February 8, 2009

Details on the Hyundai Assurance program

You have probably seen commercials or otherwise heard about the Hyundai Assurance program. That is the name for the Hyundai program where they offer to buy back your car if you lose your job within the first year. Considering the number of new layoffs and the high unemployment this benefit should help a good number of people. It appears the program is helping Hyundai's sales. They saw their sales increase 14% in January when other car makers saw drops of 30-50%.

The TV commercials don't give much detail on the program so I figured I'd check out all the fine print. Here is a brochure in PDF form.

The key details are :
• Available on all new Hyundai vehicles.
• Available to everyone regardless of age, health, or employment history.
12 months complimentary on every new Hyundai vehicle financed or leased.
• Covers up to $7,500 in negative equity

They cover you in case of : Involuntary unemployment, Physical disability, Loss of driver’s license due to medical impairment, International employment transfer, Self-employed personal bankruptcy and Accidental death

Ok so right away there are a few specifics that limit the program. Its only for New cars so you can't get a used or certified car. You are covered for 12 months up to $7500 negative equity. The biggest detail here is that it is for a new vehicle that is financed or leased.
Another detail in their explanation of how it works: "You must have made at least two scheduled payments and be current on your loan or lease in order to qualify for benefit approval."

Given the information they have online about the program, this appears to be a legit deal without any major negative strings attached. They cover you for a 12 month period and buy back your car if you lose your job. The only strings I see are that the limit is $7500 and you have to make 2 payments first and it only last 12 months. None of these are major limitations to the deal.

A possible hidden 'gotcha' is that the car has to be financed or leased from Hyundai. There are a couple reasons this might be bad. First if you get financing on a car from Hyundai then you don't get their rebate incentive. This is typical that a new car maker will offer $1000 cash back or X% financing. Its not both so you get to pick one or the other. If you finance a new Hyundai then you miss out on the cash rebate which could be $1000 to $2000 range. Second I don't see any specific interest rates advertised on the Hyundai site for most vehicles. The local Hyundai dealers also dont' have rates advertised. The incentive deals including financing at Hyundai only list interest for a couple models. Its possible Hyundai interest rates for some vehicles are above market rates that you could get at your bank or credit union. I don't think this is likely to be the case but you should make sure you check interest rates available at other sources to make sure that Hyundai's rates are competitive enough. A 1% interest rate on a $20,000 car could cost over $500 in extra interest over a 5 year loan.

How exactly would this deal end up working?

Here is an example of how it might function: Lets say I go buy a new 2009 Hyundai Sonata tomorrow. I end up paying $20,000. I get a 7.5% rate for 60 months and my payments are about $400 a month. Everything is fine for 6 months and I make my first 6 payments but then my employer unexpectedly goes bankrupt and I am unemployed. At this point the car is now only worth $15,000 due to the significant amount of deprecation new cars have during the first year. I still owe $18,319 on my loan. Since the car is worth less than I owe at this point I would have negative equity. In this case the negative equity would be the value of $15,000 less the loan balance $18,319 or 15000 - 18319 = $3,319. Normally if I couldn't make the payments and they had to reposes the car I'd end up with bad credit. But with the Hyundai Assurance program they'd take back the car and the assurance program would pay for the negative equity of $3,319 and you'd walk away without a negative impact to your credit.

What is it really worth and how can Hyundai do this?

Hyundai is actually contracting with a 3rd party named WalkAway to basically buy a form of insurance. Most most people will not lose their jobs in the next year. If someone does lose their job then the amount Hyundai might lose is roughly equal to the average 1st year depreciation less the payments already made to the loan.

A rough guesstimation of the cost of this program: On average people will make 6 months payments which would equate to roughly 7.5% of the purchase price. So if the 1st year depreciation is 30% then they're roughly out 22.5% of the value of each car returned. But only maybe 5-10% of the buyers are likely to lose their jobs or other wise not be able to pay. So the cost premium here is in the ballpark of 1-2% of the vehicle purchase price. This is roughly equivalent to a $200 - $400 of insurance for a typical $20,000 car. Keep in mind this is a vary rough ballpark guess on my part.

If you are going to buy a new car then the Hyundai Assurance program seems like a good deal.

If you have specific reason to worry about losing your job then I'd generally recommend against running out and buying a new car. In any case I think buying a late model used car is your best deal in general.

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