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Ford Extends Zero Percent and Low Interest Loan Deals

October 30, 2001

Ford Motor Co. said on Oct. 29 it would continue offering zero- and low-interest loans on new vehicles through Nov. 20, reluctantly matching moves by General Motors Corp. and the Chrysler side of DaimlerChrysler AG.

While the deals have pushed U.S. auto sales to a near-record pace, Ford and Chrysler executives have complained that the offers were cannibalizing future demand for new cars and trucks.

But the head of GM's North American business said on Oct. 29 that the deals were drawing a lower-than-expected number of customers who might have otherwise waited a few months to buy.

Detroit's Big Three, starting with GM, rolled out the offers after the Sept. 11 terrorist attacks to bolster consumer confidence and revive demand. Import automakers, including Toyota Motor Corp., have been forced to offer some loan deals of their own. Even Bentley, the British ultra-luxury division of Volkswagen AG, is offering an interest-free loan on its $200,000 Arnage sedan.

Ford spokesman Jason Vines, who was axed a day later as part of the management shakeup resulting in the dismissal of Ford CEO Jac Nasser, said on Oct. 29 that the company would extend its programme past the original deadline of Oct. 31. Ford did make some changes to limit its costs, barring the deals for its strong-selling Escape sport utility vehicle and raising rates for some car models.

"How long can the industry continue to do this?" Vines asked rhetorically. "After a while you're going to suck all the sales out of 2002."

GM had extended its offers to Nov. 18, while Chrysler has stretched its deals to Nov. 19. Rising to the challenge, Ford extended its deals to Nov. 20.

Analysts expect October auto sales will run at an annual pace of nearly 20 million vehicles, close to the record pace of September 1986, which was 21 million vehicles.

That record was set in part by GM's launching of a low-interest loan offer it called "The Big One" that was matched by Chrysler. After the deals expired the following month, sales fell about 30 percent.

Ron Zarrella, head of GM's North American automotive operations, said in a speech in Las Vegas that the automaker had estimated when it started the offers that 70 percent to 80 percent of the buyers would be drawn from future months.

Instead it appears the pull-ahead is more like 50 percent to 60 percent, according to Zarrella, who is hoping the after effects of the program will wear off in the first quarter of next year.

Zarrella also predicted November sales would likely drop to a more normal range, with an annual rate of 15 million to 16 million, while December sales would fall further, to an annual rate of 13 million to 14 million.

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