Free Financing Revives Auto Dealers, But for How Long?
Orange County auto dealers are sitting pretty,but it took a jaw-dropping bargain to get them there.
Prior to the Sept. 11 terrorist attacks, most auto dealers were facing declining sales. Then, right after the attacks, business all but screeched to a halt, according to Brian Butler, president of Villa Ford in Orange.
Butler said he saw daily sales drop from about 15 vehicles to three at the most.
“The day of the attacks, and a couple days immediately thereafter, we hardly sold anything,” Butler said.
Enter the bargain: interest-free financing.
General Motors Corp. was the first to introduce the program on Sept.19, as part of its “Keep America Rolling” campaign. Ford Motor Co., Toyota Motor Corp. and several other makers followed suit.
“We monitor the market on a daily basis and certainly we introduced ours to keep our dealers competitive and to help the economy,” said Susan Krusel, a Ford spokeswoman. “Our marketing costs are higher than they were last year, but we feel it was the right thing to do.”
The promotions have gotten OC consumers in the buying mood.
Villa Ford’s Butler said he’s back up to selling 15 units a day,not exactly an overall increase but back “to the plateau it was at during the summer.”
David Wilson, who owns seven dealerships in OC, including the Toyota of Orange, said, “It’s going to be the best month we’ve ever had in 30 years of business, and that’s at all of our dealerships across the board.”
Allen Cadillac GMC Truck in Laguna Niguel saw customer inquiries jump 50%, according to Scott Allen, president and co-owner of the dealership. And many of those inquiries have translated into sales, he said.
“We usually sell 100 (new) Cadillacs and GMC trucks a month,” Allen said. “This month we’ll get close to 175.”
One night, he said, he even sold two Cadillacs to one family because the interest-free deal was so enticing. “It’s very rare,” he said.
But auto dealers know the deal won’t last forever.
“The manufacturers cannot afford it much longer,” Wilson said.
General Motors and Ford initially said the offer will run until Wednesday. As of now, Ford said it’s sticking with that date, but General Motors recently extended the offer until Nov. 18,at the urgings of dealers.
“All dealerships were saying ‘let’s not stop this thing, it’s going so good. Let’s try to extend it as far into the holiday season as we can,'” Allen said. “I wish they could do it for a long time. But I understand their side of it too.”
Auto makers, who are footing the bill for the promotion, are in a tough spot, according to Marty Padgett, editor of the Carconnection.com, an online automotive magazine based in Detroit.
He said it was a “necessary” move for automakers to avoid a “bleak September” and “drive traffic to the dealers.”
Padgett said sales rates for October could hit 18 million units on an annualized basis,”a higher rate than last year’s record rate.”
But the promotion is a “difficult proposition” for automakers to maintain, he said.
“They’re eventually the ones that have to pay for these programs out of their bottom line,” Padgett said. “With both General Motors and Ford already reporting third quarter losses and DaimlerChrysler expecting to, it’s making it very tough for them to keep their books in balance.”
It’s too early to tell exactly how much automakers will eat on the promotions, according to Padgett.
“It all depends on how many people accept the offer,” he said.
In the meantime, Ford still is assessing whether to react to General Motor’s extension, according to Ford’s Krusel. She said the auto maker has to constantly juggle “balance incentives, marketshare profitability and keeping our dealers competitive.”
“We don’t envision (the promotion) to be a long term program,” Krusel said. “It does expire on Oct. 31.”
That leaves auto dealers looking into the unknown.
Villa Ford’s Butler acknowledged that once General Motors’ promotion “goes away, I’m pretty uncertain about what’s going to happen.”
“If anybody is thinking about buying a car they should come out and do so because it’s not going to get any better,” he said. “There’s no such thing as a negative interest rate.”
With the current deal, he said people are saving anywhere from $2,000 to $4,000 in finance charges per vehicle.
While that’s a boon for consumers and dealers it could become a dangerous cycle.
“People get addicted to rebates (and cheap financing) just like the manufacturers do because it’s an easy way to get people into the showrooms,” Padgett said. “Smaller companies are going to be hurting for a while because they can’t offer these deals.” n
