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Another key factor might be
Posted by Geoff [Email] (more from Geoff) on Wed, 7 Apr 2004 18:21:52
In Reply to: probably not..., Scott Paterson [Profile/Gallery]
, Wed, 7 Apr 2004 16:43:49
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what Saab Financial is paying for its funding from GMAC. They will definitely be paying something. If we assume for a minute that SFSC is indifferent to whether you take the cash incentive or take their lower rate, then in Mike's example we might guess that SFSC is paying 5.35% for its money because the total interest on the $35k car at 5.35% is within a few dollars of $5,000. That would work out to the 5-year Treasury rate (3.15%) plus 2.20% -- which looks like an arm’s length lending rate on 5-year money for a moderately risky borrower.
But, GMAC itself can borrow long term much closer to the Treasury rate (say 3.5%) so if they charge SFSC a transfer price of 5.35%, GMAC is making a little under $1800 on their “loan” to SFSC and SFSC is “losing” $5000 on the loan you take – net cost of $3200. If GMAC borrows at the 3-month commercial paper rate (say 1.05%) instead of the 5-year treasury, cost of the incentive drops to about $940 but GMAC would be taking a lot of interest rate risk. Hedging that floating rate risk in the swap market would get GMAC back to an all-in fixed rate of about 3.5% -- right back where they started. So, either way you slice it, GMAC/SFSC’s net cost is roughly $3200 on subsidizing a $35k 5-yr loan. Unless I missed something
I’ll leave it to the dealer guys to explain how an interest subsidy of $3200 balances a discount off MSRP of $5000.
/Geoff
posted by 216.52.215...
Posts in this Thread:
- 0% for 60 months annouced today!...., Mike Lynch , Wed, 7 Apr 2004 15:54:04
- any base model 9-3s available anywhere?, compaqted, Thu, 8 Apr 2004 06:57:45
- Aero incentives?, Booker, Wed, 7 Apr 2004 19:51:50
- Net Present Value........, andy , Wed, 7 Apr 2004 19:51:36
- So in other words . . ., jc, Wed, 7 Apr 2004 16:35:01
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