Loan Deals Spur Auto Purchases
American consumers bought new cars and trucks at a blistering pace in October, lured into dealerships by interest-free loan deals designed to spur demand after the Sept. 11 terrorist attacks.
Auto industry executives and analysts expect sales to decline steeply once the offers end. But even as dirt-cheap loans and other incentives have pushed auto makers into selling many vehicles at a loss, the companies show no signs of pulling back on their free-spending tactics. “Everybody should be concerned about what this means in the long term,” said Wolfgang Bernhard, chief operating officer of the Chrysler unit of DaimlerChrysler. “This can potentially hurt our bottom line for years....We are eating up our future.”
Sales in October are seen rising about 15%, at an annualized pace of about 20 million vehicles. That’s far ahead of the high mark this year of 17.5 million vehicles in January, and not far from the record high of more than 21 million in September 1986.
The largest gains probably will come from the Big Three, with sales at General Motors Corp. and Ford Motor Co. expected to rise more than 15%. GM, which started the boom with its zero-and low-interest loans on all its vehicles, could see sales up as much as 30%.
Sales at auto makers that haven’t been as enthusiastic about cheap loans probably will lag, including Toyota Motor Corp. and Honda Motor Co. But the deals seem to be attracting shoppers to all brands, even if there’s no cheap loan to be had.
“The real impact, when everybody announces 0%, is a tremendous amount of floor traffic,” said Roger Penske, chairman of United Auto Group Inc., a chain of new-and used-car dealerships. “We’re seeing that even on brands that aren’t offering 0%.”
The surge in sales comes as the U.S. economy remains weak in the wake of the attacks on the East Coast. As layoffs mount and consumer confidence remains shaky, the industry is bracing for buyers to pull back once the interest-free loan offers expire. GM and Chrysler have extended their offers to mid-November; Ford’s deals are set to end Wednesday.
Analyst Ron Tadross of Bank of America estimates the deals attracted 160,000 buyers in October. Otherwise, shoppers would have waited a few months, he said.
Another analyst, Gary Lapidus of Goldman Sachs, said that after two similar monthly sales spikes in the late 1980s, sales fell about 30% in the following months.
“When these incentives end, it’s going to be a big drop down,” said Peter Glassman, economist at Bank One Corp. in Chicago. “Consumers have been trained to look for the best deals, and that’s why [auto makers] haven’t been able to get rid of them.”
