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Automakers' Zero Percent Offers a Tough Act to Follow

January 9, 2002

U.S. automakers dodged a bullet when they revitalized sales and brought consumers back into the showrooms with zero percent financing in the wake of the Sept. 11 terrorist attacks on the United States. The question now, as General Motors Corp. North America Chairman Bob Lutz pointed out at the Los Angeles Auto Show, is: What do they do for an encore?

While the zero percent deals are being discontinued, automakers appear poised to replace them with cash-back incentives that may be just as costly.

With U.S. consumer confidence apparently on the upturn, some auto industry executives are starting to openly question whether boosting

rebates to prop up unit sales does more harm than good to the bottom line and to their relationship with vehicle buyers.

Many Wall Street analysts say that rather than tapping into a greater overall demand for vehicles, zero percent interest deals merely "pulled forward" buyers who otherwise would have bought vehicles in the coming months.

Auto executives at Detroit's annual auto

extravaganza have predicted U.S. car sales will drop 10 percent or more this year. Still, new vehicle designs, the continued strength of sales of light trucks and SUVs, and an predicted drop in unemployment by spring could add up to a respectable year for automakers, said Paul Taylor, chief economist for the National Automobile Dealers Association (NADA).

"There are still very strong incentives out there," including 2.9 to 6.9 percent financing, Taylor told the San Francisco Chronicle. Taylor predicts sales of 15.9 million new vehicles in the United States in 2002, down from 17.1 million last year.

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