When a big company offers to insure your job for free, something is up.
Strike when iron is hot, but avoid getting scalded
When a big company offers to insure your job for free, something is up. In normal times, redundancy insurance falls into the category of what's known as payment protection insurance (PPI), a sketchy-at-best corner of the insurance world in which companies offer to continue making credit card payments or keep up with mortgage bills should you run into hard times financially. Usually, such schemes are simply not good deals, and they're often foisted on customers by overzealous salesmen.
Just last October, Alliance & Leicester was ordered by the UK's Financial Services Authority to pay a £7 million (Dh42,800,000) fine for payment protection insurance mis-selling. So when Al Futtaim Automotive, the UAE's largest auto seller, announced last week that it was offering redundancy insurance on purchases of new and used cars, it sounded a little out-there. If you lose your job, you'll keep your Volvo, Al Futtaim was saying. Or your Toyota, Chrysler, Honda or any other brand Al Futtaim sells.
Step back a bit, though, and Al Futtaim's redundancy insurance plan starts to make a little more sense. Like many firms in the UAE, Al Futtaim is busy coming up with ways to keep sales strong during the downturn. Sales were up in the first quarter, the company says, but it still recognises that there are plenty of potential customers who would like to buy a car but are hesitating because they're wary about job security.
While the Al Futtaim package is far from comprehensive - it covers just 15 per cent of the car's purchase price - the company is hoping it will give enough consumers enough confidence to think about taking out loans and buying cars again. It's also free, after all. "While our sales have grown during the first quarter of this year, our research has shown that there are a still a significant number of customers who want to take advantage of our current strong offers but are holding off purchasing due to concerns about their job security," Len Hunt, the company's automotive group director, said last week.
On the job security front at least, he appears to be right. A recent survey conducted by Zurich, an international insurance firm, found that more than half of workers in the UAE were concerned about their jobs. With the well-publicised layoffs of recent months - especially in the property and financial sectors - that's no surprise. Moves like the one Al Futtaim made last week are interesting in that they show how firms in the UAE are working hard to dig out of the financial crisis and get business moving again.
But they also present potential opportunities for consumers. No matter where you look now - from cars to property to stocks - there are deals to be had and freebies to boot. It's a buyer's market in the UAE, and vendors of all kinds of products are willing to be more flexible on price than they had been. The same trend is playing out even on large purchases such as properties, where a move is afoot to get banks to restart mortgage lending. Deyaar, the large Dubai property developer, announced last week that it was partnering with banks to offer customers up to 90 per cent financing on its properties. The company teamed up with Dubai Islamic Bank, Noor Islamic Bank, Abu Dhabi Commercial Bank and RAK Bank to offer the deals, which allow consumers to borrow more than they had been able to just a few months ago, when banks increased minimum deposits to roughly 25 per cent.
Two weeks ago, Sorouh, the Abu Dhabi developer, did something similar, partnering with Abu Dhabi Finance to offer mortgages with interest rates as low as 7.24 per cent per year with no processing fees. With announcements like this, companies in the UAE are clearly saying it's time to make deals. But should you bite? That's a trickier question. Thing is, even if something's on sale and comes with all kinds of teasers, the factors that play into a decision to make a big purchase - and buying a car or an apartment qualifies as a big purchase - remain the same.
In the case of buying a home, the general advice is that it's likely to be a good investment if you plan to hold onto it for at least five years and can put down a 20 per cent deposit. Anything less than that, and the various costs involved in the purchase, coupled with market fluctuations, could easily leave you in the red when it comes time to sell. If the downturn has proven anything, it has shown that markets can go in directions other than upwards.
When it comes to car-buying, the advice tends to follow along the same lines. The more you can pay in cash and the longer you plan to keep the car, the better. Of course, it's also important to do your research on quality and resale value before you take the plunge. And buying a car used is generally a better financial proposition than getting one new, as new cars tend to lose a great deal of their value the minute they're driven off the lot.
The bottom line is this - there are some good deals springing up as companies in the UAE scramble to reinvigorate their businesses and recover from the downturn. These deals are not to be missed - but only if they make financial sense in the long run. @Email:firstname.lastname@example.org