The Real Deal: Less Than Zero

John Clay Wolfe
by John Clay Wolfe

The car business literally ceased the day World Trade Center I and II fell back to the Earth. And so the savvy suits at GM created a landmark campaign “Keep America Rolling.” Generous Motors offered 0% interest for 60 months on EVERYTHING they made. Customers had to forfeit their rebates in exchange for 0% interest loans, but my god did it work. The sales rates were staggering. I personally witnessed customers at a Texas Chevy house literally fighting to be next in line to sign papers. The rumor had gotten out that 0% was going to end suddenly; the customers in this particular store believed they were in a race to sign docs before the last 0% credit was used up. That was 2001. Today eight years later, zero percent is BACK on.

The zero percent come-on comes and goes like a rising tide. Much like the manufacturer rebate system, the no-interest rate deal has become a tool to control/stimulate the marketplace. Personally, I’m surprised it still has any effect at all. But it does. GM offered a 48 for 0% for 48 hours sale two seasons ago that made the fish float to the top like two army telephones in a stock pond. That 48-hour sale morphed into 72 for 72 hours, and then flopped around for another week before the 0% spigot was closed AGAIN.

Zero percent financing is not that great of a deal when one does the math. The mathematical rebates vs 0% calculation finds its mathematical median in the mid-$30,000 purchase price, with rebates flirting with the $4-5,000 mark. Translation. If the unit (vehicle) has a $4000 rebate and the net price is under $30k, take the rebate, not the free money. If the reciprocal is over $35k, it usually makes fiscal sense to go for the interest-free loan.

The much discussed Cash for Clunkers come-on was the retarded brother of 0%. Same as it ever was. Your tax money stimulated major moves in the sales VU meter, with the usual painful hangover. While the manufacturers bitch and moan about the “end of government incentives,” the hangover from zero percent in ’01 and ’02 was just as bad. This one seems worse because things always seem worse when you’re living them.

Moral of the story: if you artifically stimulate something—whether you do so with drugs, financing or plain old lies—there will always be a reckoning.

There is a difference, though. Consumer confidence is lower than a grasshopper’s knee, and there’s no sign that it will come back any time soon. Pain is slowly becoming panic for the brass hats and dealers. You won’t read about the panic in Automotive News or hear about it on the network news. But it’s there. I feel it, I smell it, I hear it in the factory conference calls, and running the grapevine with other dealers.

The industry is shaking, sweating, looking for a fix. This sounds crazy, but in a world where common sense seems not to apply, and we all just keep looking for that next sales high. And here it is: Reverse Interest.

You buy a new Caddy, Fiat, Ford, whatever, and the carmaker will pay you five percent a month interest to make payments on your new purchase. They could do it, just beef the rebates up a bit (which they’re already running that way again) then offer reverse interest if you give up the rebate.

Obviously, this idea wouldn’t fix a damn thing. But it might get the car business through the winter. Either that or . . . what? At some point, the music will stop and there won’t be enough chairs for everyone. And then . . . the music will start again.


John Clay Wolfe
John Clay Wolfe

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  • Durask Durask on Oct 31, 2009

    0% makes a lot of sense in some cases. Let's say you plan to buy a 40K vehicle. You could pay cash, or you could get 0% x 3 years and invest the money. Of course you could end up losing 20K of those 40K that you invested, but it all depends on how you invest...

  • Accs Accs on Oct 31, 2009

    Can someone please answer one simple question. Does a good car for sale in the current m.y get you into the dealership.. or is it the deals / rebate? And can a car alone, sell you on its purchase, without the rebates?

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