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Big Three count on zero
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October 8, 2001: 11:16 a.m. ET
Automakers' zero-interest financing is bringing buyers back to showrooms.
By Staff Writer Chris Isidore
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NEW YORK (CNNmoney) - Automakers are hoping a whole lot of nothing will support sales in this uncertain time for the economy.
The nothing they're counting on is zero-percent interest financing available on many new models, an unprecedented incentive for the rollout of a new model year by the traditional Big Three automakers. Overseas automakers have yet to match the offers for the most part, though.
If consumers were looking to buy a new domestic model, incentives aren't likely to be any better than they are now, said Bob Schnorbus, the chief economist at JD Power & Associates.
"Probably they're getting as high as they can be," he said. "There's not much more you can do to sweeten the deal."
It's also apparent that the deal, which runs through the end of October, probably won't continue long term.
Ford Motor Co. (F: down $0.23 to $17.44, Research, Estimates) lowered its earnings forecast due partly to the cost of the incentives. Auto analysts talking to General Motors Corp. (GM: down $0.53 to $41.83, Research, Estimates), which kicked off the incentives Sept. 19, and Ford, which followed Sept. 20, were questioning why the automakers didn't cut production rather than continue to pay the high incentive costs, and the automakers promised they would work to control marketing costs.
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The big three automakers are offering zero interest financing on new models to spur consumer interest in the wake of the Sept. 11 terrorist attacks. | |
"Longer term we're going to have to de-escalate these incentives," Lloyd Hansen, Ford's controller, told analysts during a conference call reporting September sales.
But initial sales numbers seem to indicate that consumers are taking advantage of the deals.
Sales at GM and Ford both fell sharply after the Sept. 11 terrorist attack, but showroom traffic and sales rebounded after both announced the incentives. Chrysler Corp., a unit of No. 3 automaker DaimlerChrysler (DCX: down $0.15 to $33.97, Research, Estimates), didn't jump on the incentive bandwagon until Sept. 25, and it paid for that with a much sharper decline in September sales than either GM or Ford.
Overseas firms such as No. 2 Japanese automaker Nissan Motor Co. (NSANY: down $0.18 to $9.06, Research, Estimates) and German leader Volkswagen, saw steeper declines than the U.S. competition as well, although Toyota Motor Corp. (TM: down $0.30 to $55.70, Research, Estimates) and Honda Motor Co. (HMC: down $0.89 to $70.11, Research, Estimates) had only relatively modest declines in sales.
"We've seen continual increase in traffic among all brands since the Sept. 11 attack, but there's no question the Big Three have seen a significant jump," said Mark Cannon, spokesman for AutoNation Inc. (AN: down $0.07 to $9.27, Research, Estimates), the largest auto retailer, with 375 dealerships in 17 states. "We've seen a lot of enthusiasm from customers with the financing offers."
Cannon said that since many markets don't have auto sales on Sunday, it is too soon to say if sales will take another hit in the wake of the U.S. and British attacks on targets in Afghanistan, which started Sunday.
Both GM and Ford are offering consumers zero-percent interest financing up to five years on any 2001-model car, and for three years on 2001 model trucks or any 2002 model vehicle. Below-market financing rates are available on those vehicles not eligible for zero-interest financing.
GM also is offering limited zero interest financing to businesses buying new vehicles.
Chrysler also is offering zero interest financing for up to three years on most vehicles, although its hotter models, such as the PT Cruiser, Chrysler Prowler, Dodge Viper, Dodge Ram truck and Jeep Liberty compact sport/utility, aren't included.
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While Schnorbus said he doesn't believe these incentives can continue through the model year, he expects incentives as a whole to stay relatively high for quite some time, due to the overall weakness in the economy, consumer confidence and sales.
"No individual automaker is easily going to give up that competitive battle and give up incentives," he said. "It's the price of playing in this competitive landscape." 
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