new product fido, page-3

mitchp

Good post. I'm in a similar situation as you - got into TSM following a Fat Prophets recommendation and then my own research last year. Fido is a new product since and the company has not continued to track as well as I (and the Fats) had anticipated. Probably part of the general retail sluggishness, but let's hope its not the TSM business model.

I can't really understand how TSM makes money out of Fido - unless there is some retailer support as well.

Check out the Reef bike's site. They advertise a payment plan for their bikes purchased from the site - clicking on the payment plan takes you directly to a Fido site set up for Reef bikes. They say you can get an $1899 (Stingray) bike from $32 per fortnight.

I ran the calculations on an $1899 product on the Fido site. It quotes $32.87 per fortnight over 24 months. Assuming 52 fortnightly payments over 24 months, that is $1709.00 in fortnightly payment.(OK, there are 52.143 fortnights in 24 months). Plus add the $2.50 fortnightly admin charge and $3.00 monthly fee and you add another $202.00 to be paid by the consumer. So the consumer pays a total of $1911 to Fido, plus they pay 10% of the purchase price upfront to the retailer (ie $189.90).

So the total outlay for the consumer is $2100.90. This is an extra $201.90 over the purchase price of $1899, over 24 months (or effectively 10.63% 'interest' over 24 months - or crudely 5.3% p.a. on the full amount. This seems a good deal for the consumer (certainly compared with credit card debt or a personal loan).

From TSM's perspective they have to finance only $1899 minus 10% = $1709.00. I assume the retailer gets this money from TSM upfront.

TSM makes 201.90 over 24 months on financing of $1709.00 (which is 11.8% over 24 months on the total)

Of course, the funds to TSM are being gradually repaid over the 24 months, so the maximum amount is only outstanding initially. I could do this on a spreadsheet to look at it in more detail, but the bottom line is that they only make 11.8% on the total deal over 2 years but have the risk of default and have the cost of accessing the funds (which surely must be at least around 7% pa).

I assume that as the TSM funds are constantly being repaid, the funds are churned into new lease deals as the money is repaid, and that is how they make it work. Is this the 'power of compound interest' in reverse.

Maybe if anyone is going to the AGM in Perth they could get some more information?

Also would like more information about how the uptake and marketing of Fido is going.