Carmakers that used 0 percent financing offers to juice sales at the height of the American auto boom are starting to abandon them as rising interest rates lift their own borrowing costs.
The average interest rate on consumers' new-car loans climbed to 5.7 percent in March, the highest since 2009 and up from 5 percent a year ago, according to Edmunds. No-interest offers fell to 7.4 percent of auto loans last month, down from more than 11 percent the prior year and the lowest share in more than two years, the car-market researcher said.
"Nobody wants to be the first one to go from 0 to 0.9 percent, or from 0.9 percent to 1.9 percent, but you're going to see zero no longer be the norm," Jim Lentz, the CEO of Toyota Motor Corp.'s North American operations, said in an interview at the New York auto show last week. "That has to be pushed along. That will impact, marginally, some people getting pushed out of the market."
Car manufacturers that took advantage of near-zero benchmark rates to cheaply lure buyers into showrooms now have to look to other tools in their battle for market share. As those kinds of financing deals fall off the table, automakers are leaning more on cash incentives or discounted lease payments to draw buyers within a shrinking market. J.D. Power estimates car companies were offering discounts of more than 10 percent off suggested retail prices as of mid-March.