Is there a point in the US auto industry where companies should start considering the welfare of their customers ahead of selling more cars? American Honda Executive Vice President of Sales John Mendel thinks that level exists, and we may be getting very close to it.

According to Automotive News, Mendel believes that finding more customers in the market could require pursuing subprime buyers and offering longer-term loans. However, he refuses to use those tactics. While selling models this way can improve things briefly, the strategies hurt resale prices and lower vehicle profits over time. The company won't do "stupid things in the short-term that damage the person who bought yesterday," he said to Automotive News. "It's a very, very short-term tactic especially in the subprime area."

American Honda, which combines the Acura and Honda brands, has seen market share decline from 9.7 percent to 9.1 percent through July 2014, according to Automotive News, and Autoblog's By the Numbers stats showed it posted falling sales in five of the seven months with data this year. Though, Mendel claims that was partially because the company focused on retail sales over fleets. The delays of the launches for the Honda Fit and Acura TLX likely didn't help either.

The rise of subprime loans is an emerging trend in the auto industry. A recent study by Equifax found that the total amount in outstanding auto loans was the highest it ever recorded and up 10 percent from a year ago. It also found that the total balance from subprime buyers had reached $46.2 billion, an eight-year high. The feds appear to be getting interested too with GM's financial arm under investigation for how it securitizes its lending to these customers.


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  • 77 Comments
      superchan7
      • 4 Months Ago

      In the long term, subprime loans keep poor people poor.  They tempt the financially unable to buy things they can't afford.  This is social thinking, which Americans are raised to HATE because it's Communalismistic.  We're raised to idolise the rich and chase profit at any cost, without regard to the well-being of our communities.  In short, do subprime loan, repo the car and PROFIT.  What is this Honda dude saying, to actually help people save money?  Is he nuts?

        churchmotor
        • 4 Months Ago
        @superchan7

        Chanonissan a.k.a. futurecar.


        Still waiting on the link to the article you read that said Honda is doing sub-prime lending in China and is lowering their prices.


        That link you gave is about a special higher end Accord and the sales numbers on that new model.  It has nothing to do with the topic at hand.


        Also, still waiting to read the article, AS YOU CLAIM, BMW bailed out Honda and saved Honda from bankruptcy.

        futurecars
        • 4 Months Ago
        @superchan7

        I listen to this dude, yes honda may be doing this in USA but in China they are doing the opposite, droping prices.

          churchmotor
          • 4 Months Ago
          @futurecars

          Chanonissan-future....Can you give me a link to the article where you read that?

          futurecars
          • 4 Months Ago
          @futurecars

          http://www.4wheelsnews.com/honda-disappointed-by-sales-of-the-accord-in-china/

      Susan
      • 4 Months Ago

      Selling to sub-prime-type customers is deadly to a car's reputation. And I just don't understand how that can be a business case under any circumstances. Sure, selling items at a Dollar store can be lucrative, but extending credit for 84 months?

        jessesrq
        • 4 Months Ago
        @Susan

        True enough.  Extreme sub prime lending is where automakers go when qualified customers are not interested in the product, as happened to Mitsubishi.  Mitsubishi is not in the business to sell cars anymore.  Cars are a means to sell credit.  But . . . fallout from the housing bubble left a lot of otherwise credit worthy customers with bad credit, as they went through foreclosures and short sales and personal bankruptcy.  They still want their Hondas.

        reattadudes
        • 4 Months Ago
        @Susan

        84 month auto loans have existed for over 30 years. they are nothing new.

        ditto for 96 month contracts. weren't you aware of this? why have they not been a problem before?

        it always amazes me how many "experts" know so much about the car business, yet in reality know nothing. perhaps you could explain how someone who wants to buy a $65,000 van conversion can afford it otherwise. do you know how many people who buy highline cars do exactly the same thing?

        would I ever get a loan of this length? never. but my personal choices will never intrude on what someone else does. no one is holding a gun to their head here.

          RGT881
          • 4 Months Ago
          @reattadudes

          I worked in wholesale subprime mortgage industry and the logic was exactly the same, no one ever thought to tighten up the guidelines, let alone let market determine interest rates. 

          Susan
          • 4 Months Ago
          @reattadudes

          "explain how someone who wants to buy a $65,000 van conversion can afford it otherwise. do you know how many people who buy highline cars do exactly the same thing"  Didn't we just learn in the 2007-2008 recession how this type of behavior almost tanked the economy? It was people without adequate assets buying ostentatious or expensive items on long-term credit, then defaulting when they lost a job, got divorced, etc.

      EverythingBagel
      • 4 Months Ago

      This seems in line with Honda's philosophy...I have not seen them 'dump' their cars like some other automakers' dealers, yet they still have very good margins of profit.  This month up in Ontario Hyundai has been advertising Accents for 10,995 and Elantras for 11,995.  I realise this doesn't have much to do with subprime lending, but when you dump cars for those prices, do you really think you can sell an Equus (those have been selling at SINGLE DIGITS every month here)

        Dean Hammond
        • 4 Months Ago
        @EverythingBagel

        that lies on the DEALERSHIPS shouders NOT the manufacturer.....and the supposed loss leaders you are using as an example are nothing more than hooks to improve floor traffic...

      KGenesis
      • 4 Months Ago

      Well, modern cars continue to become increasingly reliable. There are many benefits to driving an older vehicle especially once it has been paid off. Perhaps more people are keeping what they have rather than rushing out to buy a newer model thereby creating more debt. A vehicle serves many purposes but its primary purpose is transportation which can be accomplished without having to have the newest technology in the newest cars. With the rising cost of living that far exceeds average income for the middle class, I imagine more people are making the most of what they are driving currently. I think its a shift in the right direction. You may want a new car but you don't always need one.

        jessesrq
        • 4 Months Ago
        @KGenesis

        I've never heard anyone justify longer term financing like that before, though it makes sense for those who truly keep cars 6+ years if interest rates are low.

        However, more sub prime lending happens in the lease market, where buyers pay inflated rates for 3 - 4 year terms with lower up front and monthly payments.  IE: the $199/month/36 months Civic that I qualify to lease becomes $300/month/48 months with lower tier credit, so the financing company makes an extra $4,800 on a $20k car.  To the customer, $300/month is still a reasonable payment so it doesn't feel like gouging.  I don't really see it is a problem, as no one is forcing customers to sign loans and one cannot expect financing companies to lower rates for higher risk customers.

      Karfreek
      • 4 Months Ago *Edited*

      Translation:  Honda is choosing to sell their cars to people who can actually afford their cars.  Kudos!  In the long run this will protect the brand, the image, and my resale.  

      Subprime auto loans are the equilivrent of selling UnderArmor at walmart.  It would kill the reputation of the brand and make it's image and product worthless to the people who previously paid $50+ for a UA hoodie at Dick's Sporting Goods.  If anyone can have it, it's not exclusive and reduces it's perceived value and appeal.

      They have a good product, they know it and are not going to give it away.  This is not rocket science, they are protecting the brand for the long term.

        Humberto Yi
        • 4 Months Ago
        @Karfreek

        Hondas are exclusive???  Who knew...

          SDEVOGSR
          • 4 Months Ago
          @Humberto Yi

          the term Honda snob, did at one time hold weight.

        futurecars
        • 4 Months Ago
        @Karfreek

        but that is not the truth they only want you to believe they are,  to keep resale value, in fact the are given incentives higher than toyota, but a bit lower than nissan.

          Karfreek
          • 4 Months Ago
          @futurecars

          Incentives (cash back/rebates) are different than extending credit to people who can not afford it, who have a shady credit past,  or extending terms to ridiculous time periods.

          Dean Hammond
          • 4 Months Ago
          @futurecars

          @Karfreek....extending credit doesnt come from honda to people that have a hard time qualifying...it comes from other loan institutions such as Santander etc....

      churchmotor
      • 4 Months Ago

      Here are some BAD numbers last month.  Another bad practice, dumping to fleets.

      +36% increase in Fleet sales, Nissan

      +49% increase in Fleet Sales, Toyota

      +31% at GM

      +27% at FCA

      +18% at Ford

      NEGATIVE 4% for Honda


      Nissan is just 300 units away from becoming #3 in Fleet sales passing Chrysler which has always relied heavily on fleet sales.


        Dean Hammond
        • 4 Months Ago
        @churchmotor

        without specifics thats an extremely uneducated post....please supply a breakdown of the specific models that were sold Fleet, as well as exactly WHAT type of Fleet sale, 56m, 56A, Rental, Govt, municipalities, Large Corporations ( which by the way have several brand choices ) so easy to spin numbers without breakdowns isnt it?...or facts for that matter.

      churchmotor
      • 4 Months Ago

      GM's huge bump in fleet sales last month actually put them above Ford.  Ford has always relied heavily on Fleet sales and incentives to keep the metal moving.  NOW, when them needing predator lending habits to get people to buy their products, a huge bubble is about to pop.

        Dean Hammond
        • 4 Months Ago
        @churchmotor

        please, do us a favor and categorize what you consider "Fleet Sales" as you always paint them in distinctly dark colors....then research if Honda or Toyota make anything similar to a Cab and Chassis, a 1 ton pickup, a 1/2 ton pickup with ability, Cargo vans, Cutaways, Police cars...etc etc etc ...wonder why not?, because the commercial bracket makes up MOST of Fleet sales and I would lay money on the fact ANY JAPANESE manufcturer would LOVE the profitability ansd brand exposure....

          churchmotor
          • 4 Months Ago
          @Dean Hammond

          Why would I categorize what I consider Fleet sales.  I prefer to rely on the actual source material.


          YOU, however, if it makes you feel better about 1 of every 3 Fords being a Fleet sale, and you need to RE-categorize those in some weird way, feel free to do so if it makes you feel better.

          Dean Hammond
          • 4 Months Ago
          @Dean Hammond

          nothing churchmotor...nothing?.....didnt think so....

      johnbravo6
      • 4 Months Ago

      Too late?
      http://www.zerohedge.com/news/2014-08-20/car-repos-soar-70-auto-subprime-bubble-pops-its-contained-promises-fed

        RGT881
        • 4 Months Ago
        @johnbravo6

        but just like the Fed and Association of Realtors told us subprime was contained and not a risk even in that sphere, same will happen now with autos where Fed and car companies engaging in this practice, will tell us that subprime auto loans are contained and their statistical models account for black swan events. 

      John S
      • 4 Months Ago

      Honda is smart not to take the path Mitsubishi took in the early 00's. Having mediocre cars is one thing, but dumping them on the market to have them all driven by poor people really kills your reputation.

        Scooter
        • 4 Months Ago
        @John S

        Chrysler/Dodge comes to mind...

        futurecars
        • 4 Months Ago
        @John S

        really,  why are they drop prices in China and given incentives, they might not do it in USA but they are doing it in china to catch up toyota and nissan.

          Karfreek
          • 4 Months Ago
          @futurecars

          Why are you talking about China when we are talking about an article quoting a US Exec talking about the US Market?  

          Oh, because all you GM guys know to do is talk about China...

          churchmotor
          • 4 Months Ago
          @futurecars

          I'd like to read that article, link please!

          churchmotor
          • 4 Months Ago
          @futurecars

          chanonissan a.k.a. futurecars.


          Weird, that link you gave.  It doesn't mention anything about incentives, sub-prime loans, nor does it mention Honda reducing prices on their models.


          Perhaps you can find the real link.


          While looking, I still want to read about BMW saving Honda from bankruptcy.  AS YOU CLAIM.

          futurecars
          • 4 Months Ago
          @futurecars

          http://www.4wheelsnews.com/honda-disappointed-by-sales-of-the-accord-in-china/

        futurecars
        • 4 Months Ago
        @John S

        really guess you have not been reading or your eyes have been covered.

          churchmotor
          • 4 Months Ago
          @futurecars

          By all means, give us links to where you read what you claim.   I want to read the article that said BMW saved honda from bankruptcy also.  

      Cool people
      • 4 Months Ago

      The credit reporting agency are in bed with crooked "to big to fail banks."

      They exploited US consumers with fees and excessive interest charges.

      Fed fund rate that banks pay is  00.25% today. Less than 1%. They should not be able by law to charge more than 4% over cost. American credits score would rise again and deliquesces would fall.  

      Honda is right, It's time to discount the whole US credit reporting in favor of an honest more system.

      churchmotor
      • 4 Months Ago

      Ouch, August Incentives at Nissan are huge.


      Nissan:

      Up to $4,500 Customer Cash Incentive on 2014 Versa Note, Sentra, Altima, Maxima, 370z Roadster, Juke, Rogue, Murano, Pathfinder, Armada, Titan, Quest
      Incentives subject to change. See participating dealers for details.
      Expires: 8/31/14

      Special Financing as low as 0.0% on 2014 Vera Note, Sentra, Altima, Maxima, Juke, Murano, Pathfinder, Titan, Quest, Leaf
      APR incentives through Nissan Financial Services may not be combinable with certain Cash Incentives. Incentives subject to change. See participating dealers for details.

      Dean Hammond
      • 4 Months Ago
      Quote " the company focused on retail sales over fleets"...spin, lets get real, CRZ...fail, Ridgeline....fail, Crosstour...fail, new Civic...half a$$ed effort and no longer class leading, that leaves sales numbers dependent on Odessey, Accord, loyal Civic owners and what else?.... Hondas lost its mojo...shame.  
        churchmotor
        • 4 Months Ago
        @Dean Hammond

        Looks like article of truth touched a nerve with the Ford saleman.

          Dean Hammond
          • 4 Months Ago *Edited*
          @churchmotor

          TRUTH????? ...know whos on the arm for sub-prime loans?...the LENDER NOT the manufacturer, its just an avenue to assist those with wanton credit and few choices...this article is nothing more than deflection for substandard sales #s, which I specifically blame a sub par lineup as the root cause...if you cant deal with that then you cant see the forest for the trees.
           I also take note of YOUR deflection...other brands Fleet sales have nothing to do with Honda falling behind the pack...NOTHING.

        xorbe
        • 4 Months Ago
        @Dean Hammond

        The latest Honda Fit was also tepidly received.  Over-designed exterior, whack nav / center stack with no physical volume knob, no EX-L/nav with stick, re-staged launch, bumper recall today, interior pockets reduced, etc.

        normc32
        • 4 Months Ago
        @Dean Hammond

        Good job Dean! You must have touched the Honda fanboy nerve as you inch passed -20.

        futurecars
        • 4 Months Ago
        @Dean Hammond

        guess church motor did not know honda was reducing price in china as hell to catch up toyota and nissan, would not that hurt resale value? This is just PR , sales are not bad, bet if sales was bad as it was in China the guy would be very quiet.

        http://www.4wheelsnews.com/honda-disappointed-by-sales-of-the-accord-in-china/

          churchmotor
          • 4 Months Ago
          @futurecars

          Interesting link chanonissan, but no where in that article about the new high-end Accord did the article mention honda dropping prices, sup prime loans, , nor did it mention Nissan.   Perhaps you mistakenly gave the wrong link.


          Btw, I'd like a link to the article you read where you claimed BMW saved Honda from bankruptcy.  I still want to read that article too.

        Dean Hammond
        • 4 Months Ago *Edited*
        @Dean Hammond

          I know I probably upset the honda boys, but take a good look, theres 3 or so vehices holding honda afloat sales wise ( I forgot the CRV ) ...and thats it...and i LIKE Honda, but they have become a HUGE dissapointment...and now they are utilizing resources for Formula ONE????? Thats almost a GM move putting resources into areas that should be deemed secondary...

          churchmotor
          • 4 Months Ago
          @Dean Hammond

          At least as a Ford salesman Dean, you can remain happy that rental car companies, governments, et al are happy to buy a Ford as long as Ford is willing to be the LOWEST bidder to move the metal.

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