – with key Japanese competitors making major gains. Toyota, for example, was up more than 60% for the month and has been steadily regaining market share lost last year when it struggled to keep its assembly plants running after the March 2011 Japanese earthquake and tsunami.

This is a particularly significant year for Chevrolet which is rolling out some critical new products, notably including the new midsize Malibu, which had been making gains against traditionally dominant Asian imports such as the Toyota Camry and Honda Accord.

The challenge for Chevy is to ensure its offerings land on motorists’ buying lists. Research shows that the average car shopper only closely considers two to three vehicles – and for a sizable chunk of the population Detroit products aren’t a factor.

“We know through first-hand experience that once they get behind the wheel of one of our new products, they are more likely to take one home,” said Steve Hurley, co-chair of the Chevrolet Dealer Council.

Along with the buyback program Chevy will institute a no-haggle pricing strategy as part of the new campaign. It hopes that by starting out with good discounts it can convince buyers and dealers alike to avoid the often-frustrating negotiations that are generally seen as the most painful part of buying a car.

That approach could work, suggests Jesse Toprak, chief analyst with TrueCar.com, an auto pricing and data service.

As for the buyback program, Toprak says, “(It) is an indication of how confident Chevrolet is in its’ new product line up. It is a way to get people into showrooms and experience firsthand the significant investments the dealer body has made in the recent years. It is a smart and cost effective program that will work towards diminishing the perception gap of the Chevrolet brand particularly in coastal metropolitan areas where consumers have a stronger preference towards the import brands.”

Chevrolet remains a major force in the U.S. market, its largest, but has become increasingly dependent upon overseas sales. The brand generated 4.76 million sales in 2011 and is shooting for another record this year.

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