First off, let me start by saying that I know this is a touchy topic. I want to note that this post is being written specifically from the point of view of a dealership. In many cases, it is a far better route for a buyer to avoid taking on extra debt or paying interest through a loan. This, however, doesn't mean that dealerships are willing to get bowled over just because you have a wad of green. In fact, in nearly every instance today, the dealer will struggle to try and make you feel like you've won, even if you haven't. Let's dive in!
The Ideology of "Cash is King"
Let's face it - in most modern civilizations, money makes the world go round. The age-old adage "Cash is King" has been used to promote the idea that having cash in hand for transactions often leads to better deals and discounts. While this may be true still in some cases, when it comes to purchasing powersports equipment, motorcycles, or even automobiles, this may not still ring true. In recent years, dealerships have been known to offer far more incentives for financing purchases instead for a multitude of reasons that we will explore below.
Dealership Kickbacks & Reserves
Some may not be aware but dealerships often receive kickbacks from lenders in the form of reserves when they finance a purchase through them. This means that dealerships are financially incentivized to push for financing deals, as they stand to benefit from the arrangement. Some less-than-trustworthy lenders out there even incentivize dealers to sell you a higher rate in the form of further compensation. With this in mind, dealers are typically far more willing to offer pricing reductions or other incentives to encourage buyers to finance their purchase versus paying cash.
Documentation or Administration Fees are Already Factored In
If you haven't read our article on dealership doc fees, I strongly recommend doing so as a preface to this section. In summary, the article covers why most modern-day dealers are forced to charge a doc or admin fee to be able to advertise a more competitive price.
In regards to how it relates to this post - dealers typically face tremendous pushback for doc or admin fees on cash deals, as there is no extra paperwork involved. This could make cash transactions less appealing for dealers, as they do not earn any additional income from these fees while still eating the cost that those fees are meant to cover. In contrast, financing deals involve much more paperwork from the buyer's perspective and legwork from the dealer which makes such fees easier to swallow.
Now seems a good time to shout out our #ad sponsor Revival Powersports who help make this blog possible. They are an Edmonton, Alberta based dealer who charges absolutely no fees for cash deals on their inventory of used motorcycles.
Customer Retention Through Financing
By offering powersports and motorcycle financing options, dealerships have an immensely higher customer retention rate that lasts for a more extended period versus cash buyers. As buyers make monthly payments on their loans, they are more likely to stay in contact with the dealership for servicing and maintenance, or future trade-in opportunities providing ongoing revenue. This long-term customer relationship can be a significant advantage for dealers, giving them more incentive to push for financing rather than cash deals.
Some Coverages & Upgrades Require Financing to Sell
Another reason why dealerships might favor financing over cash deals is the opportunity to sell additional products, such as Guaranteed Asset Protection (GAP) insurance. GAP protection covers the difference between the outstanding loan balance and the actual cash value of a vehicle if it is deemed a total loss due to theft or accident. However, GAP protection can only be sold if a buyer is financing their purchase, as it is directly tied to the loan. This type of insurance can be a profitable upsell for dealerships, providing them with another incentive to encourage financing over cash transactions. Consequently, buyers should be aware that financing may provide access to valuable protection products that aren't available with cash purchases.
Cash Transactions Over $10,000 Need to be Reported
In addition to the incentives for financing discussed earlier, there is another factor that can make cash transactions less attractive to dealerships in Canada. If a buyer hands over more than $10,000 in cash for a purchase, the dealership is required by law to report the transaction to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). This reporting requirement is part of the government's efforts to combat money laundering, terrorist financing, and other illicit financial activities. As a result, dealerships must complete additional paperwork and follow specific procedures when handling large cash transactions, which can be time-consuming and cumbersome. Consequently, some dealers may prefer to avoid the hassle of processing large cash payments, further encouraging buyers to consider financing as a more convenient and efficient alternative for their powersports, motorcycle, or automobile purchases.
While the "Cash is King" mantra might still hold some truth in other areas of commerce, it seems to be losing its relevance in the powersports, motorcycle, and automobile industries. Dealerships have found ways to benefit from financing, such as receiving kickbacks from lenders and retaining customers for more extended periods. As a result, buyers looking for the best price may want to consider all their options, including financing, and not assume that cash will always lead to the best-case scenario. As always, thanks for reading! Your friend, Fred