Hyundai assurance

Hyundai’s Assurance Plan could get the automaker through these tough economic times. The plan states that if you buy a new vehicle from them, and you lose your income, Hyundai will let you return the car. This plan will let you walk away from the loan without having to worry about negative equity. The plan will cover up to $7,500 in negative equity. Under this plan you are covered in case of involuntary unemployment, physical disability, loss of driver’s license due to medical reasons, international employment transfer, self-employed personal bankruptcy, and accidental death.
This could benefit the company by generating cash flows they wouldn’t have received if they were to let the cars sit on their lot. Hyundai is increasing their cash flows by getting more than they would if they weren’t selling the cars. It seems like Hyundai is taking all the risk out of having the car buyer pay future payments. If you were to default on your loan Hyundai would credit up to $7,500 for the remaining balance of the loan, and I guess you would be responsible for the difference.
If this were the case when you buy a $20,500 vehicle, and you were to default on the loan you would still be responsible for $13,000-payments of the remaining balance. I may have this wrong, but if this were the case then it seems like this plan is more beneficial to Hyundai than consumers. Hyundai would be making: (market value of the car-$7,500). Then they could resell the car you returned to them, and still make profits from that.
After looking at this plan, there is almost no benefit to the consumer, because they would be losing more than they are gaining from the Assurance Plan. For the above example of $20,500 the consumer would be paying $13,000 no matter what happened. So they would be paying for more than half of the car. It doesn’t make any sense to just return the car and lose the $13,000 along with the car. They might as well just pay the remaining $7,500 since they are obligated to pay $13,000.


Links:
http://www.hyundaiusa.com/financing/HyundaiAssurance/HyundaiAssurance.aspx

http://hyundaiassurance.walkawayusa.com/pdfs/HyundaiAssuranceLeaflet.pdf
http://archives.chicagotribune.com/2009/jan/07/business/chi-talk-carjan07