0% financing rate puts car buyers in high gear

Sales accelerate at dealerships after incentive launched

`Real bonus for consumers'

October 03, 2001|By Ted Shelsby | Ted Shelsby,SUN STAFF

Lured by what one analyst said was "probably the best deal in the history of auto rebates," motorists are flocking to dealer showrooms to save thousands of dollars on new vehicles being financed by loans that carry an interest rate of zero percent.

"Business has never been this good," said Mark Aiello, vice president and general manager of JBA Chevrolet in Glen Burnie.

"Usually, Memorial Day and Labor Day weekends are our best selling days," he said. "This past weekend, Friday and Saturday, was as good or better than either of those holidays, and they have three selling days."

He said the dealership sold 23 vehicles Saturday, compared with normal sales of 12 to 13, and only one buyer paid cash.

A few hundred yards away, at Bob Bell Ford, customers had to search for a parking place at noon Saturday.

"Sales the last three days have been 150 percent better than before the terrorist attacks," said Bell, chairman of the dealership, who came to his office wearing blue jeans and a denim shirt.

The zero interest financing, which is scheduled to run through October, also helped sales at General Motors and Ford to decline less than forecast for September.

Sales of North American-built light vehicles fell 2.6 percent at GM and 9.9 percent at Ford, which were quicker than Chrysler with no-interest loans to lure people back into showrooms. Chrysler's sales declined 28 percent for the month.

After GM added the zero interest financing on Sept. 20, consumers bought vehicles at a pace 20 percent higher than in the year-earlier period, according to its sales analyst, Paul Ballew.

"This is a real, real bonus for consumers," said George E. Hoffer, a professor of automotive economics at Virginia Commonwealth University in Richmond.

"This is probably the best deal in the history of auto rebates," which were first offered by a financially struggling Chrysler 30 years ago, Hoffer said. "It is the first time in the history of the industry that Ford and GM have offered such large incentive plans so early in a new model year."

Hoffer said he anticipates that sales volume will be even stronger near the end of the month when shoppers see the plan is about to end.

All dealers credit the loan rate for the sudden and sharp rise in showroom activity.

Ford, GM, DaimlerChrysler and Mazda are all offering zero percent financing on at least some models.

Ford and GM are offering interest-free loans on the purchase of any 2001 model car, except the still-hard-to-find Ford Thunderbird, through the end of the month. The rate remains the same whether the car is financed for 36, 48 or 60 months.

On trucks, the zero rate applies to those financed for 36 months, but the rate jumps to 0.9 percent for trucks financed over 48 months and to 2.9 percent for a 60-month loan. All 2002 vehicles have a zero percent loan rate when paid off in 36 months.

Chrysler exempts some vehicles from its zero percent interest rate, including the PT Cruiser, Jeep Liberty, Ram pickup trucks and its EX package Caravans.

Mazda offers the rate on selected models.

The flurry of buying activity is not the boon to dealers that it appears, according to Bell. "We know we are tapping into future sales," he said. "We are selling cars now that we would normally sell in November, December or early next year."

Barry and Brenda Shlian of Pikesville were typical of the car buyers out shopping Saturday.

Barry Shlian said he planned to replace his 1998 Ford Explorer, with 114,000 miles on the odometer, next spring. "But this is too good to pass up," he said before hopping into the seat of a new $32,000, harvest-gold Explorer at Apple Ford in Columbia for a test drive.

They decided to buy now after seeing the zero percent rate advertised last week. "We estimate that we will save $2,500," Brenda Shlian said.

Buyers who take advantage of the zero percent loan rate sacrifice any cash rebates offered by the manufacturer. On some models, cash rebates run as high as $2,500.

Greg McBride, a financial analyst with Bankrate.com, a Palm Beach, Fla., Internet financial information source, agreed that zero percent financing is a good deal for consumers.

He cautioned, however, that it is still important for car buyers to shop for price. He said that such an attractive loan rate can distract shoppers from getting the best price for their new car or truck.

Hoffer, the Virginia Commonwealth professor, said zero percent financing is not as big a giveaway as it appears, because the cost of money has gone down over the past year.

With today's low interest rates, he said, auto companies can borrow money at 3.5 percent. "This program is not much different from last winter, when the industry was offering 6.9 percent financing when the going rate for money was 10 percent," Hoffer said.

The current sales boom contrasts sharply with the near total shutdown of business after the attacks on the World Trade Center and the Pentagon.

Aiello said that business was so bad immediately after the terrorist attacks that he canceled $25,000 in newspaper and television advertising on Sept. 11. "It would have been throwing money away," he said.

"Nobody was shopping for cars," he said. "Business came to a complete stop. There was no showroom traffic. Everybody, including me, was sitting in front of their televisions."

He resumed advertising Sept. 20.

Bell praised Ford and GM for moving swiftly in launching the programs that have helped stimulate the national economy at a time when it needed a boost. "If they were forced to close plants because of poor sales and lay off thousands of workers, that would have been another big hit on our economy," he said.

The Associated Press contributed to this article.

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