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
Auto sales were up a total of 7% in October, which was entirely
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
being offered by many of the major manufacturers. It now looks
like GM, Ford
and Chrysler, and maybe some imports, will continue some 0%
The 0% is also putting the domestic makers back on the radar
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.
K-cars? World's most boring autos. Suddenly, Iacocca, the
guy who, when he
was at Ford, practically outlawed even research into airbags,
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
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
it is the car companies which pay for the rebates, not the
And 0% interest is even worse than rebates for the manufacturers.
money is coming from the car-makers themselves, and whatever
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,
the current conditions, which is probably around 14.5 million
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
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
these huge numbers of unsold vehicles.
So the 0% rate programs are drastically cutting "day's
and, in the short run, helping to keep the plants open and
the workers at
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,
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
Cadillac has a great new car called CTS coming out (V6, 5-speed
wheel drive), but not many people go to Caddy dealers these
DaimlerChrysler is now basically a truck company (pickups,
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
terrible right now. Why buy a used car when many of those
buyers can now afford a NEW car because of the low (or absent)
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
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
story which TV thinks it HAS to cover (Firestone tires), you
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.