Auto makers went to unprecedented lengths during the recession to win customers. Some offered an unusual deal to help clinch sales: If you lose your job, we will take back your recently purchased car, no questions asked.
Those offers ended after the worst of the downturn subsided. But in an effort to win market share in the highly competitive world of auto lending, one of Canada's biggest banks is now bringing back the idea – betting that even in an economic recovery, consumers are still jittery about buying a vehicle.
In a move that may impact the auto-lending market starting this summer, Toronto-Dominion Bank is offering vehicle-return programs to consumers who use TD Auto Finance as the lender.
Several scenarios – from layoffs to international job transfers – are covered as a way to encourage consumers into the car market, and to borrow from TD.
The bank is believed to be the only major financial institution in Canada to introduce such a program.
Earlier deals were created by auto makers such as Hyundai during the worst of the 2009 downturn, during which consumers worried about job security put off buying vehicles.
The move underscores the pressure on Canadian banks to find growth and market share at a time when consumers are pulling back some of their borrowing activity and the federal government is tightening the mortgage market.
Andrew Ojamae, director of sales for TD Auto Finance Canada, said the bank's decision is not a reaction to the threat of another recession, but rather an acknowledgment that buying a car in any economy is a difficult decision, since for many people a vehicle is the second-largest purchase they will make after a house.
"The benefits of a product such as this transcend any economic ebbs and flows," Mr. Ojamae said. "Most of the coverage circumstances aren't directly tied to the broader economy, but they're events that can happen to anybody almost at any time … in good or bad economic times."
Under the TD plan, car buyers are covered for involuntary job loss, physical disability, loss of driver's licence, international job transfer, accidental death or self-employed personal bankruptcy. The program covers the difference between the depreciated value of the vehicle and what is left on the loan, up to $7,500, within one year of purchase.
Having recently undergone a massive expansion in its auto-finance unit with the purchase of Chrysler Financial Corp., TD is one of several financial institutions vying to be the lender-of-choice at the dealership when a consumer sits down to buy a vehicle and is offered a menu of different financing options. The bank is hoping to steer more dealers and consumers its way.
"It's not an incentive, it's a long-term strategy," Mr. Ojamae said of the vehicle-return program.
TD spent more than a year working on the program with its insurance underwriters to make sure it is viable. It is unknown whether other lenders or car manufacturers will respond with similar offerings, as happened in 2009 when the first such vehicle-return program was unveiled.
Hyundai pioneered the idea when it brought out the Hyundai Assurance program that year, allowing consumers to return their car within a year of purchase if they lost their job due to economic circumstances. The program was a hit, garnering the company publicity and new business. Similar offers quickly followed that year by General Motors and its Saturn brand, and also by Ford Motor Co.
The GM Total Confidence plan covered monthly car payments of up to $500 for nine months if the buyer lost his or her job within a year of buying the vehicle. The Ford Advantage Plan gave buyers coverage on payments of up to $700 for a year in the event of a layoff.
In two years of the program, Hyundai bought back about 350 cars. It ended the offer last year because of a declining number of buybacks and an improving U.S. economy. A Hyundai official said the program had "outlived its usefulness" for drawing people into its showrooms.
TD will offer the program in Canada, but it is not clear if it will be taken south of the border, where TD expanded aggressively into auto financing two years ago with the $6.3-billion deal to buy Chrysler Financial, formerly the auto maker's lending arm.
Mr. Ojamae said the bank hopes to distinguish itself in a market of auto lending offers that has become now competes mainly on price and little else. "This is something we can use to help de-commoditize the marketplace to some degree," he said.