Deals may cut into 2002 auto sales
By Ed Garsten
Associated Press
DETROIT — The zero percent financing that has lured buyers by the thousands to new car lots has certainly accomplished automakers' goal of a short-term sales boom — but it might have inflicted some longer-term damage: millions in lost profits and sales next year.
General Motors Corp. Ford Motor Company DaimlerChrysler AG Chrysler Division Toyota Motor Corp. Honda Motor Co.
Despite the record sales in October, earnings for the last quarter of this year and first quarter of 2002 are likely to be disappointing, said David Littmann, chief economist for Comerica Bank.
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The reason is a combination of the effect that incentive spending has had on profit margins and the "pull ahead" effect on sales — sales that might have occurred anyway in the future, but were pulled ahead by attractive incentives.
Nick Lobaccaro, an analyst with Lehman Brothers, estimates 400,000 sales were pulled ahead to October from November, December and January.
"The incentives didn't cause a lot of people to buy who weren't going to buy a car anyway," he said.
It's difficult to know exactly how many sales were a direct result of zero percent financing. But George Pipas, Ford Motor Co.'s top sales analyst, said "it's not a stretch" to believe the traditional spring selling season might lose some sales to the fall and winter months with the offer on the table.
"First-quarter growth may not be so strong, but will probably be positive," Pipas said.
At Matthews Hargreaves Chevrolet, in Royal Oak, Mich., general manager Walt Tutak said the sales were coming from "people who have probably been thinking and planning to buy a car who needed that push." The program gave the dealership a 100 percent sales increase in October from a year earlier.
General Motors Corp. sparked the zero percent finance frenzy Sept. 20 as a way to resuscitate auto sales after the Sept. 11 terror attacks. Ford and the Chrysler Group of DaimlerChrysler AG followed within days.
The offers were supposed to expire on Halloween but were so successful they were extended. GM's program runs through Jan. 2 and Ford's through Jan. 14. Chrysler's is scheduled to end Nov. 19.
An analysis by Autodata, released by Merrill Lynch, showed automakers spent an average of $2,261 per vehicle on incentives in October, the largest year-over-year increase so far during 2001.
Of the U.S. automakers, Ford spent the most, averaging $2,887 per vehicle, Chrysler spent an average of $2,682, and GM's average incentive spending per vehicle was $2,664.
During October, the U.S. automakers sold a total of 1,156,464 vehicles, not including their foreign brands.
At an average expenditure of $2,261 per vehicle, the U.S. automakers collectively spent $2.6 billion for the month on incentives.
In contrast, Honda Motor Co. saw its sales rise 19 percent last month, without offering zero percent financing and spending an average of just $635 per vehicle on incentives.
That doesn't mean Honda could skate by without incentives. Its October incentive spending represented an increase of $226 per vehicle from the same month a year ago.
Toyota Motor Corp. more than doubled its incentive spending to an average of $1,108 per vehicle in October, including zero percent financing in some markets on some models. Sales of Toyota vehicles rose 28 percent in October.
Eventually, the automakers can be expected to replace zero-interest financing with a new round of incentives that will include cash rebates and low-interest financing.
While that may mean profit margins will continue to be shaved even thinner, Littmann believes the economy will pick up come March, new customers will enter the marketplace and perhaps the level of incentive spending can be throttled back.
