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Auto manufacturer credit cards: a car deal on wheels?

Car company rewards cards vary widely in their perks

By LaRita Heet

With gas prices causing consumers to hit the brake pedal on their larger-than-life SUVs and their gas-guzzling cousins, hybrid and high gas mileage vehicles are moving up on consumers' "must buy" lists. To help ease sticker price pain and to boost dealership business, many automobile manufacturers are stepping up with auto rewards credit cards that could score customers some sweet deals on future wheels.  Car card rewards

"Gas prices are already affecting vehicle sales in every segment, and traditional sport utility vehicles have been especially hard hit," said Jack R. Nerad, executive editorial director and executive market analyst for Kelley Blue Book and kbb.com in a press release announcing the results of an April 2008 Kelley Blue Book marketing study. According to the study, 47 percent of new-car shoppers "would seriously consider a more fuel-efficient vehicle if gas prices increase another $0.25 or less, compared to 26 percent in October 2007."

So do car rewards credit cards (see chart) help pave the path toward a new vehicle? Credit and financial experts agree that a card's value depends on the individual rewards program -- and the fine print. "At first glance, all of these offers look good, but then when you look more closely, you see that the devil is in the details," says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling and a 22-year veteran of the credit counseling industry.

GM boasts cardholders in the millions
Since 1992, some 6 million General Motors cardholders have already applied their rewards earnings to more than 5 million new GM vehicles -- a definite statement of the GM Flexible Earnings Card's popularity, says Kelly Cusinato, GM communications manager. The GM Flexible Earnings Card allows cardholders to trade points for up to 3 percent off the cost of a new, eligible GM vehicle lease or purchase. Predetermined caps and vehicle restrictions mean that if you have your eye on a new 2008 Corvette, your rewards can only knock $1,000, tops, off the sticker price, while those in the market for a van can apply up to $3,500 in earnings toward a new 2008 GMC Savana.

If these rewards don't get your motor running, then the GM Flex card program has two other options: receiving 1 percent of your charged purchases as either cash back or toward the purchase or lease of a nonGM vehicle. "A lot of our members really like that we've given them that kind of freedom. We've not tied it to things like, 'OK, we'll give you a lot of great points, but you can only use them in very narrow ways,'" says Cusinato.

Rewards options vary by card issuer, but cardholders agree that the more flexibility, the better. "What if I change my mind and don't want another car by the same company a couple of years from now? I don't want to feel tied in to buying a certain brand of vehicle; nor do I want to forfeit my points," says a GM Flex cardholder Chris Moore, who requested her name be withheld to protect her privacy.

Depending on the type of auto rewards credit card, earnings can also be used to make current lease/loan payments, for dealer parts, services and accessories, for travel rewards or for other merchandise.

Toyota to debut rewards card in October 2008
The largest auto manufacturer in the world, Toyota, has announced plans to launch the Toyota Rewards Visa in October 2008. Although Toyota has not yet revealed the point structure for this card, the rewards will be redeemable toward the purchase or lease of a new or used Toyota, or for maintenance, parts and service at a Toyota dealership.

The decision to offer a Toyota-branded rewards card came following the success of the Lexus Pursuits Visa, as well as requests from dealers and Toyota owners. "We're anticipating even greater card volume within the Toyota portfolio, given just how many Toyota drivers are out on the road," says Toyota Financial Services Public Relations Manager Kerry Rivera.

How much greater volume? Take the current 40,000-50,000 Lexus Pursuits cardholders multiplied by the Toyota customer base of 10 times Lexus's customer base, and you'll see why Toyota is already predicting a success and "huge acceptance" for their new Toyota card.

Toyota's Rivera says offering a proprietary card through Toyota Financial Services provides the auto manufacturer additional insight into their cardholders. Adds Rivera: "The rewards cards have also allowed us to, from the aggregate level, get a sense of how our customers are spending their dollars and what their interests are ... so that we can figure out what matters to them and what they care about."

Car rewards cardholders spend more
According to Rivera, Lexus Pursuits Visa cardholders are visiting their dealerships approximately 50 percent more than noncardholders, and the cardholders charge an average of 65 percent more at the dealerships on vehicles, parts and repairs than noncardholders spend.

These numbers prove one thing: The auto manufacturers are profiting from auto rewards cards. The question is, are cardholders really saving money by charging the often-premium rates for dealership repairs, parts or even oil changes? Do more points actually equal savings?

Not necessarily, says Cunningham, who notes that rewards cards often urge cardholders to charge more, thinking they're earning more rewards. Those who do not pay off their card balances in full each month may find themselves on the losing end of these deals.

For example, with the BMW Platinum Visa Card, customers earn one point for every $2 spent -- or 0.5 percent. Sounds OK until you do the math. Charge $20,000 to earn 10,000 BMW reward points, which you can exchange for the meager "reward" of $100 -- which, depending on how quickly you pay off that card, won't even cover the card's interest payments for long, given the BMW Platinum Visa's variable APR of 2.99 percent to 13.99 percent on top of the prime rate. If your interest rate is on the higher end of that range, you could be paying an average of 20 percent APR on that $10,000 balance. In that case, the $100 rewards bone you're tossed for incurring that debt won't even make a dent in it.

Cashing in: Rewards redemption
The manner in which you redeem your rewards points varies by auto manufacturer, card issuer and the rewards themselves. For example, the first step in redeeming any BMW or Mini rewards points is to contact BMW Financial Services or Mini Financial Services by phone. On the other hand, if you're a Lexus Pursuits cardholder, you simply take your card to the dealer, who enters your rewards number and the dollar value of the redemption you'd like to obtain. Though privacy laws do not allow the Lexus dealer to check the customer's point balance, this information is available to the customer on his credit card statement or by logging onto his account, says Rivera.  

Key to working out the best deal in any auto purchase is playing your cards (and their rewards) close to your chest. Walking into a dealership and immediately proclaiming your $5,000 in rewards toward a new car will likely put the kibosh on any further negotiations on your part. The exact rules regarding how and when to redeem your rewards toward a car purchase or lease are vague at best, so read the rewards materials closely before attempting redemption.

BMW requires that customers who wish to redeem their points toward a new vehicle purchase or lease must obtain that lease or loan through BMW Financial Services. "We wouldn't have any reason to let you go to another competitor," says Martha McKinley, general manager of business communications for BMW North America. "We don't have any rules on how the customer works with the dealer on a vehicle purchase," says Rivera of the Lexus Pursuits card program. "That's a transaction that's handled by the dealer and the customer alone," says Rivera.

Flawless payment record reaps best rewards
Most auto rewards credit cards are promoted at the dealership, through direct mailings or online. Depending on the automobile manufacturer, cards are either offered through banks (Audi, Subaru and Volkswagen cards are issued by Chase, while Chrysler, Dodge, Jeep and Mercedes-Benz cards are issued by Bank of America) or directly from the auto manufacturer's financing company (as is the case with the Lexus, BMW, Mini and soon-to-be-launched Toyota cards).

Regardless of the issuer, auto reward card provisions depend almost entirely on your ability to maintain a flawless payment record, stay within your limit and follow all regulations to the letter. A single late payment or over-the-limit charge can kick your introductory or standard APR into the "default" APR -- often more than doubling your rate or costing you as much as 25 percent to 30 percent interest on your card balance. A cardholder who is not in "good standing" can also lose both his rewards membership and all accumulated points. As with all rewards cards -- and all credit cards for that matter -- paying off the balance every month maximizes your rewards returns. Paying interest on a balance effectively negates the rewards' value.

Consumer credit counselors advise that people who don't want to be taken for a ride should weigh the potential rewards against an auto card's annual fees, interest rates and penalties, to assess the true value of an auto manufacturer rewards credit card. For details on 13 car rewards cards, please refer to the chart.

Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
Audi Visa Signature Card Zero percent fixed APR for first six billing cycles; Prime rate plus 6.99 percent afterward. No annual fee. Redeem points toward purchase or lease of Audi vehicle, auto maintenance at Audi dealership, Audi merchandise or experience packages, or to make a payment on your current Audi lease/loan. With first $50 purchase, receive $50 Audi gift card; Earn 2 points for $1 spent at participating Audi dealers; 1 point per $1 spent everywhere else. No cap on points earned. Points expire in 5 years. Redeem rewards for checks, hotel, travel, restaurant and other gift certificates and merchandise. Perks include free concierge service for restaurant reservations and entertainment planning, member access to presale sports and entertainment events. 
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
BMW Platinum Visa 4.99 percent fixed APR for first six billing cycles; Prime rate plus 2.99-13.99 percent afterward. No annual fee for No-Rewards Visa (or $50 annual fee for optional BMW Performance Plus Rewards). Earn up to $5,000 off a BMW Financial Services loan or lease, toward BMW FS lease mileage extensions or "excess wear and tear," or for BMW dealership parts, service, accessories or merchandise. Earn 1 reward point for every $2 spent with your card; 2 points per $2 spent at gas stations. With Performance Plus membership, earn 1 point per $1 spent, and earn travel, spa, merchandise and participating retailer rewards. Points expire in 5 years. No limit on points.
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
Chrysler Rewards Visa 1.9 percent APR for first six billing cycles; Prime plus 7.9 percent afterward. No annual fee. Redeem points toward the purchase or lease of a new or used Chrysler, Jeep or Dodge; toward specific Chrysler, Jeep or Dodge merchandise, repairs or services. Earn 5 points for every $1 spent at Chrysler, Jeep or Dodge dealerships; 1 point per dollar on all other purchases. $25 Dealer Dollars after first purchase. No limit on points. Points expire after 5 years.
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
Dodge Rewards Platinum Plus Visa 1.9 percent APR for first six billing cycles; Prime plus 7.9 percent afterward. No annual fee. Redeem points toward the purchase or lease of a new or used Chrysler, Jeep or Dodge; toward specific Chrysler, Jeep or Dodge merchandise, repairs or services. Earn 5 points for every $1 spent at Chrysler, Jeep or Dodge dealerships; 1 point per dollar on all other purchases. $25 Dealer Dollars after first purchase. No limit on points. Points expire after 5 years.
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
GM Flex Card Zero percent APR for six months; Prime plus 5.99-12.99 percent afterward. No annual fee. Use your earnings toward the purchase of a new, eligible vehicle, and get triple the earnings power (or up to 3 percent of your charged purchase total) to use toward the GM vehicle purchase (exact amount varies by vehicle) from any GM division but Saab; Redeem earnings at standard value (1 percent of total charged purchases) off the price of any other vehicle lease or purchase. Earn 1 percent of all charged purchases toward cash back option (which you can only receive in $100 increment checks); Earn average 5 percent extra (Bonus Shop) earnings at nearly 1,000 online retailers. Earnings expire 7 years from purchase date. No annual limit on points earned. 
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
Jeep Rewards Visa 1.9 percent APR for first six billing cycles; Prime plus 7.9 percent afterward. No annual fee. Redeem points toward the purchase or lease of a new or used Chrysler, Jeep or Dodge; toward specific Chrysler, Jeep or Dodge merchandise, repairs or services. Earn 5 points for every $1 spent at Chrysler, Jeep or Dodge dealerships; 1 point per dollar on all other purchases. $25 Dealer Dollars after first purchase. No limit on points. Points expire after 5 years.
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
Lexus Pursuits Visa Zero percent APR for first six months; Prime rate plus 6.75-11.99 percent (Platinum) or prime plus 6.75 percent (Signature) afterward. No annual fee.  Earn points toward up to 10 percent off your next purchase or lease of a new Lexus vehicle or dealership service, parts or accessories. Earn 5 points for each $1 spent at a Lexus dealership; 1.5 points per dollar for all other purchases. No limit on points. Points are valid for up to 6 years from date earned. Points cannot be redeemed for cash. Points can be used for optional Travel Rewards Program (requires $60 annual membership fee), or donated to another person (in gift card). 
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
Mercedes-Benz Visa Card 1.9 APR for first six months; Prime plus 7.99 percent afterward. No annual fee. Redeem points toward the purchase or lease of a new or used Mercedes-Benz, to pay a current MB loan/lease payment, or for parts, service or merchandise.  Earn 1 point for $1 spent on all purchases; 5 points per $1 spent at Mercedes-Benz dealerships or on M-B merchandise. No limit on points. Points expire after 5 years. Additional benefits include complimentary concierge service for restaurant reservations and entertainment planning, member access to presale sports and entertainment events.
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
Mercedes-Benz Visa Signature Card Zero percent APR for six months; Prime plus 7.99 percent afterward. $90 annual fee. Redeem points toward the purchase or lease of a new or used Mercedes-Benz, to pay a current MB loan/lease payment, or for parts, service or merchandise.  Earn 1.5 points for $1 spent on all purchases; 5 points per $1 spent on certain dealership parts and service purchases under $500, and 10 points per $1 spent over $500 on certain dealership parts and service purchases; 5 points for each $1 spent on M-B merchandise. No limit on points. Points expire after 5 years. Redeem earnings for travel, merchandise, charitable contributions or create-your-own rewards. Additional benefits include complimentary concierge service for restaurant reservations and entertainment planning, member access to presale sports and entertainment events. 
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
Mini Platinum Visa Fixed APR of 4.99 for first six billing periods; Prime plus 2.99-13.99 percent afterward. No annual fee. Redeem points for up to $10,000 off the purchase of a new Mini Cooper lease or loan ($5,000 applies to purchase/lease; additional $5,000 applies only if financed through Mini Financial Services). Use Mini Financing Perks to offset excess wear and use charges or receive additional miles on your Mini FS lease. Redeem Mini Motoring Rewards for Mini gear, dealership valet service, parts, service and repairs at dealership. Earn 2 points per dollar spent at Mini dealerships, or on gas, car washes, tolls and other car-related purchases; 1 point per dollar on other purchases. Points expire in 60 months. Earn up to a maximum of 20,000 points per billing cycle, or 240,000 per year. Redeem in 5,000-point ($50) increments to use on Mini "experiences," or donate your points to a fellow Mini Motorer or to one of several specific charities. Customize card to match your Mini car.
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
Subaru Platinum MasterCard Elite and Platinum pricing: Zero percent fixed APR for first six months; Prime plus 6.99-10.99 percent afterward. Standard pricing: From account opening, prime rate plus 14.99 percent. No annual fee on any of the cards. Redeem up to 3 percent Subaru Rewards Dollars toward lease/purchase of a new Subaru or purchase of used Subaru, or for parts, services or accessories, at any authorized Subaru dealership in the continental U.S. and Alaska. Only Subaru-related rewards can be earned. No cash-back option. Reward earnings are capped at $500 annually, or $2,000 over a 4-year period. Reward dollars expire after four years. Earn 25 Subaru Reward Dollars with first purchase. 
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
Toyota (launching October 2008) APR data not yet released. No annual fee. Redeem points toward the purchase of new or used Toyota vehicles or toward dealership purchases of parts, maintenance and accessories.  Rewards point information and additional details not yet released.
Name of cardInterest rate,
annual fee
Car-related rewardsOther features, rewards
Volkswagen Platinum Visa Card Elite and Platinum pricing: Zero percent for first six months, then prime plus 6.99-10.99 percent afterward; Standard pricing: Prime plus 14.99 from account opening. No annual fee for any of the cards. Redeem points for Volkswagen parts, services, toward lease or purchase of a new Volkswagen, to make a payment on a current lease/loan, for VW parts, service and accessories. Earn 2 points for $1 spent at participating Volkswagen dealers; 1 point for every $1 spent everywhere else. Redeem points for gift cards from select retailers, restaurants, or travel-related rewards. No cap on amount of points earned. Points expire after 5 years. 

See related: Trips and traps of credit card rewards programs, Avoid rewards credit card pitfalls

Published: July 7, 2008



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