A Taxing Opportunity

I was watching the latest episode of 'Mad Men' earlier this week on my DVR and was fast forwarding through a commercial block when I saw an ad for a local car dealership. As someone who loves cheesy commercials and follows the auto industry, this was a tremendous opportunity to indulge in two passions simultaneously. So I rewound.

I'm glad I did. Toward the end of the commercial, the local dealer made reference to the time of year. Not spring. Not the start of the baseball season. But income tax time. He said that if you walked into his dealership with a tax refund, you'd walk out with a car. (I think, I hope, he said drive out with a car, but I can't recall his exact verbiage. I'm not one for mixing metaphors, so that's why I'm hoping he said drive.)

That got me thinking.

Why don't lenders offer to do car shoppers' taxes, under the condition that they'll put any refund earned toward the purchase of a new car? It would be a tremendous way to drive traffic to a dealer or to a website and then create a long-lasting and sticky relationship.

This idea becomes even more appealing when considering the results of a study released by TurboTax. More people are planning to use their income tax refunds to make major purchases, such as automobiles.

There are not a lot of actual opportunities for car lenders to make meaningful, long-lasting connections with their customers. It's not like a mortgage where a consumer is making payments for 30 years. Repeat business is an important benchmark with any industry. And the nature of car dealerships and how they drive which lender a consumer ends up with doesn't lend itself to repeat business. Lenders need to do things to stand out from the rest.

And tax preparation has become such a commoditized business that a number of companies are offering free services this year. If tax prep companies can offer the service for free, then car lenders should be able to use tax preparation and filing as a carrot to attract new business.

Tags: refund, taxes

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Comment by M. Daryl Schneider on April 9, 2012 at 12:22pm: We have had deals like this locally for many years. I have paid the fees many times to use this service but it has never been worth my time, effort and money. I know of dealers that swear by it but I never found it worthy.

Comment by Frank Rauscher on April 9, 2012 at 12:32pm: Mike, interesting thought!

The challenge is that some banks like Wells Fargo have stated that they need to earn the "trust" of their customers. One could argue that the are not building trust by offering "bad financial advice" - and they already offer too much of that "bad advice" as it is.

On the surface, it seems that a family that needs to have a tax refund in order to have cash for a great down payment in order to qualify for very low interest rate, needs to build up their "emergency fund" first. This would mean that the tax refund should not be used to buy a car and get them into more debt. Debt is not good advice unless the marginal return is greater than the marginal cost.

That said -The reality is that Big Banks do not care about providing good financial advice so I say "Great idea!" Spread the word.

If you do not believe my statement about the Big Banks, I can prove it. Anyone from a Big Bank care to discuss:

Predatory Lending, Payday lending, the reasons for the Card Act, UDAAP, Suitability, Dodd-Frank, the new requirement that the bank has to now prove that the customer can actually pay back a loan, etc?

Comment by Amy Taggart on April 10, 2012 at 8:56am: Interesting concept - we push hard around tax time to encourage our dealers to help our car loan applicants who are planning to use their tax returns as down payments. Getting involved earlier in the process ensures that you're at the top of the list when they've got that money in hand.

To address the issue of trust, perhaps a dealership could partner with a local branch of one of the major tax preparers like H&R Block or Jackson Hewitt? "They do your taxes, we help you get a car."