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GM Extends Zero Percent Interest to Jan. 2

November 13, 2001

General Motors Corp. on Nov. 12 extended its zero percent interest loans for new vehicles until Jan. 2, putting pressure on other vehicle makers to follow suit with the profit-eroding incentives.

It was the second extension of the "Keeping America Rolling" interest-free finance deals that the world's largest car maker launched on Sept. 20 to boost consumer confidence and sales after the terrorist plane hijackings that killed nearly 5,000 people in New York, Washington and Pennsylvania.

GM's program, which started an industry price war, has been matched until now by Ford Motor Co. and the Chrysler side of DaimlerChrysler AG. It also forced some foreign car makers, including Toyota Motor Corp., to offer loan deals of their own. Record U.S. car sales in October are credit largely to the interest=-free financing deals.

But the deals also have prompted repeated warnings from Ford -- which blamed no-interest and low-interest loans for a $2 billion rise in its marketing costs in the third quarter -- that the costs of zero and low-interest loans are unsustainable.

The latest GM program will be available on some but not all 2001 and 2002 Pontiac, Oldsmobile, Buick, GMC, Chevrolet and Saturn models, except for Cadillacs, Corvettes and the upcoming Saturn Vue sport utility vehicle.

According to GM, interest-free financing will be offered only on three-year loans on passenger cars. Under the previous, more generous program, some GM deals offered four- and five-year loans with zero interest on a wider range of vehicles.

In the latest offer extension, GM also raised the interest rates by one percentage point on longer-term loans for most 2002 model cars and trucks.

Average sales incentives on new vehicles were up 71 percent in October from the same month a year ago, at nearly $2,300 per vehicle. Ford is now selling most of its vehicles at a loss, according to industry analysts.

Ford's current zero percent financing program is set to expire on Nov. 20 and Chrysler has stretched its deals until Nov. 19. Ford Motor

Co. and DaimlerChrysler AG's Chrysler Group still are deciding how to respond, according to officials. Dealers said the competitive threat from GM will compel other manufacturers to respond.

Ford and Chrysler have previously taken one to six days to counter GM. When they did respond, the deals have been less sweeping than GM's, according to industry analysts.

Apart from high marketing costs, industry analysts and executives have darkly warned of what they refer to as "payback" for the current rash of attractive loan deals, which are widely believed to be pulling in sales today that might otherwise have been made over the next few months.

The so-called "pulling ahead" effect, and expectations of further deterioration in the U.S. economy, have led some analysts to warn that U.S. car sales could fall from a seasonally adjusted annual rate of more than 21 million vehicles in October to less than 15 million in December, the weakest level of the year.

GM's new plan, which provides smaller subsidies on four- and five-year loans, may help wean car buyers from the high incentives and slow the sales decline, according to some industry observers.

According to some analysts, while GM's extension of zero percent financing may boost December sales above previously predicted levels, it may only be delaying the inevitable until January.

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