Carmakers laying out incentives to buy
Published: Friday, September 1, 2006 at 6:01 a.m.
Last Modified: Thursday, August 31, 2006 at 11:11 p.m.
Eager to lure buyers into showrooms this fall, car makers are laying on a host of deal sweeteners on top of 0 percent financing.
Many of the incentives from automakers including DaimlerChrysler AG's Chrysler Group, Volkswagen AG and Toyota Motor Corp. involve better financing deals to offset higher interest rates. Along with 0 percent financing offers, other new perks include: low rates for up to six years, additional cash bonuses on top of low rates and extending the deals to people with subpar credit.
Car companies first turned to 0 percent deals after the Sept. 11, 2001, terrorist attacks, when General Motors Corp. launched its "Keep America Rolling" campaign and most other auto makers followed suit.
But as the promotion's appeal faded and interest rates headed higher, many automakers looked for other incentives like lease deals and employee pricing. By last year this time, super-low financing deals were sparse, says Art Spinella, president of market researcher CNW Marketing Research Inc.
But last fall, low financing deals first started cropping up along with other promotions such as free gas. Now, a growing number of automakers are jumping on the bandwagon with more generous financing deals than even three years ago, according to Edmunds.com. "We have a lot of cars and trucks to sell and we're going to be aggressive" to make that happen, says Ford Motor Co. spokesman Jim Cain.
Beginning Friday, the Chrysler Group will begin offering 0 percent financing for up to 72 months until Sept. 30. Customers can also choose various cash-rebate offers instead of the financing.
Chrysler offered its Employee Pricing Plus program until Thursday, which included 0 percent financing for just 36 months or cash rebates for certain models.
Among other domestic auto makers, on top of the incentives programs it was already offering, GM on Tuesday began offering $500 to $1,500 cash back on many 2006 and 2007 models. GM was already offering a variety of incentives, including 0 percent financing for 36 months and $1,000 bonus cash on pickup-truck sales in Texas, California and Florida. Those offers end Sept. 5.
For Ford's Labor Day program, the Ford, Lincoln and Mercury brands are offering 0 percent financing for up to 72 months for 2006 models. The program, which ends Sept. 5, is also extended to customers with "good but not great credit," Ford says. Previously, Ford focused on regional incentives for 2006 models. The company has also lowered sticker prices for 2007 models to bring them closer in line with transaction prices, a similar strategy to one GM began pursuing in January.
Domestic car makers need to boost their sales efforts to get rid of 2006 inventory. In the most recent data for this summer covering the period of Aug. 1 to Aug. 20, it took GM an average of 84 days to sell a car, while Ford took 83 days and the Chrysler Group trailed with 90 days, according to the Power Information Network. In contrast, it took Toyota 26 days to sell a vehicle while it took Honda Motor Co. 37 days. The industry average was 64 days. High gas prices have favored the Asian auto makers as they are perceived to have more-fuel-efficient vehicles.
Chrysler's employee-discount program this summer wasn't as successful as last year's promotion, with sales falling by 37 percent in July, leading the company to try another incentive method. Auto makers traditionally offer sales around Labor Day to clear out their inventory before new models arrive.
Other car makers seeking to boost sales are also turning to 0 percent deals. Volkswagen, whose sales rose by 3.6 percent in July, is offering 0 percent financing deals for 36 months through Sept. 5 on most 2006 models including the Jetta, Passat, Touareg and Beetle. The rate is also available on the 2007 Passat wagon. By contrast, last year at this time, the car maker offered 1.9 percent APR for 48 months and 2.9 percent APR for 60 months, but no 0 percent deals.
Even some Asian auto makers are expanding their offerings on slower-selling vehicles to clear inventory for 2007 models. This month, as part of a promotion lasting until Sept. 5, for instance, Toyota raised its cash back offering on the 2006 Toyota Tundra $300 to $1,800 back. The auto maker also added additional cash back on 2006 4Runner, Highlander and Sequoia models, and 0 percent rates are currently available on the Tundra, Highlander and Sienna models for up to 48 months.
Last Labor Day, 0 percent rates were available from Toyota on only one model, the V8 4Runner. "The full-size-truck segment is down from last year, so we have increased Tundra spending to ensure we achieve a managed sell-down of the current model year," says spokesman Bill Kwong.
In addition, a low financing rate starting at 2.9 percent is now available on 2006 Camry models. Toyota's Lexus brand is also running a sales event through Sept. 5 with special lease and APR rates on 2006 and select 2007 models. This year, many car dealers have also offered their own 0 percent rates on top of car makers' discounted rates.
The slew of 0 percent deals come as the cost to borrow has been increasing for consumers amid the Federal Reserve's rate-raising campaign in recent years. The average new-car loan rate in June was 7.6 percent, up from 5.28 percent in June 2003, according to Edmunds.com, and the new 0 percent offerings helped drag the average new car loan rate to 5.34 percent last month, the lowest rate since August 2003.
Earlier this month, the Fed didn't raise short-term interest rates for the first time since June 2004, also making the long-term outlook of offering 0 percent rates more favorable than a few months ago. There's also evidence that customers like 0 percent rates. A July survey by market research firm Compete Inc. found that 56 percent of automotive shoppers said incentives influenced their decision to shop for a vehicle, with lower interest rates or 0 percent financing being the most influential incentives. Those incentives were also the most influential for the subset that did buy.
Many of the deals are still available only to certain customers and some vary by region. Chrysler's new program, for instance, is only for customers with good credit. To get 0 percent from Toyota, qualifications generally include a high credit store and a clean credit history. Meanwhile, Toyota's new low rates are part of a national incentive program, but not all dealer markets may choose to adopt them.
Among other car makers, Nissan Motor Co. also last week relaunched an annual Labor Day sales promotion where customers have the option of deferring finance payments for 130 days through Oct. 2 on 2006 and 2007 Nissan models, up from the normal period of 90 days. Nissan's offering, for instance, isn't available in Michigan, Maine and Pennsylvania and is available only to buyers with a 660 credit score or better.
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