Smart's $99/month 'Cash for Clunkers' deal has a big, dirty secret
by Chris Shunk on Jul 6th 2009 at 8:43AM 
Cash for Clunkers won't be official for a few weeks, but some automakers are already looking to cash in on the once in a lifetime opportunity to take up to $4,500 off the price of a new car or truck. Smart is offering its quirky little fortwo for $99 per month with the trade-in of a 'Clunkers' eligible vehicle.
$99 per month with no money down sounds damn good, and a payment term of only 36 months sound even better, but closer inspection shows that the promotion is way too good to be true. Here is the fine print on the promotion.
$99 monthly payment based on customer trade-in of an eligible vehicle qualifying for the CARS $4,500 voucher level and a 36-month balloon loan with $0 cash due at signing and a final balloon payment of $6,667 at the end of the loan term and a $13,335 MSRP which includes the destination charge and excludes tax, title and dealer fees.
That's one hell of a lump sum payment; more than many of us can fork over at once. The total payment, which doesn't include taxes, title, or destination, comes in at $14,731 on a vehicle with a $13,335 MSRP.
Gallery: Review: 2009 Smart ForTwo
[Source: Smart USA via All Cars All The Time]
Reader Comments (Page 1 of 1)
Carlos 10:31AM (7/06/2009)
my best car ever, I got it from 1999 and I have gone to the garage to change the oil and once the battery, now has 50.000 miles, and it´s the more basic model.
Mercedes Benz engine, not mitsubishi.
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sensitive_man 9:29AM (7/06/2009)
Surely there are better cars out there for 14k
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solrak 4:09PM (7/06/2009)
Yes, maybe, but the value of one Smart it´s not the price it´s the materials cuality and how easy is park...
mike 9:29AM (7/06/2009)
I guess they are going for the old "any press coverage is good press coverage" approach as this is the kind of B.S. that main stream media loves to have a snippet of.
Especially given the current climate of distrust of lenders and shady to semi-shady practices this has to be the most foolhardy P.R. nightmare idea I have seen from a car company recently.
- mike
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Tim 11:03AM (7/06/2009)
Cash for Clunkers is GREAT for giant corporations, banks and corrupt politicians!
Central planning from the big gov't/big corporation partnership is designed to STRIP us of our liberty and labor (money).
Obama's "change" is just "Harder, Better, Faster, Stronger" control over "We, the People".
Liberals/Progressives/NeoCons are ignorant TOOLS or the elite Statist oligarchy!
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mike 6:30PM (7/06/2009)
Perhaps you could argue on the merits of having or not having the program rather than just falling back on "govt = federalist = conspiracy against you and the people".
At first I thought you a troll, but then read some of your other threads.
Now I think it more likely you are just an extremist and not a troll at all.
I would consider myself more ideologically bent toward states rights than federalism.
However, the practicality is that a strong fed government is needed.
Like many things in life, the thing is to try and make it function as well as it can because you simply cannot do without it.
Maybe you should stop and consider who you, with your vehement extremism, are a tool for.
Because if you think nobody except other extreme anti-federalists are taking advantage of your positions and willingness to shout about them, then you are naive.
- Mike
Nixon 1:08PM (7/06/2009)
This is not a scam, and it is nothing new. BMW uses the same kind of loan too. They call it the "BMW Select" loan. I'm sure there are plenty of other car manufacturers out there that offer something similar too. When the balloon payment comes due, you have 3 choices. Either pay it off in a lump sum, or you refinance the balloon payment into another loan, or sell the car for a profit and pay off the balloon payment. The idea is to mimic a Lease without the negatives of lease agreements. Here is BMW's explanation of how a car balloon loan works:
"How It Works:
Just make low monthly payments for a time period that you establish up front. At the end of the term, a balloon payment is due. You can choose to refinance the balloon payment amount with BMW Financial Services or complete your purchase with the one final payment. Choose from flexible terms similar to a lease.
Advantages of BMW Select:
Lower payments. In states where tax laws make leasing less advantageous, BMW Select allows you to make lower monthly payments so you can enjoy even more car for the money.
Keep your options open. You make lower monthly payments for a set term, as in a lease, and have flexible end-of-term options.
No lease return process to worry about. It's your BMW, so you can personalize it to fit your needs.
No mileage restrictions. We know BMW owners like to drive.
The bond of ownership: Payoff your final balloon. The title will be in your name and your BMW is yours to do with as you please."
http://fs.bmwusa.com/BmwFsPulp/VEHSEL_BMWSelect.htm
I'm sure there are plenty of folks out there saying right now that it is a really dumb financial decision to use this type of loan. Well, you are right. But if we really want to get technical, it is a dumb financial decision to buy ANY depreciating asset (such as a car) using ANY type of financing at all.
So it is a bit unfair to single out THIS particular form of dumb financial decision for criticism.
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RAN 7:38PM (7/06/2009)
Nixon, if that is explained up front, and that's what a customer is looking for, that's fine. Otherwise, it's another case of what Tom Waits calls "The large print giveth and the small print taketh away..."
locoyocal 1:41PM (7/06/2009)
So the purpose of a balloon payment is to force the buyer to trade in the car to get a new one?
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nixon 6:04PM (7/06/2009)
That's not really the central point. But using it as a trade-in on a new car certainly is one option.
The central point is to just pay off the depreciation of the vehicle over the life of the loan, instead of paying for the full price of the car.
So you pay for your usage, but never really build any equity. At the point the balloon payment comes due, the value of the car should be roughly the same as the balloon payment. In this way it is similar to a lease, where you never actually own the car. At the end of a lease you have nothing to show for years of payments. You have no equity in the car, so if you want to really own it at the end of a lease, you have to buy the rest of the equity. The balloon loan works the same way. At the end of the loan, you have no equity, and you have to buy the rest of the equity if you want to keep the car.
The point of this loan is to match roughly the same monthly payments as a lease. And to match roughly the same equity at the end of the loan as at the end of a lease. The point is to have something that behaves much like a lease, but doesn't have the traditional downsides of a lease.
chuynh 2:55PM (7/21/2009)
I tend to agree with Nixon. This article is a bit on the extreme side. If you're going to argue the "large prints" versus "small prints" case, then every other car ads are guilty, not just this one. Plus, the statements in the same paragraph
"That's one hell of a lump sum payment..." and "The total payment, which doesn't include taxes, title, or destination, comes in at $14,731 on a vehicle with a $13,335 MSRP."
are themselves contradictory. Only those who pay cash for their cars will pay the MSRP or lower (depending on their negotiating skills.) Everyone else financing a purchase or leasing will always pay more than MSRP. No surprise.
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