DETROIT - Between interest-free loans of up to five years and cash rebates as high as $7,000, automakers appear to have kept their U.S. sales running at a healthy rate in July, albeit at a high price to their profits.
While industry analysts' predictions for sales results vary widely, the average forecast calls for a seasonally adjusted annual rate of 17.3 million vehicles in July, with an increase in volume over July 2001 of a few percent.
And all credit the strength of the market to 0 percent financing deals and high rebates offered by General Motors, Ford Motor Co. and DaimlerChrysler AG's Chrysler arm.
All three are averaging about $2,600 per vehicle sold in incentives, according to analysts, and the average number doesn't reflect some of the new highs being reached as automakers try to clear out 2002 models before 2003 versions reach dealers' lots.
GM on Thursday said it was raising rebates on its minivans to $4,000; Ford has a $7,000 rebate on its Lincoln Continental luxury sedan. And import automakers are not immune from dealing -- Toyota Motor Corp. is offering low financing rates and rebates up to $1,300 on a few models.
"So much discounting was going on in early July that the average transaction price fell to under $22,000 -- about $300 less than the June average -- on a slightly richer mix of vehicles," said industry analyst Art Spinella with CNW Marketing Research.
New vehicle sales account for roughly 20 percent of U.S. retail sales, and are a closely watch barometer of the consumer spending that accounts for two-thirds of the U.S. economy.
So far, the stock market sell-off has dented but not depressed consumer confidence. The University of Michigan's consumer sentiment index fell in July to its lowest level since November 2001, but improved from a mid-month reading.
And as the past several months have shown, lower consumer confidence doesn't always translate into fewer shoppers for new cars and trucks. The Michigan survey has also found that nearly three-quarters of consumers think it's a good time to buy a car -- the highest percentage this year, and up from 65 percent in June.
A ZERO HERO?
When 0 percent loans were first rolled out in the wake of the Sept. 11 attacks, consumers responded in droves, pushing sales up to an annual rate of 21 million vehicles. Goldman Sachs analyst Gary Lapidus said automakers are not getting the same impact this time around.
"Today, consumers are weaker and less confident. (They) have been trained to expect ever-higher incentives from automakers, and are saturated with new vehicles," Lapidus said in a research note.
Spinella said only customers with the highest credit scores qualify for 0-percent financing; most choose the rebates to help with downpayments.
As has been the trend throughout the year, GM is seen as the largest benefactor from the incentive push, with sales up over a year ago and a higher U.S. market share. Ford and Chrysler are expected to post flat to lower sales.
GM has been able to both lead its Detroit rivals in incentives per vehicle and in profits this year thanks to a manufacturing system that's cheaper to run.
Analysts said if GM results were strong enough, the company could increase production estimates, a harbinger of stronger earnings.