During our trip to Orlando, we stayed at a Hilton Grand Vacation Club Resort. The price was right: $330 for four nights. It was the sort of resort that you would expect to pay at least $150 per night. The catch? Sit through a 90 minute timeshare presentation, of course.
If you haven't been through one of these, I'll try to recount the experience with as much detail as I can remember. It's a remarkable sales presentation, with answers for every question/objection. So, here's how it goes.
They start by sitting you down at a table with a salesperson who comes off as very unassuming, very friendly. He breaks the ice with "getting to know you" sort of questions. He tells you a bit about himself and how he got into this business. He assures you that there is no pressure to buy, and that this isn't for everyone, but "two out of four people who walk in end up being club members." Whether true of not (and I think not), the idea is to assure you that it's a good buy and lots of other people have seen that.
Once he begins the sales presentation, he starts by asking you where your dream vacation is. He asks about the last couple of vacations that we have taken. They are trying to get an idea of whether we take large annual vacations or several small weekend getaway type trips. This way they know what angle to play up. Of course, they don't tell you how much "membership" costs at this point.
Next, we watch a ten minute video of good looking people and cute kids having a great time on beaches, golf courses, ski lodges, etc. The voiceover is right out of your favorite Tony Robbins infomercial. The idea is simple. Everyone is supposed to walk out thinking, "man, I want that life!"
We are taken into another room with pictures taken right out of the video we just sat through. He leads us to the "Vacation Calculator" and asks me if we regularly take two weeks of vacation per year.
"No," I tell him, "generally one, or we travel to places where we have friends we can stay with."
"Would you say you spend $200 per night?"
"No way, maybe a hundred."
"And we have inflation at 5%, is that okay?"
"No (again), I would put 3%"
"And how many years do you plan to vacation? Should we say 30?"
He plugs in the numbers and the super computer spits out a number of thirty six thousand dollars and some change. Now, I didn't have my financial calculator with me, so I couldn't do any time value calculations, but I figured they just did a future value calculation with the numbers we agreed to. But when I got home, I found that $700 per year at 3% for 30 years give you a future value of $33,302.79. Not thirty six and change. But whatever.
So, the strategy is obvious. We have already committed to spending $36,000 in vacations in our lifetimes. If he could offer us lifetime vacations for less than that, it's a good deal, right? We'll see.
The first plan the he shows us is around $30,000. Not even close. He tries to use the angle that it's less than the $36,000 that we will spend over our lifetimes. Of course, the time value of money tells us that $36,000 over the next 30 years is likely less in value than $30,000 today. And, of course, they have payment plans at convenient financing rates of 11.9%!
In fact, the net present value of the cash flows we agreed to is $20,388.35. So, even if we really are going to spend $700 per year on hotels, increasing 3% per year for inflation for the next thirty years, the most we should pay today in lieu is $20,885. The problem is that, in real life we don't necessarily take vacations every year, and either stay with friends, use points, or find great deals for the times that we do.
So, after we firmly explain that we are not interested, he brings his manager over. The manager offers a package for around $14,000 that gives us points every other year. The problem is that it's the same deal. Half the benefits, half the cost.
We explain that we are saving to buy a house, and this just doesn't fit our budget. The manager whips out his calculator and says, "if I told you you could add less than $70 per month to your mortgage, and take a vacation every year for the rest of your life, would you do it?" I chuckled. It's a pretty clever response. There are two problems with it. First, you end up paying for the stupid timeshare for the next thirty years. Second, $14,000 amortized over 30 years at 6% is eighty four bucks, not less than seventy.
It's an interesting idea, but here are the things that I wonder about.
- How much commission do the salespeople make per sale? I asked a cab driver what he thought, and he told me that they make $3k when they sell a $15k timeshare.
- If the timeshares a such a great deal for the buyer, how is it so profitable for sellers? How do we know it's so profitable? Well, between Hilton, Marriott, Trendwest, Shell Vacations, and Westin, I get calls and emails pretty frequently to come to a presentation with dinners, movie tickets and weekend getaways thrown in whether or not we buy. If they're willing to throw that much worth of goods at us, they must be making enough on each sale to make it well worth it. So, why is it SO profitable?
- Are most buyers happy with their purchase? I know two people at work who own timeshares and both seem happy with it. But I wonder if it really is a good deal. If I overpaid for a weekend at the Ritz-Carlton, I may be happy with it, but I still overpaid.