For New Ford F-150 Sales, Economic Costs Are Very High At 84-Month Edge

With F-150 loan terms, many times, at 84 months, it is time to look to see if it is a deal or a drudge. At 84 months, not only the length of time for the loan but also its ultimate cost may have you scratching your head.

You do have to give the auto industry credit for stepping up to help customers who have been caught flat-footed by the COVID-19 pandemic that has stopped the country cold as the coronavirus wreaks its havoc.

F-150 Sales Can Be Very Uncertain Today

Part of the havoc that millions of Americans face is the economic uncertainty of wondering where the next paycheck is coming. Millions of workers have indeed filed for unemployment benefits in the last three weeks. At last count, the number had risen to 16.6 million. The numbers trashed the previous significant job-creation figures from January.

There is so much economic uncertainty that workers, now facing more than a month with no money coming in, are becoming desperate, especially if they have new vehicles.

The auto industry has stepped up with deferred payments for at least six months. Ford, for example, started this benefit program for its customers late in March. General Motors soon followed suit, as did the rest of the industry. Even modern collectibles like Ford's F-150 Harley-Davidson model, discussed by my colleague Jimmy Dinsmore , is covered by this program.

At the same time, the industry is trying to sell its wares, as well, in an exceedingly tight market. Sales conditions are unlike anything dealers have experienced before. Perhaps the loan deferment program can help dealers move vehicles. In my latest truck story, I discuss an interesting model you can defer payments on. Normally, the sales process works like this:

F-150 Sales Story As Traditionally Told

• A customer appears at a dealership
• A salesperson greets the customer
• The salesperson finds out what the customer wants
• During this process, the customer gives the salesperson as much information as possible about needs
• The salesperson and customer walk the lot and find the vehicle that meets the customer's needs
• The salesperson offers the customer a test drive to see if the vehicle meets the buyer's needs
• If the vehicle meets the customer's needs, the sales process moves on
• The salesperson and customer sit and make sure the vehicle meets the customer's needs
• At this time, they start to discuss price, and the salesperson determines whether there may be a deal coming
• The customer sees the price and usually makes an initial offer
• If the offer looks acceptable, the salesperson takes it to a sales manager for verification
• At this point, if everything looks good, the salesperson confirms things once more
• If everything looks good, the salesperson takes a small downpayment to make sure the customer is serious
• The salesperson then begins to write up initial sales paperwork such as a purchase and sales agreement
• The sales manager steps back in here and looks over the paperwork
• Next, the sales process moves to the business office where everything is finalized
• Following the business office, the vehicle is moved to the sold line or area where it is plated
• The customer receives a run-through on the vehicle, folks shake hands, and the customer drives off

F-150 Sales Story Does Have Lots Of Steps

Yes, there are lots of steps in the traditional sale process. However, given today's need for social distancing (six feet between people and no handshakes), the traditional sales process is undergoing significant change.

Many dealers are feeling stressed as the traditional process is changing radically. Customers view cars online; offers appear and are accepted online. Once approved, the business office takes over, completing the deal. Finally, customers arrange to take delivery of the new vehicle, either at the dealership of the customer's home.

This process is very new to vehicle dealers, and it does cause lots of angst, as many sales veterans are not used to this process. While this process has changed, other pieces of the process have remained the same.

For example, if a customer cannot afford a more expensive vehicle, one way to get the customer into the truck or SUV is the stretched payment plan. Some years ago, when payments went from three to four years, folks shook their heads at what seemed to be at the time long payment terms.

F-150 Sales Picture Changes Over Time

Believe it or not, though, it didn't take long to move from four to five years. That payment term stayed the norm for some time. By the late 1990s, the average payment term was 60 months or five years. Most folks were comfortable with it, as was the industry.

The 60-month barrier remained in place right through 2010 or so, but it began to slip out further as prices rose, and the industry started moving away from cars solely to trucks and SUVs, both of which are among the most expensive parts of the vehicle industry.

By 2012, the average new-vehicle payment was hitting the 72-month barrier pretty hard. This began to put vehicle buying into a whole new and more expensive realm. It's funny that buyers followed this market segment, even as prices rose. They groused about the pricing, but they paid it.

To make payments livable and a tad more affordable dealership finance and insurance managers ran the numbers and found that 84 months was acceptable. However, is it fair to customers, or is it the best for dealers and not for customers?

Let's set up a simple deal to see what the story might be. Here is the deal: A Ford customer has a 2012 F-150 that he wants to use as a trade on a 2019 Ford F-150 SuperCrew Lariat, a leftover from last year.

F-150 Sale Using Pickup As Downpayment

The customer wants to use his pickup as the downpayment. The sales manager goes out and looks the trade over. The truck is in pretty good shape for a work/family vehicle.

The SM then looks at the worksheet created as he looked at the pickup, and he compares it with various pricing guides from Kelley Blue Book and the National Auto Dealers Assn. The trade-in allowance he determines to be $13,123, while the cost of the Ford F-150 Lariat is $50,255 (yes, it is a high price, but it is the way the industry has trended).

As noted, this is a simple deal. The final price is simply $50,255-$13,123 = $37,332. Of course, the customer can cut the price of the Lariat by adding money to the picture. However, in our example, that's it; the customer only has the 2012 Ford F-150 to use for the downpayment. It is the difference between the 2012's trade-in allowance and the asking price of the Lariat.

Since the customer is limited in his ability to raise more money for the Lariat, how can he get a price he can afford? The customer can increase the length of the loan term, which will, in turn, lower the price,

Let's look at how to price creep has affected the amount someone pays for the same vehicle (the Lariat). The following list is built based on 0 percent down and 0 percent interest for the length of the note.

• Monthly vehicle cost at 36 months: $1,037
• Monthly vehicle cost at 48 months: $777.75
• Monthly vehicle cost at 60 months: $622,20
• Monthly vehicle cost at 72 months: $518.50
• Monthly vehicle cost at 84 months: $442.04

Ford F-150 Sales Picture Brightens

Fortunately for vehicle buyers right now, the industry is using 0 percent financing. In other words, the industry is taking the cost of vehicles and spreading them over several months without financing them. Buyers need only figure out how much they can afford as the downstroke at deal time, plus their trade-in if they have one, and the result is the amount the monthly payment.

For our cash-limited buyer, it works out that the 84-month figure is the magic one for him. The issue that might trouble the buyer is the number of months that he is holding hands with the financial institution. In this case, to get the 0 percent financing, you have to put your vehicle through the manufacturer's finance arm.

Okay, let's look at what the terms might be if the customer was going to try to buy the same Lariat at a rate of 5.9 percent. The picture is quite different. Instead of just paying the difference between the turn-in and the customer has to add considerable funds to make the monthly payment affordable.

How much does he have to add to make our simple example affordable? In this case, there is no way that the buyer with only an 8-year-old truck can afford the Lariat. He will have to move his expectations down probably to an XL, possibly a two-wheel-drive pickup with a lot less equipment. We'll cost things out for the two buyers so you can see how things stand.

The cash-limited customer has to repay the cost of the vehicle, $37,332, plus the customer will be adding $26,895 with his truck. And, though this is likely an unexpected issue, the cash-limited customer will be asked to find another slug of cash to be borrowed -- $18,508.This puts the final figure for this vehicle at $72,535, and the monthly payment is ultimately $863.11 or $420 more than the customer can afford. So, unless the customer has a blooming money tree in the backyard, the 2012 F-150 will be remaining in his driveway for a longer time.

On the other hand, if the buyer were able to add the $26,895 and he had another $10,000, the difference between trucks is only $2,650, the picture changes radically. Since the difference works out to $2,650, financed over three years (this is the 36-month choice), we find that the total cost of the vehicle is $39,782, and the monthly price is about $73. (Yes, this example does rely on a small loan for three years.)

From this, I think you can see something that many consumerists are saying about vehicle sales. The longer the term, the more it costs.

Ford F-150 Sales Picture Explained

Of course, dealers don't mind this because it does stoke the dealer's bottom line quite a bit. And, while many people see the shortened bottom line for them as a way to get into the driver's seat of a new vehicle, it still reflects the fact that, ultimately, Lariat will cost more than twice the original price, less trade.

That pretty much rounds out our look at finance. Yes, longer terms can get many people into vehicles. However, over time no one knows if the customers can afford the pickups or they are living on the edge, especially given today's economic uncertainty.

It is helpful for dealers and their sales force to be able to move vehicles, especially with sales being flat due to that uncertainty.

And, it is significant that folks in need of new wheels have the opportunity to obtain them.

However, as there is substantial upside to using an 84-month term, there is also an equally big downside.

The downside is that given today's economy, someone who bought a pickup on the edge last month may not be able to afford the vehicle in six months if a recession hits and continues. If that happens, other economic problems can ensue.

Marc Stern has been an auto writer since 1971. It was a position that filled two boyhood dreams: One was that I would write, and two that I write about cars. When I took over as my newspaper's auto editor, I began a 32-year career as an automotive columnist. There isn't much on four wheels that I haven't driven or reviewed. My work has appeared in Popular Mechanics, Mechanix Illustrated, AutoWeek, SuperStock, Trailer Life, Old Cars Weekly, Special Interest Autos, and others. Today, I am the Ford F150 reporter for Torque News. I write how-to and help columns for online sites such as Fixya.com and others. You can follow me on Twitter or Facebook. Most of Marc's stories can be found at Torque News Ford coverage. Check back again and search for Torque News Ford F-150 news for more F-150 truck news coverage.