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From the Field
The Car Biz and 0%
Keep the Nation in Tow -- But watch out!
By Steve Parker

Once again the auto industry is pulling the entire national economy along.

Auto sales were up a total of 7% in October, which was entirely responsible
for whatever recovery the economy made that month. Take autos out of the
picture and the recession is there, plain to see.

We're on our way to ANOTHER record car sales year (probably just under 17
million cars and light trucks). All this is due to the "zero interest" rates
being offered by many of the major manufacturers. It now looks like GM, Ford
and Chrysler, and maybe some imports, will continue some 0% programs into

The 0% is also putting the domestic makers back on the radar screens of
California buyers. The former Big Three made tremendous gains in the western
states in the past 60 days. That's a good thing. Whether it is truly deserved
or not because of product is another.

"0% interest" is the ultimate version of one of Lee Iacocca's inventions,
rebates. "Buy a car, get a check" was one of Iacocca's marketing ideas which
saved Chrysler from the auctioneer some 20 years ago.

(Airbags were another marketing trick he came up with, too. Remember his
K-cars? World's most boring autos. Suddenly, Iacocca, the guy who, when he
was at Ford, practically outlawed even research into airbags, became Mr.
Compassionate Safety because airbags were the ONLY thing they could put on
the K-car to give it any cache' at all!)

I spoke with Iacocca just a couple of weeks ago and reminded him about that
particular invention of his. He told me he'd rather be remembered for helping
create the Mustang or the minivan, but he knows he's stuck, at least in the
industry, with being the "guy who invented rebates."

That'll keep him forever one of the most hated guys in the industry, because
it is the car companies which pay for the rebates, not the banks.

And 0% interest is even worse than rebates for the manufacturers. ALL the
money is coming from the car-makers themselves, and whatever banks and
finance companies they may own. NO outside financial institution is going to
get involved with 0% loans!

So all this 0% nonsense has to end, and soon. And when it does, watch out US

Sales will drop to the levels they should have been at normally, given all
the current conditions, which is probably around 14.5 million units annually.

But the car companies do benefit in a funny way from this 0% rate fantasy
world. All the domestics have been desperate to cut their inventories, which
cost them huge fortunes every day the cars sit on dealer lots and in the lots
outside the plants where they are made.

A healthy "day's supply" of cars and trucks for most manufacturers is usually
considered around 20-25 days.

All the domestics have inventories of many of their models which can last
them over 60 days! With these kinds of supplies, it's only a matter of time
until they are forced to close plants and lay-off workers.

For a variety of reasons, most of the import companies simply don't carry
these huge numbers of unsold vehicles.

So the 0% rate programs are drastically cutting "day's supply" inventories
and, in the short run, helping to keep the plants open and the workers at
their jobs.

But the Big Problem is going to rear its head when the rates go back to

Sales will slow, and inventories will again start to build up, unless the
domestics can create some real magic with their 2002 cars and trucks, and,
frankly, there simply are not a lot of domestic miracles on the horizon this
coming model year.

Many of the most exciting new vehicles are coming from some of the import
companies (BMW's all-new Mini and their huge 7-series flagship, Nissan's new
Z-car, Mazda's new rotary-powered RX-8 sedan, and the list goes on from
Europe and Asia.)

Sure, Ford has the T-Bird, but they're only going to build about 20,000 units
total this next year (and dealers are asking for $20,000 above sticker and
getting it!)

Cadillac has a great new car called CTS coming out (V6, 5-speed stick, rear
wheel drive), but not many people go to Caddy dealers these days.

DaimlerChrysler is now basically a truck company (pickups, minivans and
Jeeps) and as far as CARS, there's no real excitement for the average buyer
in the near future.

Right now, the best-selling car in the WORLD is the Ford Focus. NOT the kind
of car a company can hang its hat on and expect to make a lot of money.

Another interesting sidenote from all this 0% news. USED car sales are
terrible right now. Why buy a used car when many of those potential used
buyers can now afford a NEW car because of the low (or absent) interest

Used car prices are low right now, and continuing to drop, as they sit for
more and more days on dealer's lots. When interest rates go back up, used car
prices probably will, too.

How is the story being covered?

Barely at all. As always, ND's don't want to offend their top advertisers so
the best thing to do, they think, is NOT cover the auto industry at all.

Here's a business which is responsible for almost 7 out of every 10 sales and
manufacturing jobs in this country, and unless there's a sexy on-going death
story which TV thinks it HAS to cover (Firestone tires), you wouldn't even
know the industry exists if you watch TV news.

But, heads up -- the REAL auto news is going to happen in 3-4 months. And it
is going to have an effect on the entire economy.

About the Author
Steve Parker is a two-time Emmy Award-winning journalist living in Palm Springs, CA, where he produces and hosts automotive-related radio and TV shows) Steve Parker THE CAR NUT / THE CAR DUDE. Over 30 Years of Emmy-Award Winning Automotive Journalism on TV, radio, in newspapers and magazines.