A big reason auto sales have tanked in recent months is the sharp rise in unemployment. Folks who are worried about losing their jobs aren't likely to take on the added risk of a five-year car loan.
Hyundai Motor America unveiled a novel approach to the problem over the weekend. Dubbed the Hyundai Assurance Program, the South Korean automaker said people who finance or lease a new Hyundai during the next 12 months could return the car if they "experience an involuntary loss of income" within one year of the purchase date.
"That's a new one," said Erich Merkle, an industry analyst at consulting firm Crowe Horwath in Grand Rapids, Mich. "It's an indication of the very tough sales environment right now."
Hyundai, with a 3% share of the U.S. market in 2008, certainly needs customers. Its sales were down 48% last month compared with a year earlier -- one of the worst showings among automakers.
Hyundai said it would absorb as much as $7,500 in negative equity (the difference between what a vehicle is worth and what is owed on it) for buyers who opt to walk away from their loans. Customers who pay cash for their vehicles don't qualify for the program.
Depreciation can reduce a new car's value by 25% or more during the first year of ownership. But since Hyundai's lineup skews toward low- and moderately priced cars, the $7,500 should be enough to cover the lost value on most Hyundai vehicles, save for the top-of-the-line Genesis sedan, which has a starting sticker price of around $32,000, and the Santa Fe sport utility vehicle.
According to a Hyundai news release, buyers can return a vehicle for no extra charge within 12 months of purchase if any of the following occurs:
Involuntary job loss;
Physical disability;
Loss of driver's license for medical reasons;
Job transfer overseas;
Personal bankruptcy filing by a self-employed worker;
Accidental death.
To qualify, the buyer must have made at least two scheduled payments on the loan or lease and be current on the payments, as well as pay the amount over the $7,500 negative-equity threshold. The value of the vehicle will be determined by the dealer, who will be allowed to re-sell the vehicle, Hyundai said. Returning the car shouldn't have a negative effect on the customer's credit, the automaker added.
Steven Schwartz, finance director at Keyes Hyundai in Van Nuys, said his dealership received a few calls Monday inquiring about the promotion, although it hadn't generated any new sales yet.
