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http://www.forbes.com/2001/10/08/1008feat.html
Archived: 10/09/2001 at 00:37:04
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Vehicles Feature
Best 0% Financing Cars To Buy Now Times are bad for the American auto industry. Sales were down before the Sept. 11 attacks, but afterward they really fell off the cliff. In a desperate effort to move their cars, the Big Three automakers are now offering them with 0% financing, which means this is the best time to buy a new car in years.
The automakers--General Motors (nyse: GM - news - people), Ford (nyse: F - news - people) and DaimlerChrysler (nyse: DCX - news - people)--are caught in a squeeze play. They have to clear 2001 models to make way for the new 2002s and keep their dealer networks happy, and at the same time keep their plants going and avoid costly labor problems. What this translates to is a big upside for the consumer. Basically, 0% financing means not only are you getting a new car for as little money as possible, you're also freeing your money up to do better things, like earn money in a money market account, in the stock market or even just sitting in a bank compounding interest. Assuming, that is, you want to buy an American car. Even though DaimlerChrysler, for example, owns both Mercedes-Benz and Chrysler, don't expect to see 0% financing on that Mercedes S-Class you've had your eye on. Those cost as much as ever. As do the luxury marques owned by Ford, like Jaguar and Volvo. In fact, none of the European or Japanese car companies have followed suit--with the exception of Saab, which is owned by GM. Detroit is in a more difficult position than its international counterparts. When September's numbers came in, the Big Three found themselves collectively off nearly 15% in sales for the month--and now down more than 10% in vehicle sales for 2001, or nearly 1 million cars--and they had to do something to goose sales. Which is clearly the reason GM recently launched 0% financing deals on all its cars through the end of October. And why both Ford and Chrysler had no choice but to go along. The problem is, none of the Big Three can really afford to give their cars away for less, and 0% financing is just that. Bill Pochiluk, head of AutomotiveCompass.com, a research firm that sells its data to carmakers, expects the Big Three to lose an average of $2,000 per vehicle sold at 0%. Multiply $2,000 by between 250,000 and 300,000--how many cars Pochiluk expects the Big Three to sell with 0% financing--and you're talking about more than a half-billion in revenue lost in a single month. Worse, most analysts predict that GM will extend its 0% sale, and may even add much lower lease rates as well. There's an alternative take to 0% financing. Pochiluk says there's some evidence that a company that goes into a steep decline with the most market share comes out of the slide ahead of the competition. He cautions that not everyone agrees with this theory. But Dominic Martilotti of Bear Stearns says that carmakers are desperately afraid of losing brand loyalty: "Many of the Big Three feel that if they lose a buyer in this market, they will never get that buyer back." And there's little doubt that GM's strategy was to soak Chrysler while it had the hottest hand, according to Pochiluk. After all, GM raised prices slightly for 2002, and its new SUV lineup, like the Chevy Trailblazer and GMC Envoy, is better poised than any of Chrysler's product to take on the Japanese. GM also has a few unique products like the Buick Rendezvous and Chevy Avalanche, both of which have been under the radar for longer than GM would have liked. But Ford will feel the pain as well. The company is reeling after the Explorer plague, which significantly tarnished the brand and cost Ford billions, and both its Lincoln and Mercury sales are off by about 20% for the year (Ford itself is off about 10%). Matt Stover of Salomon Smith Barney points to the billions Ford has had to put behind revamping its premium brands, especially the Volvo and Land Rover, money that Ford won't get back out of those brands for years. In the long run, though, GM may also be hurt by its offensive strategy. "It's not a sage move on their part," Stover says. "The way you make good business decisions is to identify a problem and then figure out how to fix it. They've identified the problem, and instead of fixing it they've decided to delay the inevitable." The winner? Clearly the buyer. "If you want to buy a car, there may be no better time this decade," Pochiluk says, and he predicts that if GM keeps the 0% deal going for the rest of the year, foreign carmakers are apt to jump aboard as well. So you might want to wait a little while if your tastes run to Toyotas and Hondas or Audis. But if you're at all interested in American makes, you'd better get shopping right now. By the way, our Top 10 list could have easily stretched to 20 vehicles. We didn't even touch pickups, for example, and our list is fairly heavy with SUVs. We just happen to like all of our picks slightly more than other good choices, like the Crown Victoria, the Venture and Windstar minivans, the cool new Chevy Avalanche and many others. The point: If we missed your niche, you should still go shopping. Editor's note: A version of this story ran on the home page of Forbes.com on Oct. 5, 2001.
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