Written by Hersh Kapur, Grade 12 Student, Investments and Finance
Introduction
Automotive marketers have always loved selling freedom. Selling the idea of adventure and mobility. The stereotypical automobile advertisement featuring flashy cars driving down winding mountain roads, or rugged off-road utility vehicles plowing through rugged forest trails. This can be exemplified by Ford’s vision statement;
We are here for one purpose, to help build a better world, where every person is free to move and pursue their dreams.
Ford
The Problem
Ford’s vehicles may provide people with physical freedom to travel. Many of their business practices do not. Ford makes a large portion of their profit from their financial services division, Ford credit being one of their only profitable divisions. Ford credit participates in many practices that milk their clients of money, limiting their financial freedom, therefore limiting their general freedom.
With the average price of a new car exceeding $40 000 in Canada, many turn to financing to spread the cost over a period of multiple years. The problem is that these financing plans often trap consumers in long loan terms, with payments that limit the flexibility in the monthly budgets of many. The average car payment in Canada is nearly $5300/year. This means that just the car payment alone accounts for nearly 10% of the average Canadians income ($54000/year). This problem is made even worse by the fact that the average car loan is 72 months (6 years) in length. This is problematic because typically around the 5th year a car loan becomes underwater, meaning that even if the car is sold, the proceeds would not be able to pay off the entire loan.
Why it is a problem
All these are major factors that hinder freedom. To begin a car loan taking up such a large portion of the average Canadians budget, it limits their ability to use their money for other endeavours, such as home ownership, or additional investing. Excessive debt even limits career opportunities. 28% of people list too much debt as a main reason for them not quitting a job. Since auto loans amount for such a large portion of consumer debt, it can be assumed that it is a primary reason for people not furthering their career. Also with so many car loans being underwater, it makes it difficult for consumers to break free from them, therefore trapping them. Since the majority of the profit is in lending, dealers would be incentivized to push the service onto customers, leading to many deceptive sales practices. The consumer often does not understand all the potential pitfalls of financing an automobile. For a deeper dive into the situation, CBC has a fantastic informative video
Conclusion
To conclude, deceptive lending practices are a problem across the industry. They directly go against Ford’s purpose statement. This makes the company’s marketing feel disingenuous, and hurts the overall friendliness of the brand. Given that Ford largely profits from inhibiting their customers financial flexibility, it is evident that their purpose statement is inaccurate. The idea of providing people with mobility and freedom is only a small part of what they do, and is not what they are primarily profiting from. Ford should consider reworking their vision statement to assure it is more consistent with the company’s actual practices.
Works Cited
Cars, Shop All, and Shop All Cars. “Car Loans in Canada: How Long Is Too Long? – Shop All Cars: News.” Shop All Cars | News, Reviews & Buying Tips for Canadian New Cars, 24 Apr. 2020, shopallcars.com/news/car-loans-in-canada-how-long-is-too-long/#:~:text=The average may be 72,are offering payment relief programs.
YouTube, YouTube, 17 Nov. 2017, www.youtube.com/watch?v=l6WSoijb8cY.
Dally, Bryan. “What Is The Average Car Payment in Canada?” Edited by Caitlin Wood , Loans Canada, 25 Nov. 2020, loanscanada.ca/auto/what-is-the-average-car-payment-in-canada/.
Dodge, Par Matt. “Average Canadian Salary In 2020.” Jobillico.com, 2 Sept. 2020, www.jobillico.com/blog/en/the-average-canadian-salary-in-2020/#:~:text=As of January 2020, the,just over $54,630 per year.
Howard, Phoebe Wall. “Ford UAW Hourly Workers Earn $3,625 Profit-Sharing Checks amid 2020 Earnings Dip.” Detroit Free Press, Detroit Free Press, 5 Feb. 2021, www.freep.com/story/money/cars/ford/2021/02/04/ford-reported-2020-earnings-dipped-profit-sharing-checks/4385369001/.
Janssen-6, Allan. “Average Price of New Car in Canada Now Exceeds $40,000.” Auto Service World, 23 Apr. 2020, www.autoserviceworld.com/average-price-of-new-car-in-canada-now-exceeds-40000/.
Kline, Daniel B. “These Are the Top 5 Reasons Why People Don’t Quit Their Jobs.” The Motley Fool, The Motley Fool, 17 June 2019, www.fool.com/careers/2019/06/17/these-are-the-top-5-reasons-why-people-dont-quit-t.aspx.“OUR PURPOSE.” Ford Corporate, corporate.ford.com/about/purpose.html.