The surge of new-car buying inspired by zero percent financing has created a flood of used cars, which can be a headache for retail dealers and a golden opportunity for shoppers, according to a story by Doron Levin in the Detroit News.

Budget-minded buyers now may be able to find used models for a discount of 15 percent to 20 percent from the retail used-car price, as dealers scramble to keep used-vehicle inventories under control. And the bargains could become even more lucrative if prices fall further in the next few months, as some dealers expect.

"I tell my salesmen that it's better to lose a few hundred dollars (by selling a used car) now, instead of losing a grand in a week or two," Paul Richards, owner of Superior Cadillac-GMC in Brighton, told the Detroit News.

Hence, Richards said, a three-year-old GMC Yukon sport utility now is selling in the low $20,000s, representing a discount of $2,000 or $3,000, in part because the 2002 Yukon models are priced by General Motors Corp. at a discount of about $3,000 with the lower financing charges.

New-car buyers, though benefiting from the current round of zero and low interest deals, often aren't getting the full advantage of those discounts in the likely event that they're trading in a used vehicle. While manufacturers are charging less in interest, the retail dealer is reducing some of the customer's savings by discounting what it will pay for used vehicles taken in trade.

In October the U.S. automobile industry sold about 1.75 million new cars and light trucks.

Since most new-car sales are made to shoppers trading in a vehicle, October's transactions pushed about 400,000 more used vehicles than normal into the market, according to industry estimates. November new-vehicle sales, which are a bit slower than October's pace, will still be up 11 percent from a year ago, according to Merrill Lynch Automotive Research.

Alan Starling, who sells Chevrolets, Oldsmobiles, Saturns and Mitsubishis in central Florida, told the Detroit News that "a week after zero-interest began we could see that our used-car inventory went from the normal 50 or 60 vehicles worth $600,000 to more than 100 vehicles worth about $1.2 million. We pay our commissions and advertising in cash, but cash gets tight because it's tied up in used cars."

Wholesale auctions, in which many dealers participate to clear used cars they can't sell at retail, have seen few buyers. Rental companies have been cutting back on their fleets as well, adding to the oversupply of used units.

In the market's current state, the first quarter of the year could be slow for the U.S. auto industry, according to analysts. With the inventory of new vehicles relatively low, after greater-than-usual sales in October and November, factories will likely running close to full speed, according to industry experts.

Since automakers book revenue from sales to dealers, not retail sales to end users, the first quarter of 2002 could be a strong one for the manufacturers.

Franchised dealers, on the other hand, may feel the down side of current discounts, assuming they are discontinued. Buyers probably have accelerated purchase plans to take advantage of zero-interest discounts, which will translate into a drop in retail demand in the first quarter.

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