Chrysler Tops Rivals With Interest-Free Loans

Chrysler Corp. on Monday began offering interest-free, two-year loans on all of its cars and some light trucks, in an escalation of the latest round of buyer incentives from the auto makers.

The move came after Ford Motor Co. dropped its interest rate for 24-month loans to 2.9% last Wednesday. General Motors Corp. followed that lead a day later.

“Let’s put an end to one-upmanship right now,” said Bennett Bidwell, chairman of Chrysler Motors Corp., the company’s car-making arm.

Interest-free automobile financing was last offered in September, 1986, by American Motors Corp., which Chrysler bought less than a year later.

In addition to interest-free financing on two-year notes, Chrysler matched Ford and GM programs offering 5.9% for three-year loans and 6.9% for four-year terms. Chrysler’s 10.9% interest for five-year loans is 1 percentage point more than Ford’s and GM’s deals.

The auto makers also increased their cash rebates, which vary from vehicle to vehicle.

Chrysler’s program runs indefinitely. Ford’s expires May 31 and GM’s runs out June 5.

Chrysler’s plan includes all the car lines it sells, and all but one of its pickup trucks, a full-size diesel-powered vehicle. About half of the Jeep models qualify, but some of the most popular models don’t.

The incentive war comes on the heels of unexpectedly low early 1989 sales and inventories that have been causing some worry, but no panic, among auto makers. Each of the Big Three auto makers set ambitious production schedules for the first few months of this year, and there are no large-scale moves to curtail them yet.

On Monday, Bidwell said a driving force in slashing financing rates and increasing rebates was to help the No. 3 auto maker avoid cutting production.

Other reasons included pressure by the Ford and GM moves and, Bidwell said, “We believe Americans want to buy cars and buy cars right now.”

Car and light truck sales through the first 80 days of 1989 have been running 5.4% behind the same period last year, the second-best in the industry’s history. Typically, March and April are strong sales months as Americans look forward to summer vacations and weekend driving trips.

Sales figures for the first quarter of the year are due out today.

Incentives, whether rebates or low-interest financing, cut directly into auto makers’ profits. On Wednesday, Bidwell acknowledged that the corporation expected its earnings for the first half of the year to be lower than last year, reflecting higher incentive costs.

Incentives were less costly than cutting production, he said.

“In the last half of the year, I think (earnings) will start going up,” Bidwell said.

Interest-free financing affects only two-year loans, which in the past have made up about 12% of Chrysler Credit Corp.’s business. Jerry Farrell, president of the loan-making company, said he expected that percentage to double with the new program.

He also said the 6.9% interest rate for 48-month loans, down from 8.9% in Chrysler’s previous incentive program, will attract buyers who may have been considering five-year notes.

Chrysler, unlike Ford and GM, has not seen a growing number of repossessions and loan defaults in the five-year loan category, which makes up about 60% of the company’s vehicle-loan business.

The interest-free loan deal was well received by dealers the corporation talked with during the weekend, said Tom Pappert, vice president for sales at Chrysler Motors.

The program is likely to face criticism from Ron Tonkin, president of the National Automobile Dealers Assn. Late last week, after Ford and GM announced their new incentive programs, Tonkin called the incentive war a “circus.”