0 percent sells, but it’s a Catch-22 for automakers

The success of 0 percent financing is undeniable. It has stirred car buyers, drawing them back into showrooms in the weeks following Sept. 11, when consumers stayed away from dealerships in droves.

Because of 0 percent financing, September sales were not as bad as many had feared. Sales for the first half of October actually were ahead of the same period last year, when the early stages of the economic slowdown caused sales to go soft.

That’s good news for automakers, dealers, auto workers and suppliers. But there’s a catch.

General Motors, which started the 0 percent financing craze in September, also was the first automaker to extend the program into mid-November, at which time it probably will move right into a year-end holiday clearance sale. GM has been aggressive with incentives all year, trying to avoid further erosion of its light-vehicle market share. And it seems to be working.

But it has caused a Catch-22 situation. Wall Street frowns on GM’s high incentive costs, even though they are working, so Standard & Poor’s and Fitch downgraded GM’s debt rating. The result: Lower debt ratings make 0 percent financing more expensive because the cost of money is higher.

But if automakers don’t use incentives to maintain sales, inventory will grow, which could force plant closings. Closing plants would reduce fixed costs, but it also would have a ripple effect throughout many communities and put people out of work, which would stall any general economic recovery.

Sometimes short-term marketing costs can be an investment in long-term prosperity.

Model year? Ho-hum

A new model year began Oct. 1 for the auto industry. Was anybody watching? Does anybody care?

The term “model year” is fading quickly from the automotive lexicon. Good riddance. In recent years, it has been, at best, a foggy phrase.

Once upon a time, it meant something. Automakers introduced models just in time for them to go on sale Oct. 1 each year, with much hoopla. It became superfluous when the automakers stopped waiting for Oct. 1, choosing instead to introduce models whenever they were ready or when they were needed to meet federal CAFE requirements.

Today “model year” is about as up-to-date as “23 skidoo” or “hot diggety dog.”

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